Annually, I review a large number of commercial office research. Below is a link to the UBS Global Asset Management US Real Estate Market Outlook 2014. With all of the cumbersome reports published, I find this one to be very concise and insightful. The entire report is 28 pages but we have included the key office pages below.
Many trends occurring here in Phoenix mirror what’s going on nationally, including my top three:
- Overall Office Vacancy – It’s still high relative to historical figures. We are not at the incredibly high 27% like we were in the recession, but we are still 23% vacant here in Metro Phoenix. Equilibrium is closer here to 15%.
- Type of Recovery – Professional Services (including lawyers, engineers, technology companies) are leading the recovery. If you look at all of the top leases in Phoenix over the past 12 months, these companies top the list, along with some government entities.
- Suburban Office Vacancy is Declining – Much of the quality, core (class A, prime location buildings) product has leased up at discounted rates in the recovery. This tight product type now commands as much as a $6-$8/SF/YR premium over suburban office, making suburban offices a much more attractive option. The suburban markets in Phoenix are recovering but still offer many great deals for tenants.
Much like UBS, we have a positive, but conservative, outlook for the office market in 2014. I CAN tell you I am pleasantly surprised by the leasing activity I’m seeing in this first quarter. I hope we can convert that into results throughout the year.