The Metro Phoenix Office Market continues to navigate tough waters caused by the effects of COVID-19 and the Work from Home (WFH) phenomenon. Q2 2024 proved to be the worst quarter on record for net absorption, posting -883,286 SF. Compounded by the first quarter’s -497,019 SF, Metro Phoenix is on pace to set an annual record for office space shed.
Negative absorption caused another upward tick in vacancy (see below in my top 3 takeaways). The increased vacancy is finally causing lease rates to decline and they fell by $0.41/SF from last quarter to $29.45/SF across the entire Metro Phoenix. However, most well-amenitized, Class A buildings, are able to easily maintain their lease rates.
Small and medium-sized tenants continue to be very active in the office market — even growing. However, large companies are not done shedding excess space with abundant amounts of employees working (seemingly) productively from home.
See below for more specific insights, as well as a link to our Lee & Associates 2nd Quarter 2024 Office Report:
— Sublease Space Continues to Decrease in Q2: Phoenix sublease inventory decreased again by 310,323 SF. Total sublease space this quarter is 6.45 million square feet, a 3.4% decrease from Q1.
— Direct Vacancy Increasing: Direct Vacancy climbed to 19.2%, a noticeable jump up from last quarter’s 18.2% figure. See note above on sublease space simply expiring. Vacancy is nearing the 20% mark, a figure not seen since 2016 in Metro Phoenix.
— Limited Construction: There is only 387,578 SF of office under construction making up 3 new buildings. All of these buildings are build-to-suits. Only one of them will actually be occupied by the tenant who originally leased the building. Once these complete, there will be no construction for some years.
If you have questions about the report or need representation, please call me.
Office Market
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Construction Office Market
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