Source: Cushman & Wakefield
Cushman & Wakefield announced that the Metro Phoenix office market posted the largest midyear net gain since 2006, with just over 1MSF during Q2 2016.
At the 2016 midyear point, office vacancy in the Metro Phoenix office market stood at 18.0%, a 20-basis-point (BP) reduction from Q1 2016, and an even more significant drop of 130 BP from the 19.3% reading of Q2 2015.
The Tempe North submarket dominated all other submarkets during the second quarter with over 572KSF of net absorption, which accounts for 57.0% of all occupancy growth for the entire market in Q2. Tempe North’s net gain is due to State Farm taking down the second building (620KSF) of their five-building regional headquarters, all of which are build-to-suit (BTS) properties.
The Price Corridor submarket followed with over 254KSF of growth, which can be attributed to Infusionsoft occupying the fourth building (100KSF) in Allred’s Park Place Central development and ViaSat moving into its 72KSF BTS space.
Tenant demand remained overwhelmingly high for Class A space during the second quarter posting a net gain of over 638KSF. In regards to year-to-date performances, Class B space accounts for over 47.6% of the total absorption in Metro Phoenix, with Class A and Class C following at 46% and 6.4%, respectively.
In Q2 2016, four new projects broke ground totaling over 733KSF, all of which are speculative buildings. Cushman & Wakefield is currently tracking nearly 2.5 MSF under construction in the Metro Phoenix office market, 1.6 MSF scheduled to be completed by the end of 2016.
The average asking rent in the Metro Phoenix continues its upward trend, with a current direct rate of $23.63 per square foot (PSF), on an annual full service basis. This marks a 0.6% ($0.15/sf) increase quarter-over-quarter and a staggering 6.4% ($1.42/sf) increase year-over-year.
The Mesa ($14.73/sf) and Scottsdale South ($30.39/sf) submarkets recorded the largest quarterly gains in Metro Phoenix, increasing 4.1% and 3.8%, respectively. In regards to the average asking rates for Class A space, the Camelback Corridor ($34.80/sf) and Scottsdale South ($31.72/sf) submarkets remain the high-water marks.
Despite having the highest rates in Metro Phoenix, Cushman & Wakefield tracked over 84KSF of combined leasing activity for Class A space in these two submarkets during Q2 2016.