LEASING ACTIVITY slowed substantially since the start of the pandemic and the market continued to experience a weakened demand in the first quarter, down 33% from the same time last year. Sublease availability more than doubled year-over-year, as it reached an all-time high of approximately 4.1M SF, the most amount of sublet space on the market in over 15 years.
WHILE MANY OFFICE TENANTS are slowly learning to navigate some of the initial challenges that they faced due to the tumultuous effects of COVID-19, they continue to have to reevaluate their space needs as the office culture will inevitably evolve. Employees will continue to work from home, possibly return to the office, or a hybrid of both, which will affect the future size requirements for employers.
AVERAGE ASKING RENTAL RATES remain at record high prices, despite the slowdown experienced in the market. However, rental rates in the Phoenix office market are more affordable than most large metros and as such, the market will benefit from those businesses leaving or expanding outside of nearby expensive metros.
PHOENIX LOST FEWER JOBS (on a percentage basis) than any other large metropolitan area and maintains its place among the best-performing markets for job growth. A recent study by EMSI placed the Phoenix Metro as the top ranked county in the nation based on the ability to attract and retain quality workers and other economic-development factors.
PHOENIX METRO’S UNEMPLOYMENT RATE in January increased 1 basis point month-over-month to 6.7%, according to the Arizona Labor of Statistics Office of Economic Opportunity. This is compared to the state’s rate of 7%. Phoenix lost about 240,000 jobs in the start of the pandemic, but the sharp job losses were temporary with about 60% of those job losses recovered.
THE WIDE DISTRIBUTION of vaccines and the remaining COVID-19 restrictions being lifted statewide has created some optimism in the market, as the road to an eventual economic recovery becomes more of a realistic possibility in the long term.
DEMAND FOR LARGER blocks of space may decline as companies continue to evaluate their space needs and reduce their office footprint while many employees continue to work from home.
AN INCREASE in vacancies and availabilities will add rent pressures over the next coming quarters. Sublease availabilities will also put pressure on rents since these spaces are offered at a discounted rate when compared to direct marketed space.