What area is your expertise?
Phoenix metropolitan area — office
What trends do you see presently in office development in your area?
Deliveries of office buildings have slowed for the first time in several years. During first quarter 2008, only 66 buildings were delivered compared to 110 buildings second quarter 2007. However, there is still more than 6.8 million square feet under construction.
Who are the active office developers in your area?
Opus West, ALTER Group, Lincoln Properties, RYAN Companies, McShane Construction, DMB Associates and Higgins Development Partners.
Please name one or two significant office developments in your area. What impact will these projects have on the market?
Opus Pima Center — Scottsdale has virtually run out of land for new development. Therefore, developers chose to negotiate 65-year ground leases with the Native Americans to develop on their land. This project is part of a master development totaling over 3.5 million square feet of office, industrial, and retail. The project is a 209-acre, mixed-use business park located along the Loop 101 Freeway (major Valley freeway) at the Via De Ventura / Pima/90th Street interchanges in Scottsdale. The underlying land owner is the Salt River Pima-Maricopa Indian Community. The master developer is a joint venture, which includes Opus West and Ross Brown Partners called Main Spring Capital Group. Opus Pima Center is home to several national headquarters including Cold Stone Creamery, Rural/Metro Corporation, Hacienda Builders, and Canadian-based Zaio Corp.
One of the largest impacts this project has had is new competition for fee simple projects in the Scottsdale area. Located on Native American land, there are no real estate taxes, which has clearly been their competitive advantage with tenants, automatically having a lower operating expense base.
Where is the majority of development taking place? Why is this area doing well?
North Scottsdale because of the demographics, retail amenities, and convenient access to the major freeway system.
What area do you expect to be the next big development market? Why?
The continuation of the development located on the Native American land. The main factors are that Scottsdale has virtually run out of undeveloped land and the land prices for Class A fee simple sites are too high for most developers to make new projects work.
What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
Tempe is faring the best with the lowest metro vacancy rate of 10.4 percent. West Phoenix is the slowest submarket with a vacancy rate of 22.8 percent.
Please give a measure of office vacancy rates. Please give a measure of available sublease space.
The Phoenix Metropolitan Area has an overall vacancy rate of 15.8 percent with over 1.6 million square feet of sublease space available.
What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
The interest rates are not affecting the office market as much as the new lender requirements for qualified buyers. The new requirements have made it difficult for new buyers entering our market.
What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
Phoenix has been the national leader in job growth the past several years with a cumulative growth of 15.8 percent the past 5 years. Phoenix had an unemployment rate of 3.9 percent first quarter 2008, while the nation, as a whole, had an unemployment rate of 5 percent.
Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
One of the office tenants absorbing a majority of the space is the biotech industry. The medical field has been the single most industry with the largest employment growth in the Valley. The areas that experience the most impact are the suburban areas including submarkets like Surprise, Avondale, Goodyear, Buckeye, and Chandler where there has been a significant increase in population.
Submitted by Ryan L. Mollen, ONCOR Manager with the Scottsdale, Ariz., office of CORE Realty Partners/ONCOR International. Posted 9-5-08.