Q4 Phoenix Office: Shrinking Vacancies, “Lofty” Absorptions

Article originally posted on HERE on February 10, 2020

Downtown Phoenix

Phoenix’s office market in Q4 2019 showed a great deal of strength, with commercial real estate analysts pointing to positive metrics across vacancy, absorption, rent growth and construction. CBRE focused on strong demand and market fundamentals, and their impact on vacancy rates, adding that “as the market continues to see downward pressure on vacancy rates, it is expected that office projects will continue to break ground to meet tenant demand for new office space.” Both CBRE and Cushman & Wakefield noted vacancy rates at their lowest in more than a decade.

Nor did JLL hold back, commenting on “lofty absorption record and positive fundamentals” experienced through not just in 2019, but throughout the entire decade. Newmark Knight Frank agreed with the assessment, pointing out that Q4 deliveries were dominated by pre-leased space, as well as build-to-suit activity.

As for the outlook, CBRE indicated that “tenants will continue to look for quality office space in the high-class regions (Tempe, Scottsdale Airpark and South Scottsdale) where employers can draw and retain top talent.”

Additionally, a strong market will continue, aided by continued employment growth and “disciplined new office supply.” NKF predicted continued corporate migration from California, along with a “hard commitment by those blue-chip companies to build campuses and expand their workforces over the next several years,” would mean continued strength for the Phoenix office market.

Cushman & Wakefield forecast a continued vacancy rate decline, even as Class A construction continues to dominate. JLL pointed out that, on the construction front, “new office starts are also seeing healthy competition from potential multifamily projects,” possibly impacting land grabs. However, “Phoenix still has runway with pre-leasing activity remaining strong, and fundamentals that have yet to pivot from their current positive trajectory,” JLL said.