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Phoenix Office Market Outlook

Source: JLL

Source: JLL 

Despite a sluggish first half of 2020, the Phoenix office market showed signs of growth during the third quarter, posting just over 300KSF of positive absorption.  

The Chandler submarket led the way in Q3 with over 176KSF of net gains coming from the finance and insurance sectors. The Tempe submarket was a close second experiencing more than 100KSF of occupancy growth. During the same time more than 219KSF of new construction was delivered in Tempe, 65 percent of which was pre-leased by Infosys and ASU in the Novus Innovation Corridor 

While a slew of companies put sublease space on the market in Q2 due to the uncertainty brought on by the COVID-19 pandemic, some are now rethinking their strategy as the working from home model does not fit all companies. For example, an internal study conducted by a major employer in the Phoenix market lead to the discovery that most of their employees want to be back in an office environment. This led them to remove their 40.8KSF sublease space from the market.  

Average asking rates increased to $28.29/SF, up from the $28.05 in Q2. Landlords have opted to adjust concessions rather than asking rates, with more willingness to provide relief for credit-worthy tenants. Rents for new product is likely to keep rent levels elevated. Though it is unlikely the metro will see any other major projects kick off in 2020, there is currently over 1.8MSF under construction.  

Outlook  

The fundamentals of a business-friendly environment, along with a diverse workforce, continue to stir interest in Phoenix as an attractive metro area to relocate and expand. This is evidenced by a recent increase in out-ofstate companies looking at Phoenix as a long-term investment to take advantage of the lower costs of doing business and a rapidly growing talent pool.  

While office transaction activity is slower than a year ago, interest from out-of-market occupiers could be an indication of green shoots ahead. 

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