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AZ Office Markets Improve, Slightly

Graph credit: CBRE

CBRE has released its Phoenix Metro and Tucson Metro MarketView Q2 2015 reports. Highlights of the reports are detailed below.

Phoenix Office

  • The vacancy rate has declined to 20.1 percent, compared with 22.0 percent reported at the end of Q2 2014 and 23.9 percent two years ago.
  • Full service average asking lease rates for the market continue to rise with Valleywide rates closing Q2 2015 at $22.06/sf, compared to $21.74/sf in the previous quarter and $21.16/sf at the end of Q2 2014.
  • Three new speculative office buildings were delivered to the market in the second quarter totaling 397KSF and one speculative office building broke ground totaling 134KSF

Phoenix Industrial

  • The vacancy rate for industrial product in metropolitan Phoenix declined slightly to 10.9 percent through the end of Q2 2015, versus a vacancy rate of 11.1 percent last year at this time.
  • Throughout the second quarter, 1.9MSF of new product was added to metropolitan Phoenix’s industrial base.
  • Overall, activity in the market continues to be robust. Net absorption Valleywide at mid-year was 3.8MSF, up slightly from 3.7MSF at this point one year ago.

Tucson Office

  • The Tucson office market vacancy rate ticked down in the second quarter to 20.1 percent from 20.5 percent in quarter one. The overall sentiment is the office vacancy rate can, and should, dip below 20% within the year.
  • Market asking rates for Tucson office product on a full service basis recorded an incremental rise to $20.25/sf from $20.21 in the previous quarter.
  • Due to approximately 20 percent of available office product considered functionally obsolete, users are looking at more creative solutions for their requirements via adaptive reuse projects like Comcast’s currently-under-negotiation lease of 100KSF at the former American Home Furnishings building.

Tucson Industrial

  • The industrial market vacancy dropped to 10.4 percent in the second quarter, a mere 10 basis point drop from the previous quarter. For comparison, this time last year industrial vacancy was 11.9 percent.
  • The average triple net asking rate for industrial product held its position at $0.51/sf per month in Q2 2015. This shows a year-over-year increase of $0.04, up from $0.47/sf triple net per month in Q2 2014.
  • Much of the new leasing activity in the last quarter derived from users smaller than 10KSF.

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