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November 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

Office vacancy rates in Phoenix continue to climb steadily as the fourth quarter begins. Businesses are increasingly reevaluating their space needs, often leading to downsizing or closures. Compounding this trend, job growth in traditional office-using sectors has remained sluggish for over two years. This sustained drop in demand has driven vacancy rates up by more than 550 basis points since Q4 2019. Further increases are anticipated in the midterm as pre-pandemic leases reach expiration.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 197M 16.7% $29.43 336K 760K
4 & 5 STAR 69M 27.1% $34.56 235K 602K
3 STAR 91M 12.7% $28.03 221K 158K
1 & 2 STAR 38M 7.5% $23.28 -121K 0

INDUSTRIAL MARKET

An unprecedented wave of new industrial developments is pushing Phoenix’s vacancy rate higher, a trend likely to continue through mid-2025. Over the past 12 months, builders delivered a record 37.7 million square feet of net new industrial space, contributing to a normalization of market conditions. By 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: 484M 12.1% $13.54 -1M 26M
LOGISTICS 355M 14.8% $13 -1.3M 20M
SPECIALIZED 96M 3.8% $13.77 247K 6M
FLEX 33M 7.8% $18.91 -28K 451K

MULTI-FAMILY MARKET

The Phoenix multifamily market made further strides toward recovery in Q3 2024. With easing inflation and growing consumer confidence, renter household formation has gained momentum, fueling a rebound in tenant demand. Although new supply additions still exceed leasing activity, the decline in occupancy rates has started to level off, suggesting that property performance could begin to recover within the next year.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 402K 10.9% $1,573 1,797 27K
4 & 5 STAR 194K 12.3% $1,781 1,314 21K
3 STAR 145K 10.1% $1,422 489 6K
1 & 2 STAR 63K 8.4% $1,182 -6 155

RETAIL MARKET

As the fourth quarter begins, the Phoenix retail market remains among the tightest on record. Robust tenant demand is driven by strong demographics, steady income growth, and solid job gains. These factors, combined with a modest construction pipeline and minimal store closures, have 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 4.9% $25.58 -395K 2.9M
POWER CENTER 33M 4.0% $28.26 -73K 156K
NEIGHBORHOOD CENTER 92M 6.0% $25.02 -305K 206K
GENERAL RETAIL 86M 3.2% $24.51 -30K 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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