ALTHOUGH LEASING VOLUME picked up over the last year, the office market experienced a weakened demand in the second quarter, down almost 37% since Q1. Sublease availability reached an all-time high of approximately 6.1M SF, nearly triple the amount since the start of the pandemic, a number the market has never experienced.
THE CONSTRUCTION PIPELINEhas slowed this year and new deliveries are expected to be lower in volume when compared to the last few years, expecting to end the year at 2M SF of projects coming online. The Phoenix office market can benefit from the slower pace of construction which will reduce the risk of significantly higher vacancies. However, the new supply coming online will still outpace the slow demand in the next year.
OFFICE INVESTMENT in the Phoenix market has generally been in line with recent trends, however, sales volume dipped YOY to 1.7M SF. Investors continue to seek out single tenant properties net leased by strong credit tenants, as well as medical offices that offer stability and safety among the uncertainty surrounding the onset of the foreseeable recession.
ACCORDING to the Arizona Office of Economic Opportunity, Phoenix metro’s unemployment rate in May decreased 200 basis points YOY to a 20-year record low of 2.9%. This is compared to the state’s rate of 3.2% and national rate
THE PHOENIX local economy remains among the best-performing markets for job growth and was recently ranked 4th in the nation for best performing metro. Additionally, the market has welcomed many new residents into the labor force. From July 2020 to July 2021, Phoenix reported the largest numeric change in its population compared to other U.S. cities with 50,000 people or more, adding 13,224 new residents.
MANY COMPANIES in the valley have started to map out their “return-to-office” plan, and office space is still needed among tenants as going completely remote is not an option for many. Companies are trying to find the work-life balance for their employees, thus continuing the trend of migrating to the suburban market closer to where their workers live.
WHILE MOST of the 1.6M SF currently under construction is due to complete this year, the development pipeline is at its lowest levels in over 10 years. This will help keep vacancies from increasing notably in the near future.
DATA SOURCE: COSTAR, AZ COMMERCE, ARIZONA LABOR OF STATISTICS, AZ BIG MEDIA
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