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January 2024 – Knowing the Numbers in Commercial Real Estate

Office Market

Phoenix witnessed a surge of 42,000 SF of new vacant office space entering the market, amplifying the challenges posed by sluggish demand and widespread economic uncertainty. The cumulative unoccupied space has escalated by almost 50% since late 2019, propelling the metro-wide vacancy rate from 11.0% in 19Q4 to its current 16.0%, mirroring levels recorded back in 2015.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 195M 16% $29.44 -197K 1M
4 & 5 STAR 70M 24.6% $34.92 -64K 938K
3 STAR 86M 13.4% $27.79 -87K 150K
1 & 2 STAR 40M 6.7% $23.23 -46K 0

Industrial Market

The Phoenix industrial scene undergoes a transformation as robust leasing encounters a tidal wave of new construction. Developers wrapped up an unprecedented 8.9 million SF, surpassing the second-strongest quarter of gross deliveries by several million SF. This influx propelled the current vacancy rate to 8.4%, wiping out a significant portion of the occupancy gains achieved during the pandemic era.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 447M 8.3% $13.39 -2.5M 45M
LOGISTICS 321M 9.7% $12.90 -1.6M 39M
SPECIALIZED 92M 3.5% $13.37 -387K 5M
FLEX 34M 8.8% $18.46 -485K 659K

Multi-Family Market

The Phoenix multi-family market grapples with an ongoing imbalance between supply and demand. Despite a potential leasing rebound this year, it couldn’t offset the record-breaking influx of new constructions, resulting in a surge in the Phoenix vacancy rate. Intensified competition from these new properties has sustained negative rent growth since last year’s end, leading operators to lower rental rates and heighten concessions to entice and retain tenants. Projections indicate a continued lukewarm landscape in the near future as the market copes with its most substantial supply pipeline in four decades.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT UNITS
TOTAL: 380K 10.8% $1,550 60 34K
4 & 5 STAR 179K 11.5% $1,777 40 23K
3 STAR 142K 10.7% $1,394 22 10K
1 & 2 STAR 60K 8.6% $1,136 -2 828

Retail Market

After yet another quarter of consistent progress, the Phoenix retail domain showcases some of its most stringent market conditions in recent history as the year nears its end. A blend of strong population growth, thriving consumption patterns, minimal store closures, and restricted new supply has concocted an ideal scenario for sustained exceptional performance.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 242M 4.5% $24.54 105K 2.6M
POWER CENTER 32M 3.8% $27.06 3K 51K
NEIGHBORHOOD CENTER 92M 5.7% $23.92 -31K 205K
GENERAL RETAIL 85M 2.7% $23.70 -65K 2M
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