Phoenix office market report
Q1 2022
The Phoenix office market experienced some softening in fundamentals to start 2022, with rising vacancy rates and a ninth consecutive quarter with negative net absorption. Despite these trends, the Phoenix office market is supported by an unemployment rate of just 3.2% and positive net absorption in submarkets including Downtown Phoenix and Tempe. The short-term outlook for the office market remains dependent on the evolution of the hybrid work model, as leasing activity will increase with more employees returning to the office.
Inventory
For the second consecutive quarter there were no office deliveries of at least 20,000 sf in the Phoenix market. There is, however, 1,009,526 sf of ongoing construction projects that are largely concentrated in the Tempe, Central Phoenix, and Camelback Corridor submarkets.
Net absorption
There was a significant amount of negative net absorption in Q1 2022, as new vacancies outpaced space that became physically occupied in the quarter by over 1.0 msf.
Direct asking rent
The average asking rent in Q1 was $29.09 psf. This pricing level is in-line with recent quarters, and up $0.05 psf from the average full service asking rent in Q4 2021.
Availabilities
The amount of total available office space increased by 868,751 sf in the quarter. Available sublet space increased to 5,092,700 sf, while space available for direct leasing increased to 20,818,118 sf.
Vacancy
The direct and sublet vacancy rates increased in the first quarter, rising to 18.5% and 2.9% respectively. Northwest Phoenix and Midtown are the submarkets with the highest vacancy rates, while Mesa and Tempe recorded the lowest vacancy rates in the region.
Investment sales
There was minimal investment activity to start off 2022, with $162.65M in total transactions to start the year. The actual sales volume of office properties is likely higher than this reported figure, however, as there are transactions that occurred in Q1 that have yet to be reported.
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