Phoenix Ranks Among Top Secondary Office Markets

Phoenix is among the top secondary markets in the US for office absorption this year. According to research from JLL, Phoenix has 1.2 million square feet of office absorption year-to-date, putting it in ranks with major growth markets, like Denver, Austin and Orlando. The market is outpacing its bigger neighbors, including San Diego, which has had 534,896 square feet of net office absorption this year, and Los Angeles, which has had 600,000 square feet of net office absorption this year.

“Financial companies, business services, healthcare and high-tech companies are all expanding into metro Phoenix and driving growth,” Jennifer Farino, research analyst for the JLL Phoenix office, tells GlobeSt.com about the industries driving this growth. “They are looking for strong economies, educated labor pools, economic growth, a low cost of living and expansion opportunities, and they are finding it here. That has precipitated tenant relocations and expansions, creating a demand for new development and continued office market growth that we expect will continue throughout the next several years.”

Speculative office activity has increased in response, but the demand continues to outweigh supply. The JLL report shows 2.7 million square feet of office space under construction with 25% already pre-leased. The Camelback Corridor, Tempe, Chandler, North Scottsdale and Downtown Phoenix submarkets are among the top market in Phoenix for office activity. “In each of these areas, you’ll find a solid inventory of class-A properties with great tenants of all types that, in turn, attract a lot of workforce talent,” says Farino. “Collectively, that makes for highly sought-after properties of high value. The sales history in these areas shows the interest not only from investors but also those who wish to office in these areas either because of population, amenities or an educated labor pool.”

The strong leasing activity has generated increased investor demand as well. “Location and economy make Phoenix an attractive market for investors. Our office sector has had its fair share of roller coaster shifts but our location and economy—not to mention our considerable advances in technology and business growth—have Phoenix showing up strong on the industry’s radar not only for investment but also for active and future development,” explains Farino. “Ultimately, those looking in see a strong economy, strong population growth, nice weather, a low cost of living and a low cost of doing business. That makes us extremely appealing for companies, investors and residents.”

New capital sources are also coming to the market, including institutions. Farino says that Phoenix has the full spectrum of players, from REITs to family offices and foreign investors. “Phoenix was hit hard by the recession but we’ve come back stronger, wiser and much more diversified than pre-recession years,” she says. “That is starting to catch the attention of foreign capital sources, enticing them to look past the coastal cities that they know so well and learn more about the benefits that Phoenix offers as a premier secondary market.”

Although Phoenix has seen tremendous growth and has strong fundamentals, it is also competing for attention, both from investment capital as well as office users, with other strong secondary markets. “Our biggest competitors for capital are other nearby, growing, non-coastal cities such as Las Vegas, Denver, Dallas, Austin and Salt Lake City,” says Farino. “All of these metros are unique and have their own qualities, but Phoenix has the added benefit of proximity to Mexico and the coastal cities and ports of Southern California.”