After a bit of a slow start to the year, the Greater Phoenix investment market bounced back during the second quarter

Overview

  • Total activity was up during the second quarter, led by increases in office and industrial properties. Prices continue to creep higher, which is consistent with improving property fundamentals. The outlook for the second half of this year calls for continuations of the prevailing themes from the first half of the year.
  • Sales velocity was mixed during the second quarter. Activity accelerated in office and industrial properties, but slowed in shopping centers and in medical office condos. In most cases, transaction activity in the first half of 2018 is closely tracking levels from the first half of last year.
  • Sales prices rose for the most part, with some of the greatest gains recorded in traditional office and medical office properties. Prices for industrial buildings have been recording steep gains for the past few years, but have leveled off a bit thus far in 2018.
  • Cap rates were mostly flat during the second quarter, averaging in the high-6 percent to mid-7 percent range across the Greater Phoenix commercial property sectors. Cap rates have remained low despite upticks in interest rates due to strong investor demand for quality assets.

Office

  • Sales of office buildings spiked during the second quarter, advancing by more than 40 percent from the first quarter number. The area of the market where the increase in activity was most dramatic was in buildings that sold between $10 million and $25 million; transaction activity in this size range more than tripled from the first quarter to the second quarter.
  • Sales prices are on the rise. The median price advanced to $195 per square foot during the second quarter, bringing the figure for the first half of the year to $166 per square foot. In 2017, the median prices was $151 per square foot.
  • Cap rates averaged 6.9 percent during the second quarter, slightly lower than first quarter average. Thus far in 2018, cap rates are averaging approximately 7 percent, with most properties trading in the mid-6 percent to mid-7 percent range.

Medical Office

  • Sales of medical office condos slowed by about 25 percent from the first quarter to the second quarter and transaction counts for the first half of this year are down 25 percent from the same period last year.
  • Despite a slowdown in sales activity, prices for medical office condos rose in recent months. The median price in the second quarter reached $234 per square foot. Thus far in 2018, the median price for medical office condos is $218 per square foot.
  • After light sales volume in traditional, non-condo medical office buildings to start the year, activity accelerated in the second quarter. Sales velocity in the first half of this year is now ahead of the pace recorded in the first half of 2017 by 25 percent.
  • The median price in sales during the second quarter rose to $190 per square foot, and the year-to-date median price is now up to $178 per square foot. Cap rates inched higher in the second quarter, but are generally averaging in the 7.0 percent to 7.25 percent range.

Industrial

  • Sales of industrial buildings rose by 12 percent from the first quarter to the second quarter. Sales velocity has been increasing at a steady pace; transaction activity year to date is also up 12 percent when compared to the first half of 2017.
  • The median price in sales during the second quarter was $97 per square foot, nearly identical to the median price in the first quarter. To this point in 2018, the median price is $98 per square foot, up 5 percent from the median price in 2017.
  • Cap rates have been very steady thus far in 2018, averaging 6.8 percent in each of the first two quarters of the year. This is down approximately 20 basis points from the 2017 average cap rate.

Shopping Centers

  • Sales velocity for shopping centers dipped by 17 percent in the second quarter. Sales of smaller strip centers accounted for approximately one-third of the total transactions during the second quarter.
  • Following a steep spike at the beginning of the year, sales prices retreated during the second quarter. The median price in shopping centers sold during the second quarter was $139 per square foot, down approximately 25 percent from the first quarter figure. Year to date, the median price is $160 per square foot.
  • Cap rates for most shopping centers that sold during the second quarter were in the low- to mid-7 percent range, up slightly from the first quarter average. Year to date, cap rates have averaged approximately 7.3 percent.