Q2 Office Market
- Not only does Greater Phoenix continue to lead the country in job creation, it also remains #1 for population growth (three years running).
- During the 12-month period ending in May, preliminary estimates show that employers added 66,500 net new jobs, an increase of 3.2 percent which places Greater Phoenix #1 in overall job growth for the country.
- Overall the Greater Phoenix office market performed well during the second quarter; net absorption remained positive with a little over 96,000 square feet absorbed.
- Employers continue to add workers at a very active pace, fueling tenant demand for office space and fueling new development.
- Despite delivering over 1.4 million square feet through the first half of the year, tenant move-ins still outpaced new construction, which drove vacancy down to 13.3 percent, 30 basis points (bps) lower than Q1 and 260 bps lower over-the-year.
- Continued vacancy declines are supporting rent growth, with asking rents ending the first quarter at $25.77 per square foot, up 4.5 percent from one year ago.
- Investment sales volume increased over-the-quarter by 10 percent to $424 million across 49 transactions. The median price per square foot spiked to $172, with cap rates resting at 7.5 percent.
OUTOOK: The outlook for the Greater Phoenix office market continues to remain bright in both the mid-to-near-term as local businesses continue to expand and new companies continue to bring operations to the Valley. Strong job growth is supporting demand for office space; and with the overall vacancy rate tightening, new development is gaining momentum.
Projects totaling more than 2.4 million are under way and development of new projects, or additional phases of current projects, will likely enter the development pipeline in the coming quarters.
Markets remained robust for most of the second quarter and the drag on real estate prices many were expecting, as a result of rising rates, has not materialized. With a more dovish Fed, and more talk of QE 4 (Quantitative Easing), expect elevated demand for commercial real estate assets to continue, especially as yields continue to plummet (particularly across fixed income instruments a la Treasury notes) and as investor need for cash flowing vehicles, due in large part to changing demographics, continues to rise.