Q3 2020 Office Market
COVID-19 encouraged us to re-evaluate how we track and categorize absorption and vacancy as sublease space became a noteworthy factor here in Greater Phoenix. Previously, if a tenant placed space in the market for sublease and had moved out of the square footage, we categorized the move as negative absorption and increased sublease vacancy.
However, COVID-19 peeled open a flaw in the previous recordings. The tenant maintains an agreement with the landlord and is contractually obligated to pay rent for the space until a new subtenant has filled the available space even though the tenant has moved out. Because the space remains leased, though perhaps not occupied, we will not consider such vacancy as negative net absorption. Instead, absorption will be tracked on a leased status basis, regardless of tenant occupancy.
- Net absorption remained positive for the 34th consecutive quarter, ending at 109,718 square feet
- Maintaining positive absorption was possible despite the 32% increase in sublease availability over-the-quarter and a sublease space increase of more than 133% year-over-year
- The direct vacancy third quarter settled at 12.7%, slightly increasing 20 bps over the quarter
- Class A direct vacancy rates, currently 13%, increased 10 bps over-the-quarter but decreased 40 bps year-over-year
- Year-over-year rental rates increased 6.8% to a current average of $27.94 PSF
- Class A building asking rents increased 0.50% over-the-quarter and 5.1% year-over-year to $32.25 PSF
- Class B building rents rose 0.80% over-the-quarter and 3.90% year-over-year to $24.80 PSF
- Deliveries in third quarter increased inventory by 448,785 SF, bringing YTD construction completion to 1,859,700 SF
- Number of investment deals increased 24%; however, sales volume decreased by 40% over-the-quarter and 79% year-over-year
- This marked the lowest quarter of sales volume in the past five year with just $155,153,536
The upcoming election has placed Phoenix in the spotlight and positioned us as the nation’s top market for political advertising spending. At a local level, there are state propositions that could impact our economy and image as a pro-business city.
In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.