The Metro Phoenix Office Market remains in disarray at the midpoint of 2021.  Companies (small and medium-sized) are coming back to work, signing new leases and getting back to a new normal. Other companies (often large ones) continue to kick the can with short-term renewals, downsizing as leases roll, or trying the sublease market.  The mixed news continues.  Here’s what the stats tell us:  While not as bad as the first quarter, we still had negative net absorption (new office space taken by job growth). This is the fourth quarter in a row.  This quarter’s negative (107,902) SF figure pushed traditional vacancy up to 18%.  Sublease space surpassed the 4 million SF mark in late spring, adding another 3.8% of vacancy to the market.  That puts total vacancy at almost 22%.  It’s worth noting that the last time Phoenix experienced vacancy this high was the period from 2008-2013.

The long-term horizon for the Phoenix Market is incredibly positive. Greater Phoenix Economic Council’s (GPEC) pipeline is the biggest it’s ever been (feel free to contact me for the latest report).  Base industries are showing a lot of interest in Arizona. The announcement of Taiwan Semiconductor’s (TSMC) new presence is a historic win for the region. The governor and legislators passed a historic flat tax. There just remains uncertainty in the short term due to the pandemic aftermath.  No one knows exactly how long it will take for office space absorption to stabilize, but rest assured, it will recover.

The best thing you can do in an unstable market like this is get a real view of your personal lease situation, and stay in close contact with your broker. Below is a link to our Lee & Associates Arizona Second Quarter Office Report, and as usual, here are my top takeaways:

Half of All Submarkets Had Negative Net Absorption– Strong markets like Tempe and North Scottsdale posted positive net absorption, but other strong bases like Camelback Corridor and South Scottsdale went negative again.

Lease Rates Actually Climbed Slightly– Note, asking rates rose and they bumped up slightly due to rising TI costs.  This is something both Landlords and Tenants are struggling to solve. For sizeable tenants who are looking, strike rates can be noticeably lower than asking rates.

Sublease Inventory Remains High– The rate of increase finally slowed toward the end of Q2, but 4 million SF is a significant amount of ready-to-occupy space for the market to process.  There are opportunities out there for flexible tenants, and challenges for owners competing with direct vacancy.

Despite the market, our team is finding ways to lease projects and assist tenants in finding right-fit transactions.  If you need a good broker to represent you, please call me. Or if you just want to discuss the market, I would welcome the conversation.


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