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More Employees Means More Office Space for Phoenix

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 percent.
As large tenants settle into their spaces, traditional power players like Camelback Corridor and the Downtown/Midtown/Uptown submarkets will benefit from the next wave of office users. Tour activity on the Camelback Corridor is already starting to heat up with engineering firms, technology companies and construction-related providers. Although second quarter office vacancy on the Corridor is still in the mid-20 percent, a pipeline of deals are in play that will quickly absorb space. This will improve the submarket’s already competitive rents of $26.24 per square foot for Class A space, compared to $23.23 per square foot for Phoenix metro.
North Central and Midtown still have big available blocks, often with 4/1,000 parking ratios and rents in the high teens and low $20s per square foot. This makes these areas real value plays in Phoenix, both now and likely well into 2014. North Scottsdale is also slowly benefiting from the reemerging housing industry. As spaces fill and rents rise in the sizzling Southeast cities, North Scottsdale will certainly emerge as a well-priced option with the look and feel that these groups love.
In 2013, Phoenix has already landed an impressive 27,200 new jobs — 11,100 of which are coming from dramatic gains in the office sector. This growth will help all Phoenix submarkets, including harder-hit areas like the Northwest. Though this region struggles with a 34.8 percent vacancy and negative absorption, the Northwest also represents one of the Valley’s largest labor pools. That said, the area is eager to build on its strong inventory of back office space, contract-based call centers and educational institutions with that key recovery ingredient: employees.
Combined with sustained job recovery, six quarters of rising occupancy, almost no new office construction and more than 5 million square feet of requirements in the market, Phoenix has every reason to expect continued healing and growth in 2013, 2014 and beyond.
— John Bonnell, managing director with Jones Lang LaSalle
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