Last week, (week 1 of my 6 week series), I analyzed the overall Metro Phoenix office market. Now, let’s spend a couple weeks looking at some key submarkets within Phoenix, analyzing their past and looking ahead to their future.
Today, we are going to look at the Central Business District (CBD) which includes Downtown and Midtown. The CBD in any major city is typically critical to the overall market, but Metro Phoenix is an outlier compared to the rest of the country. The valley is incredibly spread out. It’s 90 miles from Verrado in the west to Eastmark in the east, and 50 miles from Anthem in the north to Ahwatukee in the south. This distance means we have multiple city centers and are WAY less reliant on our CBD than most big cities. The numbers bear this out. “The metro’s largest commercial office buildings — in excess of 310,000 square feet, located primarily in the downtown and midtown Phoenix areas — have seen their vacancy rates climb from 16.1% in 2019 to 32.2% in the second quarter of 2023, according to an analysis of Phoenix Business Journal data.” (Click here to read more). There has been very little growth in our CBD over the last 20 years and we predict almost no growth happening in the next 10.
See below for the numbers and more predictions.
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Interesting Information:
- Doing the math for the last two decades, CBD SF inventory only increased 10.53%. We will likely see no new buildings in the next decade unless it is a Build to Suit. We will likely see some buildings demolished.
- Over the last 20 years, net absorption was negative for 12 years and positive for only 8 years. The nicest buildings were able to perform well but still faced challenges.
Conclusion:
There has been very little growth in the CBD office market since 2004. And considering the condition of the office market currently, this number will likely remain the same for some time. I personally find this a sad conclusion. Top-tier cities have top-tier CBDs. The city/developers/owners have been trying like crazy to develop our CBD for over three decades and we are still not there (over $3 BILLION of taxpayer money has been invested in Downtown Phoenix alone). This shows you how difficult the road ahead is for CBD. The Midtown submarket remains the least expensive submarket for tenants in the entire valley for good buildings. C2 has a TON of experience in both markets and can steer you if you need some advice or a leasing team. That said, tenants will continue to get fabulous deals for at least the next 5 years and likely longer in these submarkets.
