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September 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

Office vacancy in Phoenix continues to climb steadily as the third quarter begins. Many tenants are reevaluating their space utilization, often leading to downsizing or closures. Moreover, job growth in sectors that typically require office space has been slow for over two years. This structural decline in demand has driven vacancy rates up by more than 550 basis points since Q4 2019. With pre-pandemic leases set to expire, vacancies are expected to rise further in the midterm.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 198M 16.8% $29.48 -894K 945K
4 & 5 STAR 68M 26.9% $34.03 -236K 526K
3 STAR 91M 13.1% $28.72 -469K 419K
1 & 2 STAR 38M 7.4% $23.07 -190K 0

INDUSTRIAL MARKET

A surge in new development completions is pushing Phoenix’s industrial vacancy rate higher, a trend that may continue through mid-2025. The second quarter marked the fourth straight quarter with over 10 million square feet of net deliveries, totaling an unprecedented 39.6 million square feet over the past year. By contrast, Phoenix averaged just 8 million square feet of annual net deliveries in the three years before the pandemic.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 477M 11.0% $13.67 1.9M 30M
LOGISTICS 349M 13.3% $13.16 1.5M 25M
SPECIALIZED 95M 3.4% $13.79 391K 5M
FLEX 33M 8.2% $18.96 71K 451K

MULTI-FAMILY MARKET

The Phoenix multi-family market showed further signs of recovery in the first half of 2024. With inflation easing and consumer confidence rising, more renters are forming households, leading to a resurgence in tenant demand. While new supply still exceeds leasing activity, the decline in occupancy rates and rents is starting to level off, suggesting the market could be nearing the bottom in terms of property performance.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 399K 10.8% $1,593 5,258 28K
4 & 5 STAR 191K 12.2% $1,805 3,806 22K
3 STAR 145K 10.0% $1,453 1,418 6K
1 & 2 STAR 63K 8.1% $1,183 34 155

RETAIL MARKET

As summer comes to a close, the Phoenix retail market remains near its tightest levels on record. Strong demographics, rising incomes, and steady job growth are driving robust tenant demand. This solid demand, along with a modest construction pipeline and minimal store closures, has kept space availability low and rent growth near historic highs.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 244M 4.8% $25.41 143K 2.9M
POWER CENTER 33M 4.0% $28.26 24K 156K
NEIGHBORHOOD CENTER 92M 5.6% $24.78 57K 202K
GENERAL RETAIL 86M 3.1% $24.31 106K 1.7M
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