“The real growth is happening in the ICEE sector,” says Bob Mulhern, managing director of Colliers International in Greater Phoenix. He is referring, in terms of economic development nationally, to the growing importance of intellectual capital, education and energy (ICEE) companies compared to those in the areas of finance, insurance and real estate (FIRE). In Arizona, “we need to reposition ourselves to appeal to ICEE businesses,” he states.
Metro areas around the country that have established a reputation as being involved in the new ICEE industries now driving economic growth include Austin, Texas; Denver; and the Bay Area. This is the company Mulhern believes Metro Phoenix should try to become identified among. The market he’s been involved in for 30 years is currently, he says, “being compared to Las Vegas and Salt Lake City” — which are more heavily in the FIRE camp.
Our momentum toward the new school of businesses, the ICEE companies, has begun, however. Tyler Wilson, vice president with Cassidy Turley, who has a decade of experience in the Phoenix market, says the number of high-design, Web design, software, computer-oriented, energy and education companies “has definitely grown in Phoenix.” Such growth is an important complement to what Wilson calls “the old school” — FIRE — to make our economy more diverse and sustainable.
Looking at the last 50 leases of 20,000 square feet or more that his company has done in this market — most of them in 2012 — Wilson found that 29 were “old school” that included JPMorgan Chase, State Farm Insurance and Humana. IPOWER, Integration Software, Spectrum Labs and Infusionsoft are among the 21 ICEE, or “new school,” businesses, which, although they are taking up big blocks of space, do not have the “really big footprints of space” of a company like State Farm. “But back a few years, the ratio was probably far heavier on old school,” Wilson adds. “And deals that are in the pipeline are trending toward ICEE.” With this trend, Wilson expects the 60:40 FIRE to ICEE ratio to soon become 50:50 and even flip as soon as this year. And he estimates the ratio of total square footage is similar to the number of businesses.
Intel, the technology giant that is one of the Valley’s leading companies, has made a mark in the real estate realm as well. Mulhern notes that its FAB 42 building in Chandler, during its construction, was the largest capital expenditure project in the world. “That drives all kinds of opportunity,” he says, pointing out that Intel’s suppliers also need a lot of manufacturing facilities and office spaces.
“The Intel effect is huge,” says Colliers’s research manager Pete O’Neil, referring to its employees and its suppliers. “Chandler is a hot bed for an intellectual capital base.” And Phoenix’s winning TGEN less than a decade ago, says his colleague, Mulhern, “goes a long way in helping us reposition ourselves.”
O’Neil also notes the Phoenix market is big for data centers, because of the region’s lack of natural disasters. “It’s not a lot of jobs, but it has an economic impact.” And the East Side can claim a lot of solar-related businesses. Other pockets around the Valley include Central Avenue in Phoenix, with a high concentration of law firms.
Other single users that need a lot of space include energy companies, observes Mulhern. “Whole buildings are being taken … for energy companies.”
Activity has increased again for flex office space. It’s not congregated in any single specific area, but just what a business identifies as a central location when “they find an area for the work force that feeds them,” Mulhern says.
While Mulhern says the real estate industry “fulfills the demand rather than creates it,” he points to the important role of his industry in finding adaptive reuse spaces for charter schools — a part of the education system getting increased attention. “As we bring up the level of education, it helps attract ICEE businesses.”
Accommodation for parking becomes a greater concern for real estate development as a result of the FIRE to ICEE trend. While parking requirements of six spaces per 1,000 feet of leased space were seen only with call centers, “now it’s just a norm with a traditional office lease,” says Wilson. The reason is ICEE tenants are more collaborative users, and they tend to have spaces filled with more cubicles and fewer private offices. “The average square foot per person is less, so the stress on parking is greater.”
He sees parking demand increasing in urban areas from two-and-a-half to four per 1,000 square feet; in suburban areas, from four to five; and for freeway buildings in the suburbs, from five to as much as eight.
Observing that ICEE companies are generally startups — as opposed to established companies that can afford the more expensive build-to-suits — Wilson says that rehab of offices needs to focus on how to address parking. New office projects, he says, “are all being built with the six-per-thousand in mind.”
But there are opportunities in midtown, and Central Avenue has been enjoying a resurgence because it can offer ICEE tenants less expensive office space — being on the light rail line enables employees to use mass transit so companies need less parking. “One Thomas,” located on Thomas Road at Central, is, admits Wilson, “underparked by the new standard.” But it is right on both a rail and bus stop. “One Thomas is being rebranded as a building of the future, for ICEE users specifically,” Wilson says. It will have a coffee shop and a work co-op environment; it has leased space to venture capital incubator The Seed Spot, and has held Arizona Technology Council events.
Saying he works a lot with the economic development offices of Chandler and Tempe and knows first-hand that they are making an effort to land knowledge-based companies, Wilson adds he would be surprised if other Valley cities didn’t all share the same thoughts.
“Phoenix is in a unique position regarding the shift from FIRE to ICEE,” O’Neil says, noting the strength of the FIRE companies already here but also the “patterns of emergence” in ICEE. “It’s exciting for our market.”
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