Phoenix Office Fundamentals Showing Signs of Stabilizing

Following a challenging 2023, local office market reporting some positive trends

The Phoenix Office of JLL has released its Q4 2023 Phoenix Office Insight, noting some persistent, positive trends after a challenging 12 months. In the last quarter of the year, negative absorption slowed, asking rents showed signs of stabilizing and construction deliveries remained subdued, reducing some supply-side risks and supporting the leasing success of key product types and submarkets.

According to the Q4 report, while negative net office absorption continued through the final months of 2023 – landing at more than 3.5 million square feet at year end – it also experienced some slowdown in Q4, indicating that the market may be approaching a peak in sublease vacancy. Phoenix’s total overall vacancy rate was 25.6% as of the end of the quarter.

After a surge in recent years, total asking rent growth decelerated to 0.8% year-over-year, due in part to increased landlord concessions and to some higher-end product being taken off the market.

The largest lease of the year was signed by JLL in Q4, establishing a new 136,194-square-foot inbound contact center for Peckham Inc. in the Airport Area submarket.

New Class A office construction, smaller office space and spec suites remained highly popular and continued to drive lease activity. Central Scottsdale, Scottsdale Airpark and the Superstition Corridor all had notable lease commitments that buoyed their overall absorption rates into the positive digits.

“Metred progress is the theme for the Phoenix office market, and that’s a welcome trend,” said Matthew Coxhead, Executive Vice President, JLL. “Companies continue to move and expand here – sometimes with a cautious optimism that is moderating the size and speed of our lease deals, but the deals are still being signed and more are on the horizon.”

Anticipated rate cuts by the Federal Reserve could further buoy that outlook, improving borrowing and investment formulas and encouraging new leasing, particularly among Phoenix’s abundant inventory of available pre-built and sublease spaces.

“We see this steady, positive improvement continuing into 2024,” said Coxhead, “with the potential to help all segments of the local office market continue to recover.”

In Phoenix, JLL is a market leader employing more than 527 of the region’s most recognized industry experts offering office, industrial, retail, healthcare and data center brokerage, tenant representation, facility and investment management, capital markets, multifamily investments and development services, and related services within the real estate leasing, investment and management process. In 2022, the Phoenix team completed almost 115 million square feet in lease and sale transactions, with a total transaction volume of more than $11.4 million, and directed $180 million in project management.

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