CBRE's Bryan Taute<@SM>Dennis Desmond with Jones Lang LaSalle

PHOENIX-As the United States, as a whole, moves away from the financial crash of 2007-2009, certain geographic regions – and sectors – continue to slowly improve. When it came to the Phoenix area’s office sector in 2012, the concept of slow, steady upward movement was definitely the story, and experts tell that no huge surprises are expected in 2013 when it comes to either leasing or transaction sales.

According to CBRE’s Q4 MarketView, vacancy rates throughout the metro region were 23.9% — this may seem relatively high but not so much if it’s considered that the vacancy rate stood at 25.5% at the end of 2011 and 26.2% at the end of 2010. The report is somewhat more heartening on the absorption side, pointing out that the metro region had a net gain of 2 million square feet of occupied space – fifth in the United States — trailing Houston, Boston, Seattle and the Dallas/Fort Worth area.  Jones Lang LaSalle’s Office Insight painted a similar picture, pointing to net absorption of 1.8 million for the entire year and a direct vacancy rate of 23.5%.

“We saw the office market slowly improve from 2011,” comments Bryan Taute, senior vice president with CBRE. “There’s been no drastic change, but a graduate improvement, and we anticipate the same trend in 2013.” Taunte notes that much of the leasing activity took place in back-office and support operations centers, especially in the technology area.  “Phoenix isn’t highly vested in technology, but we do have a good tech base, as well as back-office support jobs,” Taute observes.

On the transaction side, Jones Lang LaSalle’s Senior Managing Director Dennis Desmond says there’s been an increase in velocity; a rather obvious one. For example, there were six transactions in December, 2012 of office buildings that are 100,000 square feet and above. “In 2011, we only had two sales in that same time period and in that same category. In 2010, there weren’t any,” Desmond says.

One thing that might stall velocity in 2013, however, is the owners. “Owners are waiting for ‘depressed pricing’ to fall out of the category,” Desmond says. “This isn’t to say they’re expecting values to hit the peak of 2006-2007, but I think they’re looking to the day when we can say rental rates are moving up. Research suggests that could happen later this year, and certainly in 2014.”

The Office Insight goes on to point out that fiscal uncertainty could hamper the 2013 outlook. Taute  and Desmond agree. Furthermore, Taute points out that vacancy numbers are misleading, to an extent. “What’s changing is what’s vacant,” he says. “The larger blocks and better space has been leased, and that’s led to new construction, especially in user build-to-suits.” As such, he predicts that 2013 will continue to be a year of flight to quality and perhaps more build-to-suits as the quality space dwindles. Also look for smaller tenants – a minimum of 25,000 square feet – to contribute driving the leasing trend, he adds.