Tenant move-outs have outnumbered move-ins so far this year in the Phoenix office market, according to the new JLL Q1 Phoenix Office Insight Report, but tour activity has increased, leaving many cautiously optimistic about the year ahead.
According to the report, while the Phoenix office market absorbed more than 446,000 square feet during the first quarter of 2021, the gains were overshadowed by nearly 641,000 square feet of sublet space to hit the market during the same period – representing a sublet space increase of 1.2 million square feet year-over-year. More than 1.1 million square feet of new office product was also added to the Valley’s inventory – 54 percent of which was leased but 46 percent of which was delivered as vacant.
This led to a vacancy uptick of 1.3 percent, marking four quarters of vacancy increase.
“The silver lining is that tour activity has increased, in some cases significantly,” said JLL Managing Director Keith Lammersen. “Companies are out in the market, looking at space, and some are starting to make decisions. But in these unprecedented times, those decisions are moving slowly and don’t yet match the large, long-term lease commitments that were landing pre-COVID.”
Phoenix’s business-friendly environment, diverse workforce and lower cost of doing business continue to attract interest from local and out-of-state companies, the JLL report notes, making Phoenix one of the nation’s most attractive areas to relocate and expand. This helped to bolster asking rents by 1.3 percent year-over-year, though landlords are offering greater concessions.
“Companies with strong credit and the ability to commit to longer terms have advantages in the market right now,” said Lammersen. “But most companies – of all sizes – are still proceeding with caution. We know that the interest we’re experiencing today will turn into leases, but we don’t know how quickly. The next few months will help to tell that story.”
To access JLL research for Phoenix and across the U.S., visit the company’s research page here.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion, operations in over 80 countries and a global workforce of more than 91,000 as of December 31, 2020.
