By Roland Murphy for Arizona Builder’s Exchange
It’s no surprise to office renters or investors that the Phoenix-area market is hot. A recent report from CommercialCafé, relying on data from Yardi Matrix and Property Shark, however, shows just how much heat the market has generated over the past decade.
The study looked at space in buildings larger than 50KSF in which most of the area was dedicated to office use.
As most of us recall, 2007-08 was one of the best stretches ever in terms of office construction volume across the nation. When that boom went bust, construction hit a 10-year low in 2011, when fewer than 25MSF was built. After the market began to slowly rebound, 2015 saw it back in full stride with 56MSF delivered.
“The current year looks even more promising,” the report says, “with nearly 35MSF of new office space delivered through June 2017. It remains to be seen whether 2017 will end on a high note, surpassing the levels of the previous two years.”
While New York (New York-Newark-Jersey City) added the most overall space in the last 10 years, five other areas delivered more actual buildings. New York metro erected 106 structures, but Phoenix-Mesa-Scottsdale built 140, for a total of 18.4MSF, the report states.
The other metros to outpace New York in delivered buildings were Washington-Arlington-Alexandria (190), Houston-The Woodlands-Sugar Land (170), L.A.-Long Beach-Anaheim (130) and Dallas-Fort Worth-Arlington (129).
One thing the secret schadenfreude indulger in most of us always want to know when we see a Top report is, “Who was on the bottom?”
Not surprisingly, all 10 of the bottom-dwellers are east of the Mississippi, with Jacksonville, Fl. taking the number 50 slot with only 1.49MSF since 2007. Next was Rust Belt poster child Akron, Ohio, with 1.53MSF spread across just seven buildings. With one exception, all of the bottom 10 cities were in areas one might expect, Ohio, Indiana, Kentucky, New Jersey (outside of NY metro, of course), etc.
However, despite having a robust multifamily and single-family residential market that is drawing significant global investment attention, according to a 2015 year-end report in The News & Observer, office development in Durham-Chapel Hill remains sluggish. The CommercialCafé report shows no miracle swell happened over 2016 to offset that trend, as only a total 1.6MSF have been built since 2007.
The News & Observer cites difficulties in obtaining financing as a major contributor, with many lenders requiring significant pre-leasing in place before they sign off. “With little or no speculative office construction on the horizon,” the article said, “the Triangle will need to attract new companies to justify a significant amount of new space. But many of the largest lease deals this year have involved companies moving from one local property to another.”