By AZBEX Staff for Arizona Builder’s Exchange
Phoenix’s office market is in its fourth year of consecutive annual absorption gains, and the area promised to see an added boost in high profile Class A and “Trophy” assets, as evidenced by the recent $928M sale of the 2MSF, five building Marina Heights – State Farm campus in Tempe, according to the Q4 2017 JLL Phoenix Office Market Insight report.
“The State Farm campus and downtown Tempe area are a nice welcome to Phoenix as you fly into Sky Harbor International Airport,” said JLL Senior Managing Director Dennis Desmond. “The fact that State Farm chose to build this campus off Tempe Town Lake solidifies the area as a central business district of Tempe and further solidifies that market as an economic force in Metro Phoenix.”
“The sale is an equally strong testament to the robust investment interest that Metro Phoenix is seeing from institutional buyers,” added JLL Senior Vice President Tivon Moffitt. “We expect this sale will spur even more interest from institutional buyers, which will create more opportunities for Arizona-based capital firms to invest in significant trophy assets valley-wide, as was the case with State Farm.”
Marina Heights is State Farm’s regional hub. Its sale last month was the largest office sale in state history and firmly cemented Tempe “as the most in-demand office submarket this cycle,” according to JLL.
The announcement accompanying the report states, “Tempe has enjoyed more than 27 percent of all office absorption since the start of Phoenix’s four-year positive absorption streak, in which the Valley has recorded annual absorption gains totaling 2MSF or more.”
Even though the pace of growth in the Phoenix office market is slowing, JLL finds the Valley’s appetite has not peaked yet. “The volume of tenants still in the market – currently encompassing 62 active requirements representing 3.5MSF of space – suggest there is still room to grow, even if users must get creative with the options currently available.”
Some submarkets outside of the southeast Valley have seen almost no new supply; space is limited, and rates have been rising as pressure increases. “Phoenix is not approaching its peak as quickly as other markets,” the report states in its conclusion, “but more in-demand submarkets will see leverage shift sooner than others.”