The Phoenix office of JLL released its Q3 2016 Phoenix Office Report, highlighting benchmarks and includes the lowest vacancies since 2008 and still-rising rents. Still, Phoenix remains one of the most affordable office markets on the West Coast.
“More companies are recognizing that Phoenix has an extremely strong labor pool and very affordable cost of living,” said JLL Managing Director John Bonnell. “All three of these factors are big wins for companies seeking to escape the high prices of Northern California or other primary markets.”
“New York-based Oscar is an example of this,” said JLL Executive Vice President Ryan Bartos, referencing the health insurance company’s recent move into 95,000 square feet at The Circuit, at 615 S. River Dr. in Tempe. “Oscar was excited that Phoenix not only provided affordable real estate but that cool, creative office product was available in our market. The company is also very focused on providing their employees with a strong quality of life and liked the fact that Phoenix has so much to offer.”
Companies like Oscar have helped reduce overall total vacancy in metro Phoenix to 19.7 percent in the third quarter, down significantly from the recessionary peak of 28.1 percent and signaling continued improvement in the market. At 2.6 million square feet year-to-date, total positive net absorption is also on track to exceed 3 million square feet by year’s end – the highest level of absorption since 2005, when 4 million square feet was absorbed.
These factors are creating some notable submarket trends, including:
Asking rents have increased 50.8 percent in South Scottsdale since 2011.
- The South Scottsdale submarket represents the largest percentage gain in average asking rent rates in metro Phoenix over the past five years.
Asking rents increased from $20.73 per-square-foot (Full Service Gross) in 2011 to $31.26 per-square-foot as of third quarter 2016.- The Galleria Corporate Centre had the highest asking rent growth of all properties in metro Phoenix, rising from $21.12 to $38.00 per-square-foot – or 80 percent – over the same period.
The Tempe submarket is a close second, with an increase of 34.6 percent.
- In Tempe, average asking rates grew from $21.63 to $29.12 per-square-foot – or 34.6 percent – over the same time period.
- Hayden Ferry Lakeside currently has the highest asking rent in the entire Valley, at $45.00 per-square-foot.
However, Phoenix still remains one of the most affordable office markets on the West Coast.
- Phoenix is home to one of the most affordable office markets in the West, behind only Salt Lake City and Sacramento, with a current asking rent of $22.68 and $23.52 per-square-foot (Full Service Gross), respectively.
- The asking rent in San Francisco is 204 percent more expensive and Los Angeles is 57 percent more expensive than Phoenix, making the Valley a popular destination for companies looking to expand and relocate outside of California.
