Greater Phoenix office market posts strongest first quarter in seven years according to Colliers International

Nation's second-largest employment growth fuels demand for office space

Phoenix, April 16, 2019 – The Greater Phoenix office market posted its strongest first quarter in seven years, according to a recent report released by Colliers International in Arizona. The metro area posted the nation’s second largest increase (±3.1 percent) in non-farm employment February 2018 to February 2019, which has fueled demand for office space. Job growth during the first two months of 2019 averaged 3.1 percent, which is nearly double the national average. Gains were largest in the construction, education, health services and manufacturing sectors. Download the report.

Preliminary estimates indicate that metro area employers added nearly 64,300 new jobs in the time frame noted above. According to the Bureau of Labor Statistics, this places Phoenix-Mesa-Scottsdale second only to Metro Orlando in job growth.

During the first three months of 2019, Greater Phoenix experienced 850,000 square feet of net absorption, which is the second highest first quarter reading in the past seven years. This level of activity is fueling new development and rental rate increases. By comparison, the office market posted net absorption of just 77,000 square feet in fourth quarter 2018.

The city’s largest leases for the quarter were for properties in Tempe and Chandler. Voya Financial leased 151,359 square feet at Allred Park Place in Chandler. Voya plans to employ 1,000-plus workers in the space. Additionally, WeWork leased nearly 70,000 square feet at The Watermark in Tempe.

Significant tenant movement during the past three months included Northern Trust’s expansion of its Tempe-based regional headquarters at Discovery Business Campus. Freedom Financial moved into its Tempe facility at RIO2100. Allstate Insurance took occupancy at One Chandler Corporate Center and Deloitte moved into Nationwide Realty’s property called The Commons at Rivulon.

The office space vacancy in Greater Phoenix fell to 13.6 percent during first quarter, which is 160 basis points lower than one year ago. This marked the eighth straight quarter of office vacancy declines for the metro area. Every property class has experienced improvement. The Tempe submarket boasts the lowest vacancy at 6.8 percent, while Deer Valley Airport is behind it with 10.9 percent vacancy. Other low vacancy submarkets include South Tempe/Ahwatukee at 11.3 percent, the 44th Street Corridor with 11.4 percent vacancy and Scottsdale Central with 12.5 percent.

Healthy market conditions are pressuring rental rates up. The average asking rent during first quarter was $25.63 per square foot, up nearly 5 percent from a year ago and elevated 3.3 percent from fourth quarter 2018.

Deliveries of new space have been declining in recent quarters, but the pipeline for new projects remains robust. During first quarter, 944,000 square feet of new space came online. Currently, just short of 2.3 million square feet are under construction. Tempe and Chandler submarkets are leading the metro area in new development with more than 961,000 and 748,000 square feet of space underway respectively. During the past five years, developers have added more than 3.6 million square feet to Tempe’s market and 2.6 million square feet of office space to Chandler.

Investment sales of office properties also improved during the first quarter of 2019. Sales volume increased 19 percent to $387 million in 48 transactions. The median price per square foot remained steady at $147, with cap rates at 7.1 percent. Cap rate levels have averaged in the high-6 percent to low-7 percent range for the past year, which reflects robust investor interest in Greater Phoenix quality office assets.

The outlook for the Greater Phoenix office market remains optimistic through 2019. Vacancy is expected to rise slightly as some speculative office projects come online with vacancy to lease. Net absorption should total approximately 2.5 million square feet in 2019, which is below the 3.1 million average we have posted since 2014. Rental rates will rise as new construction puts pressure on the averages, but the rate increases will be moderate. Construction activity will escalate this year, as more projects break ground in the coming months.

About Colliers International
Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning more than 40% of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management.

Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers and LinkedIn.

Colliers International in Arizona has served clients locally and globally for more than 35 years.


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Thomas Brophy

Research Director

Phoenix

As the research director for Colliers International in Arizona, I manage the research department entrusted with all market data and analysis activities. I am committed to providing cutting-edge research services, integrating innovative approaches to data streaming, and improving how the organization synthesizes and scales research data. My creative outlook significantly enhances research services for clients and brokers.

In addition to publishing quarterly statistical reports for each property discipline, I maintain a database of economic indicators to provide forecasts, and analyze and interpret real estate trends. I produce customized research reports on behalf of brokers and clients, prepare market presentations and develop ad hoc research projects in support of business development.

Collaborating with other service lines and professionals, our research team provides the data necessary to support clients and brokers. Data compilation includes ownership, zoning, land use, property sales and demographics. I actively participate in broker meetings and regional and national research calls to present market research and trends analysis. Our research team develops reliable statistical information for vacancy, rental rates, lease and sale comparables, cap rates, absorption, and construction and renovation trends across property lines, including office, industrial, multifamily retail, healthcare, hotels and land.

My extensive experience includes collecting, analyzing and preparing market and economic data and research, as well as expertise in corporate communications, investor relations, strategic planning, brand management and public speaking. Prior to joining Colliers, I was director of research for ABI Multifamily, where I developed market reports and research data used in marketing materials for ABI offices in Phoenix, Tucson, Sacramento and San Diego. I oversaw all data collection and reporting, wrote monthly market insight articles, and developed market podcasts.

As director of research and partner for Neighborhood Ventures (a multifamily investment firm), I collected, analyzed and wrote market data reports for use in investor presentations, offering materials and corporate communications. As principal with EPU Investments, I directed business and research operations for a multi-divisional investment company involved in single- and multifamily development and land services, including farming and water rights assessments and acquisitions.

Serving as an affordable housing specialist at Hendricks & Partners (now Berkadia), I provided assistance, research and guidance in creating the affordable housing division, and assisted brokers and clients in the acquisition and disposition of assets across the U.S.

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