Phoenix Office Demand Climbs to a Decade High

Article originally posted on CoStar on January 27, 2020

Phoenix recorded the best year for office demand in over a decade, with just under 4 million square feet of net absorption in 2019. Tech and finance firms drove office activity during the year. Strong demand and conservative levels of new supply compressed vacancies to the lowest level since 2007.

The outlook is generally positive in Phoenix, but over the next several years, activity is expected to decelerate amid an anticipated slowdown in the U.S. economy. While leasing volume was robust last year, many of the largest leases were penned by existing companies which will vacate their existing location when they occupy their new offices. The space left behind will hinder more significant net absorption in future quarters.

As cited in the latest CoStar Phoenix office video, sustainable demand drivers, moderate new supply and affordability relative to costly coastal markets have retained investor interest in Phoenix. The market’s office assets remain a relative bargain, with pricing below the previous peak. Attractive pricing and higher yields have attracted California buyers to the market – about one in five office trades sold to a California investor last year.