PHOENIX—Xceligent's second quarter market reports are out and Phoenix fundamentals are looking healthy, with a few exceptions. As expected, on the office side, the Phoenix market tapped lightly on the brakes as it turned toward summer. Fueled by positive gains in the I-17 Corridor and Southeast Valley areas, the market absorbed just over 100,000 square feet, primarily in class B product bringing the year-to-date total to just over 600,000 square feet.

Local market experts noted an increase in demand from smaller tenants ranging in size from 2,000 to 10,000 square feet as both the local and national economy continue to improve.

Although construction activity appears to be healthy with over three million square feet underway, the majority of the projects are build-to-suits. Outside of downtown, space options for larger blocks of space are limited. Coupled with the trend of tenants seeking larger building footprints, increased parking ratios and greater building efficiencies, build-to-suit activity will continue to remain strong.

The market is beginning to witness an uptick in lease rates as buildings continue to position themselves to take advantage of the pent of capital market demand.

In a landmark move, 7th Gate Center, a 43,426 office property recently sold for $5 million making it the largest crowdfunding commercial real estate transaction in Phoenix to date.

Xceligent's numbers show overall Valley vacancy at 18.7%, with the lowest vacancy in the Southeast Valley at 15.5% and the highest in Desert Ridge/Paradise Valley at 22.7%.

In industrial news, fueled by Living Spaces, Americold and Winco's new build-to-suit projects being completed, the Phoenix industrial market continued its first quarter momentum by absorbing 2.4 million square feet. While the market has absorbed more than 4.6 million square feet over the first half of the year, market experts expect that pace to diminish significantly and think the market will see its year-end number hover around six million square feet.

Activity has increased noticeably around the 100,000-200,000-square-foot tenants, raising optimism that the market will not regress back to its recessionary levels any time soon.

Unlike the office market, smaller blocks of space are in high demand on the industrial side. Although bigger buildings continue to languish behind their smaller counterparts, there is an estimated 15 million square feet of tenants looking at California and Texas, which could help absorb some of these larger blocks if a few of them choose Arizona.

Xceligent's report shows overall industrial vacancy at 11% with the lowest posting at Falcon Field of 4.5%, and on the high end Southwest Phoenix at 15.9%.

To view the Phoenix Industrial and Office Market Report, click here.


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