Phoenix office market report
The Phoenix office saw a notable rise in rent pricing despite the market’s rising vacancy rates and negative net absorption. The flight to quality remains a key story for the local office market, which is a contributing factor to the overall rent price increases as office tenants have shown a willingness to pay for premium office space located in key submarkets. Companies are also continuing to embrace a hybrid approach to the return to the office, which has resulted in additional space available to sublet.
The office development pipeline remains relatively inactive in most submarkets, with 63.7% of the total space under construction concentrated in Tempe.
Net absorption totaled -430,603 sf in the second quarter. Chandler, Central Phoenix, and Tempe saw the largest decline in net absorption in Q2, while Scottsdale and Sky Harbor lead the way with the highest amount of positive net absorption in the quarter.
Direct asking rent
Average asking rents increased to $29.70 psf in Q2, up 2.1% from the average asking rate in Q1. Asking rents were the highest in Scottsdale Airpark and the Camelback Corridor, while rents in Mesa and Northwest Phoenix saw the lowest rent pricing in the quarter.
The amount of total available office space increased by 213,931 sf in the quarter. Available sublet space accounted for 5,665,240 sf, while direct availabilities came in at 20,453,254 sf in Q2.
The total vacancy rate for the Phoenix office market rose to 21.4% in the second quarter. The direct vacancy rate declined from 18.1% to 17.9% in the quarter, while the sublet vacancy rate rose from 2.8% to 3.5%.
Total investment activity in the quarter reached $386.35M. The largest office sale in the quarter was the $61.03M sale of the Biltmore Commerce Center at 3200 E Camelback Rd, which was sold to the George Oliver Companies in late June.
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