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December 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

Office vacancy rates in Phoenix continue to climb steadily as the year comes to a close. Many businesses are reevaluating their space needs, often opting for reductions or closures. This trend is compounded by sluggish job growth in traditional office-using industries for over two years. As a result, vacancy rates have risen by more than 550 basis points since Q4 2019. With pre-pandemic leases nearing expiration, further increases in vacancy are anticipated in the medium term.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 197M 16.8% $29.57 166K 753K
4 & 5 STAR 71M 27.0% $34.69 228K 582K
3 STAR 90M 12.7% $28.12 69K 171K
1 & 2 STAR 37M 7.3% $23.18 -131K 0

INDUSTRIAL MARKET

An unprecedented surge in new industrial completions continues to push Phoenix’s vacancy rate higher, a trend likely to persist into 2025. Over the past 12 months, developers delivered an extraordinary 36.4 million square feet of net new industrial space, signaling a shift toward more balanced market conditions. By contrast, Phoenix saw an average of just 8 million square feet of annual net deliveries in the three years preceding the pandemic, highlighting the magnitude of recent development activity.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 487M 12.1% $13.58 238K 26M
LOGISTICS 357M 14.8% $13.10 -3K 18M
SPECIALIZED 96M 3.8% $13.58 296K 7M
FLEX 33M 7.8% $18.90 -54K 484K

MULTI-FAMILY MARKET

Phoenix’s multifamily market showed signs of recovery in Q3 2024. With inflation easing and consumer confidence on the rise, renter household formation has picked up, boosting tenant demand. While new supply additions continue to exceed leasing activity, the pace of occupancy declines has slowed, signaling a potential turnaround in property performance within the coming year.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 405K 11.3% $1,572 3,445 29K
4 & 5 STAR 197K 13.1% $1,778 2,487 22K
3 STAR 145K 9.9% $1,426 1,005 7K
1 & 2 STAR 63K 8.9% $1,180 -47 25

RETAIL MARKET

As 2024 draws to a close, the Phoenix retail market remains fundamentally tight, despite a recent surge in store closures leading to a sharp slowdown in net absorption. Strong demographic trends, rising incomes, and healthy job growth continue to drive robust tenant demand. This sustained demand, paired with a limited construction pipeline, has kept vacancy rates low and supported elevated rent growth levels.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 246M 4.8% $25.95 -153K 2.7M
POWER CENTER 34M 4.1% $28.62 -106K 156K
NEIGHBORHOOD CENTER 92M 6.0% $25.21 -294K 199K
GENERAL RETAIL 87M 3.1% $24.97 132K 1.6M

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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