What Makes Phoenix Healthy?

The Greater Phoenix office market has grown at a moderate pace in the first quarter of the year, a trend expected to continue well into 2015.
Phoenix Office Market - New Supply, Absorption and Vacancy Rates - 2015 Outlook

Phoenix Office Market – New Supply, Absorption and Vacancy Rates – 2015 Outlook

The Greater Phoenix office market has grown at a moderate pace in the first quarter of the year, a trend expected to continue well into 2015. According to recent research data from Colliers International, in Q1 2015, the Phoenix MSA punched in an office vacancy rate of 17.8 percent; a positive net absorption of 198,783 square feet; almost 485,000 square feet of new supply; and an average asking rate of $21.28 per square foot.

For the first time after six consecutive quarters of decline, office vacancy remained unchanged quarter-over-quarter at 17.8 percent. However, fundamentals continue to remain healthy seeing as the current vacancy rate marked a 100-basis-point year-over-year decline and a 260-basis-point decline since 2013. According to Colliers, the vacancy rates flattened because of the increased amount of deliveries scheduled for 2015. One such delivery is the first phase of State Farm’s 2.1-million-square-foot project in Tempe.

Per property type, Class A investments have been the main focus in the first quarter, with more than 90 percent of the total net absorption credited to Class A leases. Vacancies contracted by 40 basis points for Class A assets, having reached 16.7 percent—which translates into an impressive 160-basis-point year-over-year decline. Although Class B and C assets experienced an uptick in vacancy in Q1 2015, the overall trend remains positive.

Asking rates will be pushed even higher this year, due to increased demand. In Q1 2015, the average asking rate rose to $21.28 per square foot, 3.3 percent higher than in the first quarter of 2014. The Class A segment registered the strongest gains, having reached an average asking price of $24.83 per square foot.

 

Charts and data Courtesy of Colliers International