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Colliers International 2020 Q3 Greater Phoenix Office Market Report

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By Phillip Hernandez, Research Manager | Arizona

Q3 2020 Office Market

COVID-19 encouraged us to re-evaluate how we track and categorize absorption and vacancy as sublease space became a noteworthy factor here in Greater Phoenix. Previously, if a tenant placed space in the market for sublease and had moved out of the square footage, we categorized the move as negative absorption and increased sublease vacancy.

However, COVID-19 peeled open a flaw in the previous recordings. The tenant maintains an agreement with the landlord and is contractually obligated to pay rent for the space until a new subtenant has filled the available space even though the tenant has moved out. Because the space remains leased, though perhaps not occupied, we will not consider such vacancy as negative net absorption.  Instead, absorption will be tracked on a leased status basis, regardless of tenant occupancy.

  • Net absorption remained positive for the 34th consecutive quarter, ending at 109,718 square feet
  • Maintaining positive absorption was possible despite the 32% increase in sublease availability over-the-quarter and a sublease space increase of more than 133% year-over-year
  • The direct vacancy third quarter settled at 12.7%, slightly increasing 20 bps over the quarter
  • Class A direct vacancy rates, currently 13%, increased 10 bps over-the-quarter but decreased 40 bps year-over-year
  • Year-over-year rental rates increased 6.8% to a current average of $27.94 PSF
  • Class A building asking rents increased 0.50% over-the-quarter and 5.1% year-over-year to $32.25 PSF
  • Class B building rents rose 0.80% over-the-quarter and 3.90% year-over-year to $24.80 PSF
  • Deliveries in third quarter increased inventory by 448,785 SF, bringing YTD construction completion to 1,859,700 SF
  • Number of investment deals increased 24%; however, sales volume decreased by 40% over-the-quarter and 79% year-over-year
  • This marked the lowest quarter of sales volume in the past five year with just $155,153,536
Outlook: The outlook for the Greater Phoenix office market remains extremely optimistic. Healthy pre-leasing of new construction, rental rates that are holding strong and a diverse industry of tenants looking to migrate to Phoenix showcase that there is light at the end of this unprecedented year. Evaluation of new office options will change. New health certifications will set buildings apart, and touchless technology will become an industry standard at high trafficked office complexes.

The upcoming election has placed Phoenix in the spotlight and positioned us as the nation’s top market for political advertising spending. At a local level, there are state propositions that could impact our economy and image as a pro-business city.

In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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Colliers International 2020 Q3 Greater Phoenix Office Market Report

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Phillip Hernandez | Colliers | Phoenix

Phillip Hernandez

Director, Research | Arizona

Phoenix

+1 602 222 5066
+1 520 404 5200
Email

As director of research for Colliers in Arizona, Phillip Hernandez is responsible for proactively developing and implementing research objectives and directing all research activity for the Arizona offices.

He provides leading-edge, thought-provoking research and analysis of market data for use in producing quarterly statistical market reports for each property discipline, as well as other ad hoc reports, research projects and presentations. Phillip analyzes and interprets real estate trends and maintains a database of economic indicators to provide forecasts.

Regardless of the property type or sector, Phillip believes each has a story to tell and that data provides the opportunity to redefine the narrative. With a background in location analytics, he is highly experienced in interpreting complex data sets. Using the latest technology, Phillip developed a system to blend analytics with a visually attractive approach to bring data to life.

Focusing on business development, he leverages market intelligence and insights for thought leadership content strategy in support of client engagement. His goal is to strategically align research and business development efforts and present research in an easily digestible format that promotes Colliers’ market share and revenue growth.

Colleagues describe Phillip as a brilliant storyteller and a passionate, creative and experienced professional.

Phillip is an experienced research and business analyst with demonstrated success in the commercial real estate industry.

Prior to joining Colliers, Phillip served as a business analyst at CBRE, where he specialized in creating tailored research reports and unique, interactive applications and dashboards that elevated the market position of assets.

Delivering custom quarterly and annual reports, Phillip ensured that all data and research was strategically positioned towards targeted clients. He also led weekly department research meetings to develop initiatives surrounding market trends, produced innovative industry solutions and analyzed client-centric objectives.

Previously, Phillip was a GIS analyst for the central region of CBRE. Working exclusively with top-performing markets, he created unique models that illustrated custom real estate datasets through location analytics. He produced high-quality geographic and demographic maps and investigated multiple approaches to storytelling through map and market analytics.

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Casey Koziol | Colliers | Phoenix

Casey Koziol

Associate

Phoenix

+1 602 222 5035
+1 602 459 2497
Email

Casey Koziol is an associate for Colliers in Arizona and member of the top-producing industrial team of Don and Payson MacWilliam specializing in industrial real estate sales and leasing in the Sky Harbor Airport area, Southwest Phoenix, and Central Phoenix.

While providing both tenant and landlord representation services, Casey prioritizes his clients’ best interests to ensure their requirements are fully considered and met, from initial steps through final transaction negotiations. Casey works diligently to attract qualified tenants and buyers to his clients’ properties.

Leveraging his research expertise, Casey tracks and monitors market conditions, trends, and tenants-in-the-market to carefully guide clients throughout the leasing, acquisition, and disposition process, ensuring their best interests are represented in the final transaction negotiations. Versatile in his approach, he evaluates short- and long-term objectives, determining market rates, calculating current property values, and forecasting market trends.

Casey has a strong financial background as a finance major and deep market knowledge from his research background and lifelong residency in Arizona. Clients and colleagues describe Casey as an honest, ambitious, reliable, diligent, ethical, dedicated, and results-oriented professional, who strives for service excellence.

Casey joined Colliers in 2019, as a research analyst, delivering in-depth analysis of market conditions and trends. He compiled market statistics across all property disciplines, including industrial, office, retail, healthcare, multifamily, and land. In support of sales, leasing and business development, Casey created compelling client-facing presentations, illustrating, and interpreting real estate and economic trends.

As a participant in Colliers’ unique and intense broker training initiative, Casey paired with various senior brokerage teams for three-month periods. This afforded him the opportunity to work across property types with experienced professionals, while also generating business and building client relationships. He quickly learned to identify sites that deliver the greatest benefit to a client’s day-to-day operations.

Prior to joining Colliers, Casey served as a real estate sales and acquisitions intern at Tucson Realty & Trust Company, where he specialized in identifying potential buyers and sellers for commercial properties in the Tucson metropolitan area.

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