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October 2024 – Knowing the Numbers In Commercial Real Estate

Office Market

Office vacancy rates in Phoenix continue to climb as the third quarter draws to a close. Many companies are reevaluating their space needs, often leading to downsizing or closures. Job growth in sectors that typically rely on office space has also been sluggish for more than two years. As a result, vacancy rates have risen by over 550 basis points since Q4 2019, with expectations of further increases in the coming months as pre-pandemic leases expire.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 197M 16.8% $29.57 146K 904K
4 & 5 STAR 69M 27% $34.21 100K 732K
3 STAR 91M 13% $28.70 67K 172K
1 & 2 STAR 38M 7.3% $23.14 -21K 0

INDUSTRIAL MARKET

A surge in new development completions continues to push Phoenix’s industrial vacancy rate upward, a trend that may persist through mid-2025. The second quarter marked the fourth straight quarter with over 10 million square feet of net deliveries, totaling an unprecedented 36.4 million square feet over the past year. By comparison, 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: 479M 11.8% $13.55 -1.8M 29M
LOGISTICS 350M 14.4% $13.05 -1.8M 23M
SPECIALIZED 96M 3.7% $13.61 38K 5.5M
FLEX 33M 7.8% $18.83 -17K 451K

MULTI-FAMILY MARKET

The Phoenix multifamily market showed signs of recovery in the first half of 2024. Easing inflation and growing consumer confidence have spurred renter household formation, boosting tenant demand. While new supply still exceeds leasing activity, the decline in occupancy and rents has started to stabilize, suggesting that a recovery in property performance could begin within the next year.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 400K 10.8% $1,578 175 29K
4 & 5 STAR 192K 12.3% $1,788 161 21K
3 STAR 144K 9.9% $1,429 22 7K
1 & 2 STAR 63K 8.4% $1,186 -8 155

RETAIL MARKET

The Phoenix retail market remains exceptionally tight as summer comes to a close. Strong population growth, rising incomes, and solid job creation are driving strong tenant demand. These key factors, along with a modest construction pipeline and fewer store closures, have kept space availability low and rent growth near record highs.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 244M 4.8% $25.48 173K 2.9M
POWER CENTER 33M 3.8% $28.30 5K 156K
NEIGHBORHOOD CENTER 92M 5.8% $24.91 -145K 206K
GENERAL RETAIL 85M 3.1% $24.33 -27K 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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