Q1 2023 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, often called the "Valley of the Sun," is one of Southwestern United States’ most vibrant and dynamic cities.
It’s home to major businesses spanning various industries, including technology giants like Intel and Honeywell, financial institutions like Bank of America and JPMorgan Chase, and healthcare organizations like Banner Health and Mayo Clinic.
Unemployment in the city rose to 2.9% throughout Q1 2023, a slight increase from Q4 2022’s rate. The Phoenix office space market saw negative absorption, declining vacancies, and increasing rents in Q1 2023.
General Area Overview & Demographics
As Arizona’s capital and largest city, Phoenix is the region’s central hub of culture, commerce, and recreation. With a rich history, stunning natural landscapes, and a diverse population, Phoenix offers a unique blend of urban amenities and outdoor adventures, and most residents in the city are able to afford monthly rent payments.
Phoenix, AZ’s Economy, Population, & Demographic Makeup
One of the defining features is its year-round sunshine and warm climate. This desert city is known for its hot summers and mild winters, attracting residents and visitors seeking to escape colder climates. The beautiful weather creates an ideal outdoor environment for hiking, golfing, and exploring the numerous parks and mountain ranges surrounding the city.
Phoenix boasts a thriving economy driven by various sectors, including finance, healthcare, manufacturing, and technology. The city has several Fortune 500 companies and a growing entrepreneurial scene. Its strategic location also positions Phoenix as a transportation and logistics hub, with a busy international airport and a network of highways connecting it to major cities nationwide.
Culturally, it offers a diverse and vibrant arts and entertainment scene. The city is home to numerous museums, galleries, and theaters showcasing a range of artistic expressions. Downtown Phoenix is the heart of the city’s cultural district, featuring venues like the Phoenix Symphony Hall and the Phoenix Art Museum.
Sports enthusiasts will find plenty to cheer for in Phoenix, with professional sports teams such as the Arizona Cardinals (NFL), the Phoenix Suns (NBA), and the Arizona Diamondbacks (MLB). The city’s sports venues, including the Talking Stick Resort Arena and Chase Field, attract fans from around the state.
It is also known for its diverse and welcoming communities. The city embraces a multicultural population, with a strong Hispanic influence reflected in its cuisine, festivals, and celebrations. Additionally, Phoenix has a reputation for its family-friendly neighborhoods and excellent school districts, making it an attractive place for families to settle down.
Summary of Phoenix Office Space Performance in Q1 2023
Vacancies for Phoenix office space shrunk to 14.2%, a 30-basis-point decrease from Q4 2022’s numbers. Vacancies were highest for Class A space at 17.5%; Class B and C properties recorded rates of 13.5% and 5.1%, respectively.
Absorption was negative in the first quarter, recording around -460,000 square feet. Class C space was the only property category to go positive at 13,000; Class A accounted for -378,000 of absorption.
What are office space rents like in Phoenix, AZ?
Average rents for Phoenix office space in Q1 2023 were $29.11 per square foot, a quarter-over-quarter increase from Q4 2022’s $28.98.
The Class A average was $32.26, Class B’s was $26.41, and Class C’s was $21.78.
Purchase & Leasing Activity
Direct leasing and subleasing activity in Phoenix’s office space market posted its best quarterly performance since the onset of the COVID-19 pandemic.
International Cruise and Excursions subleased 124,000 square feet of space to Equality Health, the quarter’s largest lease.
Notable Office Space Deals in Phoenix in Q1 2023
There were several notable deals that took place for Phoenix office space in Q1 2023:
- The Grove sold for $48.5 million at $693 per square foot.
- Mesquite Corporate Center sold for $32 million at $402 per square foot.
- MUFG leased 53,000 square feet.
- Titan Solar leased 48,000 square feet.
These are select examples among other activity.
New Office Space Development Activity in Phoenix in Q1 2023
Approximately 150,000 square feet of new office space became available in Phoenix’s office space market in Q1 2023. Class A space accounted for 70,000 square feet of that, while Class B accounted for about 80,000.
At the close of Q1 2023, about 885,000 square feet remained under construction, with 675,300 set for Class A space. The remainder was for Class B.
Market Forecast for Phoenix’s Office Space Market
The ongoing succession of interest rate increases and constrained borrowing from local financial institutions will persistently impede office investment transactions.
Yet, businesses actively pursuing new spaces to bring workers back to the office contribute to a hopeful future.
Takeaways for Office Space Investors
The expansion of Phoenix’s economy remains alluring to generate fresh demand, propelling the leasing market to take precedence.
With the reconfiguration of office layouts to adapt to the impacts of the hybrid workforce, the office sector maintains an optimistic outlook.
Do your research, stay diligent, and happy investing.
Find & Connect With Commercial Agents & Brokers in Phoenix for Free on MyEListing.com
Take advantage of one of the nation’s largest databases of commercial agents & brokers in the country. Use it for free to find an agent or broker in Phoenix, AZ.
Other recent articles
Article Search
Share
All Article Categories
