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August 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

As the third quarter begins, office vacancy in Phoenix continues to rise steadily. Many businesses are reassessing their space needs, often leading to reductions or closures. Additionally, job growth in traditional office-using sectors has been sluggish for over two years. This structural decline in space demand has driven vacancy up by more than 550 basis points since Q4 2019, with further increases expected in the midterm as pre-pandemic leases come to an end.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 198M 16.9% $29.65 -998K 962k
4 & 5 STAR 71M 25.9% $34.37 -353K 560K
3 STAR 88M 13.8% $28.64 -484K 402K
1 & 2 STAR 38M 7.4% $23.10 -160K 0

INDUSTRIAL MARKET

A surge in new developments is pushing Phoenix’s industrial vacancy rate higher, a trend that may continue into mid-2025. The second quarter marked the fourth straight quarter with over 10 million square feet of net deliveries, bringing the total to an unprecedented 43.1 million square feet over the past year. In contrast, Phoenix averaged just 8 million square feet of annual net deliveries in the three years prior to the pandemic.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 476M 10.9% $13.61 -1.9M 29M
LOGISTICS 348M 13.1% $13.10 1.5M 24M
SPECIALIZED 95M 3.5% $13.63 304K 4M
FLEX 34M 9.2% $19.14 32K 451K

MULTI-FAMILY MARKET

In the first half of 2024, the Phoenix multifamily market showed signs of recovery. With inflation easing and consumer confidence on the rise, more renter households are forming, leading to a rebound in tenant demand. Although new supply still exceeds leasing activity, the decline in occupancy and rents is slowing down, suggesting that the market may be approaching a low point in property performance.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 396K 11.0% $1,559 2173 30K
4 & 5 STAR 188K 12.5% $1,768 1,097 23K
3 STAR 145K 10.4% $1,419 1,113 7K
1 & 2 STAR 63K 8.2% $1,156 -37 130

RETAIL MARKET

As the third quarter begins, the Phoenix retail market remains near record-tight levels. Strong demographics, ongoing income growth, and solid job gains are driving robust tenant demand. These factors, along with a modest construction pipeline and limited store closures, have kept space availability low and rent growth near all-time highs.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 243M 4.8% $25.14 -3K 2.9M
POWER CENTER 33M 4.3% $28.06 -59K 156K
NEIGHBORHOOD CENTER 92M 5.6% $24.60 -62K 152K
GENERAL RETAIL 85M 3.1% $23.94 34K 1.8M

February 2024 – Knowing the Numbers in Commercial Real Estate

February 10, 2024

The February 2024 in-depth look at Phoenix’s commercial real estate market shows that the office market sees continued uncertainty post-pandemic with increasing vacancies. Industrial spaces face a surge in vacancies due to excessive supply. The multi-family sector experiences rising vacancies despite strong leasing activity, while the retail market thrives with low vacancies and strong rent growth. This analysis highlights key market trends, challenges, and opportunities to guide strategic decision-making.

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