Over the last four years, small-office product of 20,000–50,000 square feet has outperformed larger product greater than 50,000 square feet. But Cushman & Wakefield Research, using statistics based on leasable office buildings larger than 20,000 square feet in Metro Phoenix, reports this has changed.
There are 393 buildings in the 20,000 to 50,000 sf size range, accounting for 40% of all office buildings in Metro Phoenix. In square footage terms, this equals nearly 12 million square feet, or about 14% of the total inventory. Vacancy rates in that size range have dropped below 2019 averages, while office buildings larger than 50,000 square feet have trended higher. Despite aggregate negative net absorption across all building sizes over the trailing 12 months ending September 30th, 2024, the office product at 20,000 to 50,000 square feet recorded 19,439 square feet of negative absorption, well below the absorption rates in larger office product.
What This Means for CRE
Flexibility is key for occupiers of small office space. These tenants tend to prefer short- to medium-term lease options, which allows them to adapt relatively quickly to changing office market conditions.
Small office users are also likely to support hybrid or rotational work options for their employees, and these tenants must make the most out of a smaller footprint without sacrificing productivity.
Cushman & Wakefield Research concludes that landlords, to stay competitive, must attract smaller-footprint office users. While total building space typically cannot be changed, segmenting large floor plates into smaller, more collaborative spaces, as well as updating interiors with fresh finishes and tech-enabled infrastructure, can appeal to tenants looking to reduce move-in costs and time.
