The Metro Phoenix Office sector had a tough 2023, ending the year with overall negative net absorption for the first time since 2010. This is concerning, but there is a silver lining in Q4 that stopped a three-quarter losing streak of negative absorption. Q4 2023 saw 68,616 SF of positive net absorption, however not enough space was leased to compensate, as -484,855 SF was shed, instead of absorbed, by overall tenant activity. There is actually an even greater silver lining because office gross activity was VERY substantial. (To learn more about gross activity and understand the nuances at play, please contact me.)
Below is a link to our Lee & Associates Arizona Fourth Quarter 2023 Office Report, and as usual, here are my top three takeaways:
Asking Lease Rates Increased… Again! – Tenant improvement pricing has not come back to Earth yet as lease rates increased almost a dollar per square foot to $29.56 PSF, despite the negative net absorption. Tenants and landlords continue to get creative in dealmaking to overcome tenant improvement costs that have essentially more than doubled from five years ago.
Sublease Inventory is Holding Steady – Sublease inventory stayed around the 6.8 million SF mark. Sublease activity, particularly in larger spaces (greater than 10k SF) is far from static. The largest lease transaction of the quarter, at 136,194 SF, was in a sublease. Sublease inventory continues to hit the market and will continue that trend in 2024, but we are seeing increased tenant activity in the market to absorb more subleases. However, it’s still tough pickings for sublease space under 10,000 SF.
No Major Distress Office Sales Yet – There have been a limited number of stressed or fatigued sales, but not on the larger scale that national headlines have insinuated will happen soon. Buyers and tenants that are out for the “deal of a decade” are finding that those deals are limited mostly to subleases currently.
My team, The Coppola-Cheney Group, is working on over 150 real estate transactions right now. We had an incredibly successful year in 2023 (Click here to see our year in review!) If you want to understand the market better, or need a good broker to represent you, give me a call.
602.954.3769
acheney@leearizona.com
Click here to read the full report.
Click here to read the full report.
