By Colliers in Arizona
The pandemic’s impact on the Greater Phoenix office market appears to have passed its peak with the market stabilizing in second quarter. Sublease space additions to inventory have slowed and the market returned to positive net absorption following two quarters of negative activity, according to Colliers in Arizona’s mid-year office market report.
Arizona’s economy has been booming with record revenue growth, as well as personal income growth. The state is projected to add 325,000 jobs in the next 12 months. As pandemic restrictions have begun lifting, many companies have announced a full return of employees to the office after Labor Day. Others are exploring a hybrid approach with some new work-from-home flexibility. This all points to more office occupancy and a slowing in sublease space hitting the market.
The Greater Phoenix office market posted 76.69KSF of positive net absorption during second quarter. This followed six months of negative net absorption. As companies return to the office, new deals larger than 10KSF have increased 25.8 percent compared to first quarter and 70.5 percent year-over-year.
Sublease availability increased again this past quarter, peaking at nearly 4.5MSF. June posted the lowest amount of new sublease space in the past six months. During second quarter sublease availability increased 393KSF, amounting to a 9.7 percent rise over-the-quarter and 85.5 percent year-over-year.
Phoenix direct office vacancy increased 20 basis points during second quarter and 150 basis points year-over-year to reach 14.0 percent at the mid-year point. The Southwest market, which posted a 50-basis-point increase in vacancy year-over-year, maintains the lowest vacancy this quarter. The Northwest submarket had the largest move-out during the past quarter.
Rental rates have remained steady, despite the downward pressure applied by discounted sublease space. Average asking rental rates increased 0.36 percent to finish the quarter at $27.58/SF. Class A rates were the only category that declined in price both over-the-quarter and year-over-year. Class B assets posted increases for those same time frames. As the metro area expands its boundaries, rental rates in the suburbs are experiencing the largest increase, Arrowhead, West I-10 and Glendale all posted rate increases over-the-quarter and year-over-year.
During second quarter 381.5KSF of new office space was delivered to the market, which had 29.8 percent vacancy. During the first half of 2021 Greater Phoenix has added 1.5MSF of newly constructed office space. There are currently 16 office projects under construction totaling more than 2MSF. Approximately 25.8 percent of the new space is pre-leased.
Sales volume of office buildings totaled $466M during second quarter, increasing year-to-date volume to $926M. This is equivalent to more than 68 percent of the total volume in 2020. Sales volume during second quarter was up 78 percent year-over-year, but down 1.4 percent over the quarter. The median price paid per square foot increased to $196. Chandler, Superstition Corridor and Scottsdale Airpark were the top three submarkets for sales volume, totaling $247M and comprising more than 53 percent of total market volume over the quarter. (Source)