Q1 2017 was a very busy first quarter! Metro Phoenix office market experienced 800,000 SF of positive net absorption. Annualized, this puts the market on track to absorb 3.2 million SF for the year, and 700,000 SF over our 25-year average.  

Vacancy in the first quarter essentially stayed flat at 18.9%, due to new building deliveries.  Taking a closer look at vacancy shows us that businesses still prefer Class A space, which is now 17.2% vacant, compared to Class B space, which is still over 21% vacant.  Just over 1 million SF of new construction is still underway, with only 271,000 SF of that being preleased.  The rest is speculative…and doing well.  Look for some big announcements from these projects in Q2 and Q3 of this year.         
Below is the link to our Lee & Associates Arizona 1st Quarter 2017 Office Report and as usual, I’ve included my top 3 takeaways.
1. The good news on net absorption is welcomed, but it should be noted that State Farm’s Tempe campus accounted for 55% of the entire market’s success.  It remains to be seen whether we can keep this pace without our “good neighbor” expanding.

2. The size of tenants in the market remains smaller.  Two of the top five transactions this quarter were 35,000 SF and 24,000 SF, respectively.

3. Aside from Midtown, rental rates continued to creep up in all major submarkets.
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PS- If you want to see how Phoenix compares to other markets across the nation, check out Costar’s State of the U.S. Office Market- 2017 Q1 Review and Forecast.  In particular, check out pages 15 & 17 (Net Absorption) and page 26 (Vacancy)
PPS- I was featured in Globestreet.com last week for an article on driverless cars.  We have also prepared a special report on what these new vehicles will do to the commercial real estate industry. Email us to get a copy. 

Click Here to Read the Full Office Market Report 

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