LEASING ACTIVITY HAS STEADILY ACCELERATED since the start of the Covid-19 pandemic in 2Q 2020 and is on pace to finish the year at pre-pandemic levels. Although leasing volume picked up in the recent quarters, sublease availability reached an all-time historic high of approximately 4.8M SF. While some companies have become secure again in moving forward to lease more space, other tenants that are now permanently remote have relinquished office space, thus the concurrent rise in leasing activity and sublease availability.
WITH THE INCREASE OF MOVE-OUTS over the past year due to the pandemic, coupled with the addition of speculative office space in the past two years, vacancies have risen more than 200 basis points since Q4 2019.
AFTER A YEAR AND A HALF of waiting to see how things shake out, investors and developers have regained confidence in the market which has contributed to an increase of sales activity in the past few months. Buyers have sought out single tenant properties net leased by strong credit tenants, as well as medical offices that offer stability.
ACCORDING TO THE ARIZONA OFFICE of Economic Opportunity, Phoenix metro’s unemployment rate in August decreased 24 basis point YOY to 4.2%. This is compared to the state’s rate of 6.2% and national rate of 5.2%.
THE LOCAL ECONOMY IN PHOENIX has been one of the most resilient throughout the country during the pandemic and maintains its place among the best-performing markets for job growth. The competitive advantage and growth drivers such as affordability and job prospects are stronger than ever.
ALTHOUGH THERE IS STILL A DEGREE OF UNCERTAINTY about the pandemic’s long-term effect on office space use, decision makers seem to be more comfortable making long-term leasing decisions again which will gain a steady momentum of positive growth into the coming quarters.
THE AFFORDABILITY OF THE PHOENIX MARKET will continue to attract tenants looking to relocate to the west coast without having to pay the premiums when compared to the nearby coastal markets. Rent reductions are expected in the near future as the growing share of available space, both direct and sublet, will limit the ability for landlords to raise rents.
DATA SOURCE: COSTAR, AZ COMMERCE, ARIZONA LABOR OF STATISTICS