Downsizing: Office Market Slow, not Stagnant in Phoenix After a Year of Covid

Article originally posted on Phoenix Business Journal on March 17, 2021

A year after the Covid-19 pandemic forced many businesses to move employees to working remotely, activity is beginning to pick up in the Phoenix office market, though on a smaller scale.

“Tour activity is up substantially,” said Andrew Cheney, principal at Lee & Associates. “January and February were very busy for tours, but they are mostly small tours. Tenants under 10,000 square feet are out there, signing leases.”

There has been an uptick in medium-sized leases too, but not yet a surge. Robinhood, the investment app, leased 34,000 square feet in Tempe, and Align Technology, the maker of Invisalign, leased in the same building in the first quarter of 2021, but those are among the few notable office leases during the pandemic.

Cheney said that while gross absorption is up in the first quarter, which is measured only with new lease square footage, without regard to vacated space in the same period, net absorption, which includes calculating for vacated space, remains down.

“Companies are re-signing, but they’re signing for less space,” he said. “I think people are going to overcorrect here and give back more office space than they should.”

More sublease space

In 2020, 1.3 million square feet of office space across the Valley was made available for sublease, and another 400,000 was added in the first quarter so far this year, Cheney said. Some tenants have been more successful than others with subleasing space.

The ideal sublease, Cheney said, has a lot of time left on the lease, is in a good location and includes furniture. Those options will be the first to be absorbed for subleasing.

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