According to the U.S. Census, Maricopa County topped the nation in population growth through 2022, and a recent study by QRFY ranked Arizona in the top 10 for most entrepreneurial states based on statistics from the U.S. Bureau of Labor. While some companies are still navigating policies and practices for bringing employees back into the office post-COVID, the combination of population and business growth continues to fuel strong demand for commercial and office space in Phoenix metropolitan area.
Getting Back to Business
As employees got accustomed to working from home, companies changed policies, allowing remote and flexible work schedules. Larger corporate offices continue to look at ways to entice employees back to the office with hybrid schedules, catered lunches and other perks. Companies find employees want an office that feels more like home and offers amenities such as comfortable gathering spaces, stocked kitchens and coffee bars and open fluid work areas.
Smaller businesses in offices ranging from 1,000 to 10,000 square feet largely brought employees back — if they did not decide to go fully remote in 2021 and exit leases. While work habits and policies changed in the last four years, overall migration to Phoenix and its business-friendly, entrepreneurial environment continues generating strong demand for office space 10,000 square feet and smaller.
Negotiation Power
The average office space in demand is 2,000–3,000 square feet. With minimal office inventory available under 5,000 square feet, Phoenix landlords are holding firm on rental rates. New office construction projected in the market in the next one to two years is also limited, leaving businesses underserved and facing shortages.
Existing available space in buildings can require remodeling, and tenant improvement options can be limited. Remodeling is costly and, due to labor shortages, it’s challenging to get work done. An office search can take six to nine months, so research needs to begin at least that far in advance before a desired move. Limited options combined with high demand means that office rental rates can be expected to remain high in Greater Phoenix.
Weighing the Options
If a business owner is weighing options on a lease renewal, considering searching for new space or remodeling an existing space, options are limited. Redesigning an existing space with more amenities inside and out is costly and needs to be weighed against relocating to another location that needs work. Companies or business owners searching for new space will find plenty of sites that list available space. The challenge is that few web platforms show current inventory. The key is working with an experienced CRE tenant representative who is familiar with the area and has a pulse on properties available. They will also know market rates and can negotiate lease terms, rates, incentives and tenant improvement packages on a client’s behalf.
On the Horizon
Older office buildings that are becoming obsolete and too costly to renovate are being converted into office condos, residential rentals or self-storage units — depending on the zoning, need, location and building footprint — or torn down to sell the land for other commercial usage such as retail or industrial.
Andrea Davis is the owner and designated broker of Davis Commercial AZ, representing buyers, sellers, tenants and landlords in commercial transactions. Davis is also the author of two books, SimpLEASEity and Simply Own It! The American Dream.
