Market Information: Phoenix

 

Economy
Office
Flex/High-Tech

 

Economy:  Year-End 2008

Valley Economy: Job Losses Persist

The Valley’s economy is deteriorating as Greater Phoenix lost 51,500 jobs in the 12 months ending October 2008 – a 2.7% drop – its weakest performance since 1975.

The Greater Phoenix unemployment rate rose 5.5% in October 2008 from 3.4% one year earlier. The national unemployment rate was 6.5% in October. The unemployment rate in Greater Phoenix is the fourth-lowest among large metro areas in the nation.

 

Office Market:  Year-End 2008

Demand: Stalled

Phoenix's overall vacancy rate continued to climb through the 4th quarter of 2008, and it is now the highest among metro areas.  A soft job market should continue to depress office demand in 2009, causing vacancy to rise and rental rates to fall.  Investment sales prices reached a record high in 2008, although the average was boosted by the record sale of Portales I & II in Scottsdale South for $383/SF.  Other sale prices, particularly in the second half of the year, were down.

Highlights:

  • Net absorption of office space totaled negative 132,000 SF in the 4th quarter, after positive 394,000 SF of absorption in the 3rd quarter.  For all of 2008, Greater Phoenix absorbed positive 833,000 SF, about half of the 1.6 million SF absorbed in 2007.
  • Available sublease space grew by 81,000 SF in the 4th quarter of 2008, after growing by 55,000 SF in the 3rd quarter.  Available sublease space now represents 1.4% of standing inventory.
  • The overall vacancy rate in Greater Phoenix increased to 18.9% at year-end 2008 from 17.1% at 3rd quarter and 13.4% a year ago.  The direct office vacancy rate was 17.5% in Greater Phoenix at year-end 2008, up from 15.8% in the 3rd quarter and 12.2% a year ago.
  • There is 3.9 million SF of office space under construction or renovation in the Valley at year-end 2008, down from 5.8 million SF in the 3rd quarter and 7.0 million SF a year ago. 20% is pre-leased, compared with 14% in the 3rd quarter and 28% a year ago.
  • During 2008, 7.9 million SF of office space has been delivered, including renovations, with 29% leased upon delivery.  This compares to the 4.7 million SF delivered in 2007 at 43% leased upon delivery.
  • Class A rents in Greater Phoenix decreased by 3.2% during 2008, with only a few submarkets producing rent growth.   
  • Office investment sales totaled $1.3 billion in Greater Phoenix in 2008, less than half of the $3.1 billion sales volume recorded in 2007. Pricing declined in the second half of the year as the credit crunch took hold of the Phoenix market.

 

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Flex/High-Tech:  Year-End 2008

Highlights:

  • The Greater Phoenix flex/high-tech market took a downward turn in the 4th quarter of 2008.  Net absorption in the Valley totaled negative 399,000 SF in the 4th quarter, erasing modest gains made in the 3rd quarter.  Net absorption for the year stands at negative 393,000 SF.  In comparison, 1.4 million SF of flex/high-tech space was absorbed in 2007.
  • Available flex/high-tech sublease space increased by 5,500 SF in the 4th quarter of 2008 and represents 1.0% of the flex/high-tech standing inventory. 
  • The overall flex/high-tech vacancy rate increased to 18.0% at year-end 2008, from 16.0% in the 3rd quarter and 12.4% one year ago. The direct vacancy rate at year-end 2008 is 17.0%, up from 15.0% in the 3rd quarter and 11.9% one year ago.
  • There are eight flex/high-tech buildings under construction or renovation in the Valley at year-end 2008, totaling 169,000 SF at 0% pre-leased.  This compares to 732,000 SF one year ago at 31% pre-leased.
  • Twenty-seven flex/high-tech buildings were delivered in 2008, adding 1.2 million SF to the inventory, at 11% pre-leased. This compares to 859,000 SF delivered in 2007 at 29% leased.
  • Flex/high-tech rents fell 2.5% during 2008 as a result of negative absorption and steady deliveries, particularly in the second half of the year.
  • Sales volume of flex/high-tech buildings totaled $419 million in 2008, compared to $425 million in 2007. Flex/high-tech sale prices have averaged $124/SF in 2008, compared to $144/SF in 2007.

 

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