LEASING VOLUME PICKED UP since last quarter and increased YOY as well, although the market continued to experience a weakened demand in the second quarter when compared to pre-pandemic activity. Sublease availability nearly doubled year-over-year, reaching an all-time high of approximately 4.5M SF, a number the market has never experienced.
ALTHOUGH THE CONSTRUCTION PIPELINE has delivered a record high volume year-to-date, the Phoenix office market can benefit from the slower pace of construction of the past couple years 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.
INVESTORS HAVE SOUGHT OUT SINGLE TENANT PROPERTIES net leased by strong credit tenants, as well as medical offices that offer stability and safety among the uncertainty surround the current climate.
PHOENIX METRO’S UNEMPLOYMENT RATE in May decreased 39 basis point year-over-year to 6.2%, according to the Arizona Office of Economic Opportunity. This is compared to the state’s rate of 6.7%.
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. The sharp drop in employment was temporary, and the Phoenix economy has recovered at a relatively swift pace, gaining back approximately 75% of the lost jobs from the previous year.
ALTHOUGH THERE IS STILL A DEGREE OF UNCERTAINTY about the pandemic’s long-term effect on office space use, the wide distribution of vaccines and slow return to the office has created some optimism in the market towards the road to recovery.
RENT REDUCTIONS are expected to persist in the coming quarters as the growing share of available space, both direct and sublet, will limit the ability for landlords to raise rents. 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.