Arizona

The answer to that question is both yes and no. For some institutional investors and developers, perception is all that matters. And their perception of the metro Phoenix office market is “we’ll pass – for now.” Driving this perception is the 23 percent office vacancy rate reported by major brokerage firms in their recent quarterly market reports. But perception and reality are not always the same. Drilling down into the data reveals that certain submarkets have vacancy rates in the low single digits, and the size of available vacant space differs from what users in the market want. What cannot be determined from quarterly market reports is just how much space suffers from functional obsolescence. Numerous buildings sit vacant – even during good economic conditions – due to poor location, not enough parking, inadequate power, deferred maintenance and numerous other deficiencies. Most office brokers believe that at least 5 percent to 7 percent of vacant space is in obsolete buildings. Assuming that is true, why are good, quality buildings still 16 percent to 18 percent vacant? The majority of office vacancy is composed of smaller, non-contiguous, spaces. Due to lingering uncertainty in the overall economy, most small- to medium-size businesses …

The metro Phoenix office market is finally starting to make a comeback. Metro Phoenix ranked third in the nation in terms of net absorption for the third quarter, posting a positive 1,008,933 square feet. Demand has been steadily increasing for the office sector, especially for buildings that can accommodate large corporate users. Phoenix’s office market is still recovering from a large oversupply. The office vacancy rate more than doubled from the beginning of 2007 to the second quarter of 2011, increasing from 12.2 percent to 24.5 percent. Since then, a gradual increase in demand and a lack of new construction has brought the vacancy rate down to 21.2 percent. Right-sizing by office users through the consolidation of space, and by using more efficient floor plates, has slowed the overall decline in vacancy. To draw a parallel to the 2001 recession, demand for office space in Metro Phoenix was weak in the first three years of recovery, averaging 1.7 million square feet of annual net absorption. The office sector took off in 2005, 2006 and 2007, averaging 2.8 million square feet of annual net absorption. Due to the recent increase in demand, build-to-suit and speculative construction announcements made the news in …

It is no secret hat recovery in this real estate cycle hinges on job creation. In Phoenix, this means all eyes are on the markets that can deliver not only space and amenities, but also that golden element: employees. The Southeast Valley emerged early as Phoenix’s premier labor play and most dynamic “big picture” winner with amenities like Arizona State University, Light Rail and a strong base of corporate users. As a result, markets like Tempe have surged ahead with year-to-date positive net absorption of 4.1 percent, 15.8 percent vacancy (compared to the metro Phoenix rate of 24.9 percent) and a host of new tenant announcements. In 2013 alone, Go Daddy added 150,000 square feet to its local footprint; Silicon Valley Bank inked an expansion at Hayden Ferry Lakeside; and State Farm rocked the industry with plans for a new $600-million, 2-million-square-foot office development. In March, GM announced it will invest $21 million and hire 1,000 employees for a new Information Technology Innovation Center in Chandler. This will boost Chandler’s already positive performance, which includes an auspicious 12.8 percent office vacancy and rents at $22.31 per square foot. This area has experienced a small but positive year-to-date absorption of 0.6 …