After a quiet second quarter, the Greater Phoenix office market experienced a HUGE third quarter in terms of tenant activity.   Over 1 million SF of net absorption (think job growth) was recorded in just a 90-day period, making 2019’s year-to-date net absorption 2.64 million SF – almost matching space absorbed in all of 2018, and well above 2017’s total of 1.8 million SF. We anticipate Q4 to be a strong quarter with leases near completion that our team is either negotiating or has intimate knowledge of.

Vacancy now stands at 16.1% and I predict that by year end we will be in the mid 15% vacancy range. Why? Demand continues to outpace supply – only 1.63 million SF of new buildings have delivered so far this year with 1.3 million SF scheduled to finish in Q4.  With Metro Phoenix on track to hit approximately 3.5 million SF of net absorption for the year, new construction will again fall short of tenant demand (as I predicted in my Q1 report).  Additionally, a substantial portion of the new construction underway has been pre-leased.  Contact me and I will give you exact figures.

Below is a link to our Lee & Associates Arizona Third Quarter Office Report and as usual, I’ve included my top takeaways:

  1. The Southeast Valley Remains the Hottest of the Hot – While leasing activity is overall strong across the board, tenants continue to favor the submarkets near Arizona State University and Chandler. Keep reading for a new trend.
  1. Midtown is Improving – Midtown actually beat out Tempe in Q3 of this year for overall net absorption, and has absorbed the third-highest amount of office space year to date for Metro Phoenix.  Employers clearly value the urban setting and some of the softer pricing available in this rapidly improving segment of Phoenix.
  1. 75% of all Net Absorption in Q3 took place in Class A Properties – This is consistent with businesses continuing to use office space as a competitive recruiting tool.
  1. Coworking is Fine in Phoenix –  WeWork has gotten a ton of negative press (read Craig’s take on it here) but they only represent a negligible amount of space in Metro Phoenix.  Additionally, the entire size of all co-working spaces in our market represents less than one percent of the office base.  There are some very strong operators here in Phoenix, performing quite well.

Want to talk more about these trends or how I can help you with your office space?  Give me a call.



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