With over 3.0 million square feet of positive net absorption in 2016, Phoenix ended the year with the second highest total in the U.S. and looks to continue that trend into 2017. Absorption in the first quarter was led by the Tempe (596,248 s.f.), Airport Area (189,316 s.f.) and Chandler (123,183 s.f.) submarkets. Significant size lease commencements include:
• State Farm Insurance – 443,000 s.f. at 600 East Rio Salado Parkway (Tempe)
• Farmers Insurance – 150,000 s.f. at 24000 North Farmers Way (Deer Valley)
• DriveTime/Carvana – 135,663 s.f. at 1930 W Rio Salado Pkwy (Airport Area)
• Infusionsoft – 100,622 s.f. at 1450 South Spectrum Boulevard (Chandler)
New construction in Phoenix is slightly outpacing office demand. Of the 1.1 million square feet of new office space delivered in Q1 2017, more than 56 percent of it was preleased. An additional 784,000 s.f. of speculative office product is scheduled for delivery by the end of 2017. Ryan Companies is currently under construction of the regional headquarters for healthcare company McKesson. Located in the South Scottsdale submarket, McKesson’s 271,000-square-foot office campus is slated for completion in 2018. Total vacancy recorded a slight uptick from the previous quarter as new speculative space and move-outs of large tenants, such as University of Phoenix and State Farm’s old campus, added vacant space to the market.
State Farm’s Marina Heights regional campus in Tempe is finally complete.The build-to-suit Class A office complex has added nearly 2.1 million square feet of fully occupied office space to the Tempe submarket since 2015. Home to Arizona State University, Tempe is strategically situated near a well educated workforce and easy freeway access. Even with average asking rents approaching $30.00 p.s.f., the submarket will continue to attract companies looking to expand or relocate in the Valley.
“Since 1990, there have been three significant cycles that have dramatically impacted the Phoenix economy and its office rents, and each cycle contained a period of peak and trough rental rates. This creates some level of predictability, and – as predicted – history is repeating itself,” says Dennis Desmond, senior manager director at JLL.