Is the Airport Area Emerging as Phoenix’s Top Office Market?

The Airport Area in Phoenix is growing rapidly. New research from JLL shows that the office vacancy rate fell 9.3% in 2018, down to 23.4%. Phoenix has experienced tremendous growth in recent years, and Tempe has become the most coveted office submarket in Phoenix. Now, the Airport Area is benefitting from that growth.

“Phoenix is growing in ways that we never thought was possible, especially since the economic downturn of 2008 and 2009,” Jennifer Farino, lead researcher in Phoenix at JLL, tells GlobeSt.com. “We have been more diverse in growing in different directions to make sure that doesn’t happen again. Investors have wanted to come in and be part of this growth and the future growth that Phoenix and the Airport submarket are going to have.”

The Airport Area’s location alone makes it an attractive submarket. It is near the airport, offers shirt commute times from nearly everywhere in Phoenix and is close to a skilled labor force. “The Airport Area is strategically located next to Phoenix Sky Harbor airport, which had a record of 40 million passengers last year,” Farino. “The fact that there are only five submarkets in an around the area of Sky Harbor is a big hot topic. Workers are also looking for accessibility, and the Airport Area is located in the middle of Phoenix with an average 27-minute commute time. For tenants, it has a beautiful labor pool with ASU to the east of the submarket, and those workers are very attractive to tenants looking at the Airport Area.”

While the location is ideal, the submarket’s asking rents are among the biggest drivers of new leasing activity. Tempe, the neighboring submarket, has the highest office rents in the market at $40 per square foot. The Airport Area is significantly discounted at $26.84 per square foot. The submarket has 7.6 million square feet of office space, including 2 million square feet of class-A space.

The high pricing in Tempe and other high-profile submarkets have helped to drive tenants to the Airport Area for discounted pricing. Owners in the Airport Area are implementing capital improvements to capture the spillover. “As Phoenix has grown, people are focused on the higher profile submarkets,” says Farino. “They want to be where everyone is. I think a lot of people have looked over the other submarkets that don’t have the same popularity. Ownership in the Airport submarket are starting to upgrade and look at things like flexible office space.”

Already, the submarket has remained activity through early 2019. Farino says that she has already logged 250,000 square feet of leasing activity in the first quarter. “Leases have already been signed for next year,” says Farino. “I think this market has plenty of space for people to come in and take up blocks of office.”