Population Growth, Tech Expansion Will Support Phoenix Office Market In Coming Years
When does success become too much of a good thing? It can when robust office markets inspire overbuilding. That is not something the Phoenix market is facing, according to Avison Young principal and managing director David Genovese in the company's Phoenix office. Bisnow spoke with him recently about the tempo of the market.
Bisnow: Is Phoenix office at risk of overbuilding?
Genovese: Based on the data, I don’t believe there's a current risk for overbuilding. About 2M SF of new office product will be delivered in 2017, but much of that will be build-to-suit. New development this year is actually less than last year, and the pace is expected to slow over the coming years.
Bisnow: What about office rents?
Genovese: Vacancy is at about 17% and rental rates are steadily rising. While we had a small increase in vacancy in the first quarter of 2017, by year-end, the office market will absorb at levels consistent with the past few years.
Steady job growth, combined with the fact that Maricopa County had the highest population growth in the nation in 2016, will fuel office space absorption well into the next several quarters.
Bisnow: Is tech going to be more important as a tenant base in the future?
Genovese: Yes. Tech is an increasingly important economic driver and a very high-growth industry sector for greater Phoenix. It's seen a substantial increase over the past five years and even more rapid growth over the past 18 months.
With ASU and the UofA both having campuses in Downtown Phoenix, we've seen a young, educated and skilled workforce become available to support growth in the technology sector.
Bisnow: Does Downtown or the suburbs have the competitive edge when it comes to attracting tenants?
Genovese: They're both attractive, but appeal depends on the user. Downtown is an urban environment and hub of our tech growth. The move of Quicken from Scottsdale to Downtown Phoenix illustrates that fact. Light rail has also increased accessibility and appeal for Downtown.
The suburbs, on the other hand, continue to attract companies who may be more cost-sensitive, or need to be located closer to their clientele. Finally, suburban office users likely don't rely on proximity to the tech employment base.
Bisnow: Is Phoenix competitive nationally when it comes to site selection? Why?
Genovese: Absolutely. Phoenix has matured in the past few decades. While the climate has always been a draw, the region also offers a low cost of living, affordable housing, a strong and competitively priced employment base and good transportation. Good sites remain available and prices are especially attractive when compared to other key downtown and suburban markets elsewhere in the country.