While Arizona has certainly not been immune from the widespread economic impact of the COVID pandemic, the state’s economy has proven to be among the most resilient. Only two states had smaller GDP drops in 2020, and the story of 2021, despite unanticipated challenges from the Delta variant, has been one of recovery. By August, the state had recovered more than 100 percent of the private sector jobs lost during the pandemic disruption, representing the third-fastest jobs recovery in the nation. Fueled in part by an influx of new residents (Arizona welcomed more than three quarters of a million new residents between 2010 and 2020), it’s clear that Arizona has endured the challenges of a COVID-altered landscape about as well as any other state in the nation.
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That underlying economic strength is almost certainly contributing to recovery across a range of different commercial real estate segments. While the office sector has lagged somewhat behind the overall recovery in Arizona, there have been several encouraging signs in 2021. The Greater Phoenix market, for example, saw its first post-pandemic quarter of positive net absorption in the second quarter of 2021. And, while the recent departure of JP Morgan Chase from downtown Phoenix removed 721,349 square feet from the market and drove down the overall numbers, there was a corresponding influx of more than 400,000 square feet of positive net absorption during the third quarter of this year outside of that anomaly—reflecting a 30% over-the-quarter spike in direct leasing activity. In addition, “dynamic investment sales and an uptick in rental rates” provide more reasons for optimism.
Perhaps even more intriguing—and certainly encouraging—is the office leasing activity on the ground. Communities throughout the Greater Phoenix market have seen leasing pick up in recent months.
“The recent office trends reflect a flight to quality,” said Chris Camacho, president and CEO of the Greater Phoenix Economic Council. “Companies and capital are flocking to premier office locations with strong amenity basis, access to high-quality workforce and connected transportation nodes. Greater Phoenix represents strong economic fundamentals, and we expect 2022 to be a strong year for office recovery.”
Nationwide Realty Investors has been actively developing and investing in real estate in Arizona for more than 30 years. Recognized nationally for their large, complex, high-performing, mixed-use environments, the developer has seen a surge of new office tenants in their established Gainey Ranch Corporate Center in Scottsdale, a project with more than a half-million square feet of office space. In newer destinations like Cavasson, the 134-acre premiere mixed-used project at Loop 101 and Hayden Road in Scottsdale, the initial phases of office development are leasing alongside a new resort hotel property and retail and restaurants currently under construction. In Rivulon, an expansive 250-acre mixed-use development located in Gilbert, Arizona at the intersection of Gilbert Road and the 202, approximately 800,000 square feet of office is already completed out of a planned 3 million square feet of commercial development.
“The market is heating back up and we’re seeing significant interest in these projects from major employers–global brands particularly in the finance and wealth management sectors,” said Brian J. Ellis, President of Nationwide Realty Investors. “Our projects provide tremendous visibility, connectivity, and access to great amenities. These continue to be the primary drivers for attracting and retaining best-in-class businesses.”
While underlying economic drivers obviously play a role, office tenants are still basing leasing decisions largely on the strength of the project, high-profile locations, attractive co-tenancies, nearby access to retail, restaurants, entertainment and outdoor experiences, and proximity to highly skilled workers.
There are plenty of structural reasons to be cautious about predicting a wholesale resurgence of office in Arizona—or in any other state. Some employers have been slower than others about sending everyone back to work. There are also some brands and businesses reconsidering the size of their team or thinking about moving to a hybrid or remote work model. The underlying strength and popularity of the larger Arizona marketplace, and the recent leasing activity in several high-profile regional developments, would seem to indicate that brighter and more prosperous times are ahead for Arizona office.
