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PHX Office Market Solidifies Recovery

Vacancy declined, rents rose with strong net absorption in first half of 2016

Credit: Colliers International

Source: Colliers International

Colliers International in Greater Phoenix released its mid-year 2016 Office Market Report for Greater Phoenix. Report highlights are outlined below.

  • Greater Phoenix posted strong net absorption during the second quarter of 2016, topping 1.4MSF. Net absorption totals posted since mid-year 2015 have surpassed 4.7MSF, making it the greatest 12-month period since 2007.
  • Vacancy throughout all classes of space has decreased to the mid-16% range. City-wide the vacancy rate at mid-year was 16.6 percent compared to 18.1% at mid-year 2015.
  • Job growth slowed slightly in 2016 compared to 2015, but the continued hiring has driven tenant demand for more space.
  • Rental rates have stabilized and are gaining momentum in all classes of product, rising 5.5 percent during the past year. The greatest increases are being experienced in Class A properties.
  • Developers delivered approximately 1.1MSF of new space to the market during second quarter, bringing the 2016 year-to-date total to 1.4MSF. More than 1.6MSF are currently under construction, with approximately 1MSF of those slated for completion during 2016.
  • Investors continue purchasing in Phoenix with sales velocity this year out pacing the first half of 2015. Prices and cap rates are close to 2015 levels, but activity at the high-end of the price spectrum has slowed.

According to Colliers International of Greater Phoenix, demand for office space is expected to remain healthy as employers continue job growth. Net absorption is predicted to reach approximately 3.4MSF for 2016, approximating the net absorption for the previous year.

Vacancy will reach its lowest point since mid-2008, forecasted to drop to 16 percent by year-end. This will complete six consecutive years of vacancy decline in the office market. Rental rates will continue increasing and are projected to reach approximately $25.00 per square foot by the end of 2017.

While construction activity lessened this year over last, the strengthening market will bring more momentum to the development sector in the next 12-18 months. Investment activity will remain healthy for the remainder of 2016 with interest rates remaining low and Phoenix continuing to attract attention from investors throughout the country.

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