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3 Major CRE Sectors Show Continued Strength

Courtesy of Cushman & Wakefield

By Roland Murphy for Arizona Builder’s Exchange

Cushman & Wakefield last week issued their Q4 2017 Metro Phoenix MarketBeat reports for Industrial, Office and Retail, noting high degrees of activity across all three sectors.

Industrial

Industrial posted an overall vacancy rate of 7.9 percent for the quarter. Twelve of the 17 submarkets showed positive absorption for the quarter and the year as a whole. Only Tempe had more than 100KSF of negative absorption for the year.

Southwest Phoenix had the highest occupancy growth for the year at 8 percent.

In Q4, Metro Phoenix absorbed a total of 2.74MSF, with distribution space experiencing the highest gain: 1.95MSF for the quarter and 6.59MSF for the year.

A total of 1.46MSF was delivered in Q4, 76.2 percent of which was preleased.

Office

The Q4 Office vacancy rate was 16.6 percent, tying with Q2 2008 for what Cushman & Wakefield calls the lowest post-Recession rate. For reference, Q1 2012 had the highest Recession vacancy rate at 24.6 percent.

“Q4 2017 showed positive absorption, boosted by the strength of Class B (+447KSF) and Class C (+161KSF) absorption and dragged down by Class A (-225KSF) negative absorption,” the report states. “For the year, 2017 had positive absorption across all three classes. Class A space absorbed 324KSF, Class B space absorbed 848KSF and Class C absorbed 207KSF for a total of 1.379MSF positive absorption.”

Fifteen of the 22 office submarkets saw positive absorption in Q4. These were led by South Scottsdale, which absorbed 119KSF. Henkel’s departure and vacating of 288KSF was the primary reason the Scottsdale Airpark submarket experienced the most negative absorption of any area.

Retail

Surprisingly, for all the doom and coverage the sector receives, Retail ended the year in good shape, absorbing more than 1MSF over Q4 and 2.15MSF over the whole of 2017. Neighborhood and community centers absorbed nearly 742KSF. Strip centers absorbed 258KSF, and power & regional malls absorbed 38.9KSF. The only losing segment was lifestyle centers, which was negative nearly 13.9KSF.

Overall, vacancy dropped to 9.8 percent in Q4, down from 10.5 in Q3.

Cushman & Wakefield was tracking 632KSF in retail construction at the end of the year, led by the San Tan Pavilions project in the Southeast Valley at 193KSF.

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