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July 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

As the second quarter comes to a close, Phoenix continues to experience a steady rise in office vacancies. Local businesses are closely examining the efficiency of their office spaces, frequently leading to reductions or closures. This structural decrease in demand has caused market-wide vacancy rates to increase by more than 500 basis points since the fourth quarter of 2019. Further increases are expected in the midterm as leases signed before the pandemic or on short-term extensions expire, prompting tenants to make longer-term decisions about their space requirements.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 197M 16.5% $29.64 -327K 1M
4 & 5 STAR 71M 25.7% $34.54 -202K 693K
3 STAR 89M 13.4% $28.49 -107K 475K
1 & 2 STAR 38M 7.0% $23.16 -19K 0

Industrial Market

The surge in new development completions is driving up Phoenix’s industrial vacancy rate, a trend likely to continue until mid-2025. The first quarter of this year marked the third consecutive quarter with over 10 million square feet of net deliveries, totaling an unprecedented 44.8 million square feet over the past 12 months. In contrast, Phoenix averaged 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: 473M 10.5% $13.65 280k 31M
LOGISTICS 344M 12.5% $13.10 346K 26M
SPECIALIZED 95M 3.9% $13.81 -58K 4M
FLEX 34M 8.9% $19.19 -8K 586K

Multi-Family Market

In the first half of 2024, the Phoenix multifamily market showed further signs of recovery. Easing inflation and rising consumer confidence have stimulated renter household formation, leading to a rebound in tenant demand. Although new supply additions are still outpacing leasing activity, the decline in occupancy and rents is starting to stabilize, suggesting that the market may 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: 394K 11.1% $1,561 265 32K
4 & 5 STAR 188K 12.6% $1,776 138 24K
3 STAR 143K 10.3% $1,414 126 7K
1 & 2 STAR 63K 8.1% $1,164 1 130

Retail Market

As summer begins, the Phoenix retail market remains near its tightest level on record. Strong demographics, continued income growth, and healthy job gains are driving robust tenant demand. These factors, combined 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% $28.08 11K 2.7M
POWER CENTER 33M 4.1% $27.96 8K 6K
NEIGHBORHOOD CENTER 92M 5.7% $24.56 5K 131K
GENERAL RETAIL 85M 3.2% $23.97 -5K 1.7M

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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