The first Valley Partnership Friday Morning Breakfast of the year took place this morning at Phoenix Country Club. In addition to an economic update from Cave Creek Mayor Vincent Francia, the breakfast included a panel forecast for the real estate industry in Phoenix in 2014. The all-star panel included Colliers Executive Vice President Mindy Korth, Cushman & Wakefield Vice Chairman Larry Downey, and Strategic Retail Group Partner Matt Milinovich. Here are the key takeaways from the forecast:
- At the end of 2013, retail vacancy rates were at just over 10 percent. Rates are expect to reach 9.5 percent or below by end of 2014.
- Lowest submarket vacancy rates in Surprise, North Scottsdale, Peoria and Gilbert. All are under eight percent.
- Retail rental rates have been on decline since 2007. With 2013 expected to be bottom of decline, market should see leveling off in 2014.
- 3.5 million square feet in positive net absorption in retail. This is up from a low of -2.5 million in 2009.
- Quick service restaurants is one of fastest growing user areas in sector.
- Office sector saw just under 2 million square feet of net absorption last year. This is approaching pre-recession figures.
- While vacancy rates are still high, Phoenix has a comparable absorption rate to other similar markets.
- Job growth is on the rise.
- 17 million square feet still available on market to be absorbed. This figure ranks 20th nationally.
- Because of abundance of space, there is great competition among owners to attract tenants in the 8,000 to 10,000 square foot user category.
- Projection: “Demand for office space will climb, but it will be an arduous climb,” said Downey.
- Office price per square foot is down slightly from 2012. This is actually good news as it means the middle of the market has come back.
- Office sales totaled $1.4 billion last year at an average of $131 per square foot.
- Retail sales totaled 599 million last year at an average of $97 per square foot. Q4 showed strong volume and accounted for about 1/3 of the year’s sales totals.
- Industrial sales totaled $962 million at $75 per square foot.
- Projection: Prices will be on the rise and more properties will sell above replacement cost. REO seller activity will be down due to less inventory. Sales volume will accelerate for well-located infill adaptive/reuse projects. Transaction volume will be up 10-15 percent. Cap rates will continue to compress for high-quality assets, according to Korth.