Today, we want to look at a rising star submarket for Metro Phoenix: The East Valley. Specifically, we want to show you how much Chandler has grown. At the same time, we are also going to look at Deer Valley in the Northwestern Valley. Chandler will be a strong submarket for the next decade while Deer Valley will face headwinds unless users change their leasing parameters. While the surface numbers might seem close, a deeper look reveals some differentiators that matter.
One key point of today’s comments is there are submarkets that perform well throughout cycles and others that don’t. Making sure you know the local market intimately is paramount. We protect our clients as they navigate these tricky waters.
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Click here to view the larger image.Interesting Information:
- Over the last 20 years in Chandler, inventory SF has drastically increased by nearly 4.5X, from 1.78 million SF in 2004 to 8.19 million SF in 2023 Q3. Of the 10 submarkets, in the East Valley, Chandler had the smallest amount of SF in 2004 and is now a major submarket.
- Over the last 20 years, we saw positive net absorption for 16.25 years. the highest year (2019) absorbed 656,811 SF. This is the consistency I look for in submarket health.
- Chandler is the fastest growing submarket and we predict that it will continue to grow at a similar rate. Click here to read more.
- The City of Chandler has committed to help businesses and growth by guaranteeing one-week turnaround times on plan reviews for permits.
- Intel, Northrup Grumman, and Microchip are all high-end tech firms with big footprints in Chandler. These foundational companies provide security for real estate directors to lease in the city.
Conclusion:
There has been significant growth in Chandler and the whole East Valley since 2004. Along with that growth has been a sizeable increase in rental rates. With ample developable land in Chandler, the continued growth of its work force, great school districts, a very pro-business administration and tons of amenities, there is potential for much more rapid growth over the next 10+ years.
Deer Valley
Click here to view the image larger.
Interesting Information:
- Of the top 10 submarkets, Deer Valley has the lowest quoted rates in 2023 at $22.08/SF and the smallest increase from 2004 to 2023 in square footage. Deer Valley competes with Midtown for the most bang-for-your-office-buck submarket despite the low vacancy. The addition of TSMC will enhance this submarket but mainly for industrial and flex product. Click here to read more. Office will continue to be an ancillary use, especially as buildings previously used for back office call centers convert to Flex/Warehouse uses.
- This submarket also had the distinction of achieving the highest vacancy rates throughout the last couple of decades, at over 40% …for multiple years. Today, direct vacancy sits at 12.20%, combined with sublease vacancy at 11.30%, Deer Valley is at a combined vacancy of 23.5%. Because absorption is slow in this submarket, we see Deer Valley spending the majority of the next decade just getting the market back to normal.
- Only two other submarkets with inventory over 1 million SF have higher sublease vacancy rates than Deer Valley — Chandler at 10.50% & Sky Harbor Airport at 22.2%. This will slow the submarket recovery as sublease space rolls to direct vacancy.
Conclusion:
Rental rates in Deer Valley are currently the lowest of all the submarkets and have seen the smallest increase over the last 20 years. This is a great market if you are a user and want inexpensive space that’s located near TSMC and the West Valley labor pool. Users today are looking for class A, amenity filled buildings in locations that have tons of additional amenities. Today, that is not this submarket.
