CBRE has released its first quarter 2014 market analyses of the Valley’s office, industrial and retail sectors, as well as its Big Box Retail report.
Experts with CBRE’s Phoenix office offer the following insights into the intricacies of the metropolitan Phoenix commercial real estate market:
Jerry Roberts, Executive Vice President and market-leading office broker with CBRE, notes steadily improving vacancy rate across the metropolitan area as a sign the office market is indeed on the upswing.
“The office vacancy rate across the Valley is at 22.1% at the end of quarter one, which is the lowest it’s been since 2008,” said Roberts. “Additionally, class A vacancy is at 16.7%. It’s clear the office market is recovering and as the economic climate continues to improve we are seeing tenants return to the market.”
Leading the way in recovery are the Scottsdale submarkets, which collectively recorded 155,681 sq. ft. of positive net absorption in the first quarter, followed by the Central Corridor, which posted 144,579 129,406 sq. ft. of positive net absorption.
“Scottsdale led the Valley in absorption in the first quarter and currently has a vacancy rate of 18.1%,” said Roberts. “With fewer large blocks of quality contiguous space available across the metro area, Scottsdale is well-positioned for the rest of 2014. The Central Corridor is also recovering nicely with significant absorption in the first quarter coming via large owner/operator purchases.”
Additional report highlights from the Office MarketView Report include:
• Q1 2014 reported an average asking lease rate of $20.91 per sq. ft. for existing product across the Valley. This is up from $20.34 from a year ago and marks the 4th consecutive quarter of increased asking rates.
• Vacancy will not be significantly impacted by new product in the short term as there are only three speculative office projects currently under construction across the metro area.
[DOWNLOAD OFFICE REPORT HERE.]
According to Senior Vice President Pat Feeney, the metropolitan Phoenix industrial market’s biggest trend comes in the form of build-to-suit activity.
“The Phoenix industrial market is definitely in a unique part of its cycle,” said CBRE’s Feeney, who specializes in industrial properties. “Rather than large lease deals being the norm, we have seen a significant increase in large-user build-to-suit projects over the past several quarters and we expect that trend to continue. Major companies are looking to buy land and build in order to meet their unique needs. These companies recognize the benefits of locating in the Valley and are making long-term investments in our communities.”
Feeney points to companies like SUBZERO/Wolf and Macy’s as good examples of this trend. SUBZERO/Wolf has operated a 438,501-square-foot manufacturing and distribution facility at PV303 in Goodyear for the past six years. Recently, the kitchen appliance manufacturer purchased an additional 11.5-acre parcel adjacent to their property in order to facilitate an expansion of their existing operation. Additionally, Macy’s, who has operated a warehouse/distribution space in the West Valley since 2007, recently completed a 360,000-square-foot expansion of their facility as well.
Currently, Feeney says he is seeing interest in these types of projects from numerous potential users looking to enter the market. And while an increased number of companies look to take the owner/operator route, Feeney points out this trend has created unique opportunities for other users looking for space.
“User activity and interest remains high across the Valley,” said Feeney. “Going forward, as companies return to Phoenix, those looking to lease space will benefit from multiple options to choose from at competitive lease rates.”
Additional highlights from the Industrial MarketView Report include:
• The metropolitan Phoenix market recorded positive net absorption for the 16th straight quarter with 1.5 million square feet of net absorption.
• Overall vacancy rate remains flat year-over-year with a rate of 11.3%.
• Currently, metro Phoenix has three spec distribution projects totaling 1.5 million sq. ft. under construction.
[DOWNLOAD INDUSTRIAL REPORT HERE.]
Major retailers continue to be attracted to metro Phoenix, according to CBRE’s First Vice President, Retail Services, Todd Folger.
“Class A space continues to lead the market in user interest,” said Folger. “With only nine class A, big box spaces available across the Valley, major retailers are hyper-conscious of opportunities as they arise and jumping on them when they do.”
Folger points to examples like recent leases by Nordstrom Rack and Total Wine in Tempe Marketplace.
“Both Nordstrom Rack and Total Wine signed their current leases before either of the previous tenants had vacated their spaces,” said Folger. “High quality, well-located boxes are changing hands quickly in the market and with few additional options this trend will definitely continue.”
Looking at other classes of retail space, Folger expects user interest and activity to eventually trickle to class B space over time. As the economy continues to improve, consumer confidence will continue to rise, and as more retailers enter the market they will begin to pick up product in the class B space in order to meet demand. However, Folger believes a majority of class C and D space is becoming obsolete.
“A lot of the available C and D spaces have probably moved beyond their life as retail boxes,” said Folger. “I think many of those spaces will have to be converted to new uses in the future.”
Additional highlights from the Retail MarketView and Big Box Reports include:
• Single-family home prices are up 27% across metro Phoenix from 2 years ago.
• Overall retail vacancy rate at the end of Q1 2014 was 10.0%, down from 10.9% a year ago.
• The Valley currently has 176,997 sq. ft. of new product under construction.
[DOWNLOAD RETAIL REPORT HERE.] [DOWNLOAD BIG BOX REPORT HERE.]