Office space is in the middle of a massive disruption: Offices Around America Hit a New Vacancy Record. For over 40 years and 4,000 transactions, we have been guiding our clients on their office space needs. In late 2023, I did a series on the various types of repurposing where I reviewed five different types and the pros and cons of each. Now, I want to provide some context as we look at the Metro Phoenix office market and all of the changes that are taking place.
Over the next 6 weeks, I am going to take a look at the last 20 years of the Metro Phoenix office market AND project 10 years into the future to see where we are headed. I hope the next month and a half will provide perspective, some insights, and maybe (just maybe) a few takeaways you can use to prepare yourself for the future.
Please note; the market is always changing. We are leasing office space and selling office buildings every day. Anything and everything can happen. If you ever have a question or need representation please call or email.
Today, we are going into the big picture and simply breaking down the Metro Phoenix office market. See below for a high-level overview of the past two decades, where we are today, and some predictions for the future. I hope you find this helpful and remember…please don’t shoot the messenger over the next month.
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Interesting Information:
- There have been over 4,000 office sales transactions that have closed since 2004. The number of sales transactions has consistently been in the hundreds every year during this timeframe except for a three-year stretch from 2008 to 2010. In 2023, there were ONLY 72 transactions. The market is changing. We will see more sales but the pricing for those properties will be decreasing for the next several years… it might even be 5 years before they begin to rebound on a metro basis.
- The average price per building SF has fluctuated drastically since 2004. At times it has been as low as $103.43 in 2010 and as high as $231.37 in 2021. It is currently $192/SF
- There is currently 6.88 million SF of sublease space available to rent (massive sublease space availability—3 times our normal). As these leases expire over the next 3-5 years, we will see an added 1-2% of direct vacancy added per year to the market.
- The federal government has too much space as well. Click here to read more. Over the next decade they will give back millions of square feet, slowing the market down from a full recovery.
- There is very limited office space under construction (252,578 SF). When these buildings are complete, there will be almost no new speculative construction for at least 4 years. (There will be some Build to Suits).
While Phoenix will rebound back to positive net absorption, it will be offset by the subleases rolling over the next 5 years keeping vacancy in the high teens and likely touching 20%
