Phoenix Office Sector Finishes 2015 in Best Position Seen in Years

Lee & Associates Arizona January 12, 2016

PHOENIX, ARIZONA- MARCH 13, 2014: A low aerial flyover of the downtown business district of Phoenix, Arizona.

PHOENIX, ARIZONA- MARCH 13, 2014: A low aerial flyover of the downtown business district of Phoenix, Arizona.

The Phoenix office sector took a strong turn to finish Q4 in solid fashion. The year started off slowly but picked up momentum as the year progressed and accelerated the pace into the final months.

Most all major indicators were positive for the quarter and for the year, including vacancy, absorption, asking rental rates, construction and deliveries to inventory. “The improving economy, lower unemployment and a growing population have contributed to the momentum driving the Phoenix office market,” said Lee & Associates Senior Research Analyst Matt DePinto.

Overall vacancy has dropped to 19.5 percent, a decrease of 70-basis points from Q3 and the lowest vacancy rate in more than seven years. Quarterly absorption settled at 1,876,435 SF and is the highest net absorption since Q1 2006. Absorption for 2015 came in at 3,358,813 SF. The fourth quarter’s strong performance represents nearly 56 percent of the yearly total.

Building completions this quarter totaled 1,474,553 SF and 3,560,159 SF. In Tempe, several large projects such as the 375,000 SF Marina Heights, Building D (which is part of the much larger State Farm campus) delivered as well as its neighbor on Rio Salado Parkway, Hayden Ferry Lakeside III, which delivered 264,235 SF to inventory. Also notable was the Scottsdale Quarter, Phase III, which added 169,189 SF to the Scottsdale Airpark submarket.

Collectively, rental rates continued to increase modestly, settling at a combined total of $22.92 per SF (full-service). The Airport Area, Scottsdale Airpark and Scottsdale South submarkets saw the most increases, while the Glendale and Tempe submarkets declined slightly.

In the largest lease transaction for the quarter, AAA leased 206,155 SF at 5353 W. Bell Rd., Glendale, while second place was for 116,982 SF at Centrica (a former big box retail location-turned back-office space) 1550 W. Southern Ave., Mesa. It was leased by Santander Consumer USA. The largest sale transaction for the quarter was LBA Realty’s purchase of four high-rise buildings totaling 906,376 SF at Camelback Esplanade for $244,857,628 or $270.15 per SF.

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