Metro Phoenix Class A office space realized 317,341 square feet in occupancy gains during the third quarter, according to JLL’s Q3 2022 Phoenix Office Insight. The gains point to an ongoing shift toward well-amenitized product as employers work to retain talent and encourage a return to the office.
Across all product types, the metro Phoenix office vacancy rate is holding relatively steady at 21.7 percent, dampened still by an influx of sublease space that keeps the Valley at an overall negative net absorption.
“New leases and Class A deals made up 66 percent and 67 percent, respectively, of our total leasing volume during the third quarter,” said Timpani. “That tells a story of tenants who would rather relocate to a new building – usually making a flight to quality – versus remain in their current location.”
The success this is bringing to Metro Phoenix Class A office space caused overall vacancy rates in this sector to drop 90 basis points over the quarter, as new Class A buildings are being delivered at or near full occupancy.
“The leasing success of new-vintage office product is a trend happening across the U.S. and even across the world,” said JLL Managing Director Ryan Timpani. “Sunbelt markets like Phoenix are tending to benefit from a larger-than-average portion of these leases, thanks to our friendly tax climate, low cost environment and high quality of life. The combination continues to attract businesses to Phoenix, as well as new residents who are now able to work from home from any location they chose.”
The Scottsdale Airpark and technology-heavy Tempe submarkets were the top two most active submarkets in Q3, as they posted the highest total absorption and were among the highest in asking rent growth. Conversely, the Airport submarket generated the greatest volume of negative net absorption and held the highest amount of available sublease space.
The abundance of sublease space on the metro Phoenix market, now at an unprecedented 6.0 million square feet, continues to promote tenant-favorable scenarios. However, even as this occurs, newer Class A office space is expected to thrive, serving as a solid lease and investment choice as older, lower-quality spaces become functionally obsolete.