Phoenix Office Market Growth Paused In '16: What Next?
The greater Phoenix office leasing and investment sales lull, which came before the election, or during much of 2016, seems to be over, Savills Studley executive vice president and Phoenix branch manager Tiffany Winne said.
“Phoenix and most other metropolitan areas saw subdued activity in the lead up to November’s elections," Winne said. "Hiring leveled off a bit compared to recent activity levels, but the local sentiment suggests that continued growth is ahead.”
2016 seemed to be something of a pause for Phoenix's office market. While the region continues to attract big-name tenants migrating from Los Angeles, Chicago and other high-cost metros, leasing and sales activity slowed in 2016. Over the last four quarters, tenants have leased 2.5M SF less than the long-term average, according to Savills Studley data.
The overall availability rate for the Phoenix region closed 2016 at 21.5%, well above the U.S. average of 17.1%, and relatively flat compared to the rate a year ago.
Office property sales in greater Phoenix totaled $1.4B for the first 10 months of 2016, a 38.1% decline from the same period of 2015. Despite this deceleration, business migration to the metro is expected to continue, as record asking rents for new product in the most coveted Phoenix submarkets still account for one-third to half the price per SF of Class-A space in Los Angeles, San Francisco or Manhattan, Winne said.
Phoenix’s overall average asking rent rose to $23.43/SF during the final quarter of 2016, according to Savills Studley. At $27.97/SF and $23.43/SF, average Class-A and overall asking rents are up 5% and 5.9%, respectively, from year-end 2015. Tempe and Scottsdale South submarkets saw the highest jumps in rent from Q4 2015.