Phoenix Office Sector Recovery an Arduous Process


Phoenix, AZ – January 20, 2012 – (RealEstateRama) — The Valley’s office sector continued to pace along the bottom over the past year. As we enter 2012 a new attitude is taking hold.

Though conditions remain weak, 2011 saw an increase in in-migration population and new job creation, creating optimism about improvement in this sector.

Phoenix’s office inventory is still struggling along with other hard hit markets such as Las Vegas, Sacramento and Atlanta. A three year run of increased unemployment, corporate contractions (i.e. less space needed) and the flight to quality (with no one to fill the old space) left the Phoenix office market battered. In the 4th quarter, there have been some modest gains in occupancy and absorption numbers; both moving in the right direction. More activity is needed for Phoenix to move into full recovery. Leasing activity dropped by nearly 200 transactions this quarter from last to less than 500.

Sales transaction volume in Phoenix dipped this quarter to just 83 market transactions totaling $124.2 million. Price per square foot, however, increased to $109.78 per square foot. Transaction volume has remained low with only a few large investors making purchases in this market. REITs have taken notice of the very limited inventory of high quality properties and are scouting the market as pricing remains at bargain levels. Many realize that low commercial real estate values today provide the best return on investment long term.

Vacancy rates for the Phoenix office market dropped a modest 40 basis points to 20.7% from last quarter’s 21.5% last quarter. This quarter, the highest vacancy rate remains in the Central Phoenix submarket cluster with 23.4% and the lowest reported was in the Sky Harbor Airport cluster at 17.4%. Absorption was up by 437,738 square feet with most coming from the East Valley at 267,812 SF and 207,843 SF in Sky Harbor. Four of eight submarkets did experience negative absorption. An extremely low 21,145 square feet was delivered this quarter. It is the second lowest delivery in a quarter since local records of delivery data have been kept.

Rental rates dropped again this quarter to $20.29 per square foot, down from an adjusted $20.54 last quarter. A total of 388,327 square feet was under construction during this quarter encompassing five built-to-suit Class B office buildings. Construction totals in this suppressed sector are in line with current conditions but are down severely from a consistent 8-9 million square feet under construction during the boom years from 2005 to late 2007.

The largest office building sale of the quarter was the purchase of the 3 building Phoenix Gateway Center at 410-432 N 44th St in Phoenix for $43 million ($99.40 psf). Oaktree Capital Management of Los Angeles was the buyer. The largest lease transaction for the quarter was US Foods lease for 133,225 square feet ($22.50 est. psf) at River Corporate Center/ASU Research Park at 8075 S. River Pkwy in Tempe.

At the close of 2011, experts expect that commercial real estate will accelerate more. Various worldwide factors can change predictions in an instant; however, better times are expected in 2012.


About NAI Horizon
Established in 1992, NAI Horizon is a full-service commercial real estate company located in Phoenix, Arizona. NAI Horizon offers a full range of comprehensive real estate services including property management; brokerage and appraisal services to local, national and international clients. Serving the greater Phoenix metropolitan area, NAI Horizon is a member of the NAI Global commercial real estate network providing real estate solutions to 350 offices in 55 countries worldwide. For more information visit or

Terry Martin-Denning 602.852.3438
COO/Designated Broker


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