The big news from the 2021 year-end report is The Metro Phoenix Office market recorded 807,000 SF of positive net absorption. It’s also noteworthy for a couple reasons: 1—We finished the year in the black despite COVID, despite the lock down, and despite work from home. Second, it was the second straight quarter of positive net absorption showing some strengthening in the market. Previously, the Valley had experienced four quarters of negative net absorption. It’s not time for a big celebration yet, but it’s the start of returning to a healthy market. Total net absorption finished at 540,000 SF for the year, just 14% of 2019’s figure. On the negative side, sublease space increased by 150,000 SF in Q4 and now stands at 4.48 million SF, adding 4.2% to the 17.4% of traditional vacant space. Over time, this space will come on the market or take some of the net absorption from the direct space available. Average rental rates STILL increased from $25.21/SF to $25.95/SF in Q4, due in large part elevated construction costs.
What does this mean for the office market? Mixed indicators still mean mixed messages for the market. Smaller tenant activity remains robust (under 10,000 SF). Medium range tenants are increasingly touring the market, with transaction volume growing gradually. Large tenants (30,000 SF is large for Phoenix currently) still remain infrequent as companies are reluctant to make long term commitments as they experiment with work from home (WFH).
A noticeable change from last year is a more immediate return-to-the-office date. The vast majority of tenants I interact with are back in the office, albeit with varying occupancy levels. If a company is not in the office, the return date is often in the very near future. This time last year, July or September return to work dates were much more common.
Below is a link to our Lee & Associates Arizona Fourth Quarter 2021 Office Report, and as usual, here are my top three takeaways:
Tempe was Tepid– The strongest market over the past cycle recorded only 63,576 SF of net absorption, over the entire year. It posted 1,423 SF in Q4.
North Scottsdale Had a Big Comeback– The hottest submarket in the previous cycle, finally posted a huge year with 607,000 SF of net absorption. More than the whole metro market.
Chandler Remained Solid– With its access to great labor and more affordable housing, the Chandler submarket posted another consistent year of net absorption with 273,000 SF. Look for that to increase in 2022…
If you need a good broker to represent you, please call me. Or if you just want to discuss the market, I would welcome the conversation.
Andrew
602.954.3769
acheney@leearizona.com
Instagram
