After a slowdown that pushed large Phoenix office building sale activity down from 33 deals in 2015 to 22 deals in 2016, the office market got off to a strong start in the new year. Robust population growth, an expanding job market and strong corporate performance have helped institutional America overcome its uncertainty about buying this “late” in the real estate cycle. Instead, investors see that Metro Phoenix office vacancy rates have dropped from 27 percent at the peak of the recession to 18 percent today, and average rental rates have increased by 23 percent — from $19.91 to $24.48 per square foot. These positive factors have reinforced the view that our real estate cycle is not wrapping up, but is prospering, with significant runway ahead.
The re-emergence of the Camelback Corridor is a textbook example of this shift. In the last 36 months, the submarket has enjoyed more than $700 million in new investor activity, due in part to rapidly rising rental rates. Since their recessionary lows, Class A rents within the Camelback Corridor have increased 34 percent, to an average $34.33 per square foot, and vacancy rates have dropped by almost half, from 33.8 to 18.1 percent. In response, major institutional investors are purchasing — and completing deferred improvements at — some of the submarket’s most prominent projects. Case in point: LBA at the Camelback Esplanade and Via West at Biltmore Center.
At 3131 and 3133 Camelback, Lincoln Property Company has already implemented strategic asset improvements, resulting in an average 93 percent annual occupancy rate and a rise in asking rents from sub $30 to more than $34 per square foot. Other developers are also getting into the game by razing obsolete assets to make way for new construction, including the mixed-use Camelback Collective office and hotel project underway on Camelback Road between 28th and 29th streets.
At a time when many believed Phoenix would be entering into a cycle dip, this activity signals optimistic investor sentiment that is occurring at varied levels across the Valley, and creating tremendous opportunity in the year ahead.
Dennis Desmond is senior managing director in the Phoenix office of JLL, which provides office, industrial and retail brokerage, tenant representation, facility and investment management, capital markets, multifamily investments and development services.
Camelback Corridor submarket,Class A only
| Direct Vacancy | Net Absorption | |
| 1999 |
7.9% |
188,067 |
| 2000 |
11.7% |
118,712 |
| 2001 |
17.8% |
-81,421 |
| 2002 |
19.6% |
103,661 |
| 2003 |
20.1% |
12,562 |
| 2004 |
16.8% |
176,687 |
| 2005 |
11.0% |
126,441 |
| 2006 |
9.9% |
82,490 |
| 2007 |
11.2% |
-30,510 |
| 2008 |
17.2% |
-261,065 |
| 2009 |
22.8% |
-43,450 |
| 2010 |
30.0% |
-120,063 |
| 2011 |
33.8% |
-198,399 |
| 2012 |
29.6% |
195,329 |
| 2013 |
23.6% |
315,700 |
| 2014 |
21.6% |
112,776 |
| 2015 |
21.0% |
57,663 |
| 2016 |
18.1% |
64,875 |
