Q4 2022 Office Space Report: Phoenix, AZ
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Phoenix, AZ is home to several major businesses and corporations, including Intel, American Express, and Honeywell Aerospace, contributing significantly to the city’s economy.
Unemployment in Phoenix decreased quarter-over-quarter, falling from 3.5% to 2.7%. Its larger metro population increased 1.48% in 2022, going from 4.58 million to 4.62 million.
In Q4 2022, Phoenix office space saw negative absorption, rents slightly rise, and vacancies increase.
General Area Overview & Demographics
According to recent census data, Phoenix is a diverse city with a population of over 1.7 million people. The racial makeup includes 42.2% White individuals, 43.9% Hispanic or Latino individuals, 6.8% Black or African American individuals, and 3.7% Asian individuals.
Phoenix, AZ Median Household Income & Population
According to the U.S. Census Bureau, the median household income in Phoenix is $60,091. This income level is slightly lower than the median income for the state of Arizona. However, the cost of living in Phoenix is relatively affordable and few residents struggle to keep up with rent payments, making it an attractive destination for many individuals and families.
Phoenix has a relatively young population, with a median age of 33.
Higher education is a significant aspect of Phoenix’s economy, with several notable universities and colleges in the city. Arizona State University, in particular, is one of the largest public universities in the United States, with a student population of over 100,000 individuals.
Phoenix has various attractions, including the Desert Botanical Garden, the Phoenix Art Museum, and the Heard Museum. The city is also known for its sports teams, including the Phoenix Suns and the Arizona Cardinals.
Phoenix has a subtropical desert climate characterized by hot summers and mild winters. During the summer, temperatures can regularly exceed 100 degrees Fahrenheit, while winter temperatures typically range from the 40s to the 60s.
Summary of Phoenix Office Space Performance in Q4 2022
Overall vacancies for Phoenix office space increased from 13.7% to 14.4% quarter-over-quarter, the highest vacancy rate seen by Phoenix office space in 2022.
Class C office space saw the lowest vacancy at about 4.2%, while Class A saw the highest at 18.5%.
Q4 2022 posted negative absorption for Phoenix office space at -682,000 square feet absorbed; Q3 2022 saw 190,000 square feet absorbed. Q4 brought 2022’s absorption total to -130,000.
What are office space rents like in Phoenix?
Phoenix office space rents increased from $28.89 per square foot in Q3 to $28.98 in Q4 2022. Class A rents averaged $32.23, Class B averaged $26.11, and Class C averaged $22.01.
Purchase & Leasing Activity
Sales volume for Phoenix office space in Q4 2022 was around $430 million, bringing the annual total to $2.6 billion.
The average price per square foot was about $190, a slight decline from 2021’s $192.
Leasing demand remained strong in Q4 2022, but it was mostly for smaller blocks of space.
Notable Office Space Deals in Phoenix in Q4 2022
There were several notable deals that took place for Phoenix’s office space in Q4 2022:
- Continuum Business and Technology Park sold for $115 million.
- Scottsdale Promenade Corporate Center sold for $56.5 million.
- Peckham leased 88,000 square feet.
- Raley’s leased 59,000 square feet.
These are select examples among other activity.
New Office Space Development Activity in Phoenix in Q4 2022
A total of 375,000 square feet of new office space product came online in Phoenix in 2022. Class A space accounted for 365,000 of that number.
The 2022 annual total for new office space development in Phoenix reached around 935,500 square feet. At the close of the year, about 572,000 square feet of Phoenix office space was under construction.
Market Forecast for Phoenix’s Office Space Market
Phoenix’s office space market is primarily driven by the city’s labor market. However, due to shifting interest rates, mortgage companies are beginning to sublease their spaces as the home lending market slows.
Two significant vacancies will hit the market next quarter, bringing negative absorption to Phoenix’s office space market in early 2023.
While speculative construction remains relatively low due to the flexibility of remote work, expect rental rates for Class A properties to increase.
Takeaways for Office Space Investors
Phoenix’s office space market recorded overall poor performance in Q4 2022. Investors should keep in mind that most indicators point to this poor performance continuing into the early quarters of 2023.
Do your research, stay diligent, and happy investing.
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