Phoenix Office Build Leases Before Ground Breaking

Lincoln Property Co. has pre-leased space in its class-A office development Union before ground breaking. The developer has signed a lease with WageWorks for 150,000 square feet in the 1.3 million-square-foot project, located in Mesa. The new lease is an expansion for WageWorks, which is currently located in Tempe, and will bring 1,000 jobs to the market.

“We were excited to get a pre-leased tenants and it kind of validates the site. WageWorks is in Tempe right now, and they wanted a new location to double in size. So, this was a good fit for them and a good price point,” David Krumwiede, EVP at Lincoln Property Co., tells GlobeSt.com.

Build-to-suits aren’t uncommon in Phoenix. In fact, most new office construction in the market following the recession was build-to-suit, since the market didn’t support speculative building. As a result, many tenants are comfortable looking for a build-to-suit well before the expiration of their lease. “During the initial part of the recovery, there was no speculative building, and build-to-suits became the norm. That included anchor tenants or a 100% occupied build-to-suit,” says Krumwiede. “It was basically the only option in Phoenix. Then, as the office market stabilized and recovered, there was more speculative building, and that offered an alternative to tenants that either didn’t have time to wait or couldn’t get through the process.”

However, the build-to-suit option doesn’t work for everyone because they take time. “You need to be 18 months to two years in front of your lease expiration, so this is a good alternative for tenants that have a little more time,” says Krumwiede. “So, pre-leasing is just an alternative, but I wouldn’t call it a trend.”

Lincoln is developing Union in partnership with Harvard Investments, and plans to break ground on the first phase—a 232,000-square-foot office building—of construction this summer. The property is on the border of Tempe, but offer discounted rents. As a result, the developers are expecting strong interest, and this early lease has helped to prove the theory. “Tempe took off in the recovery—it was the first submarket to really take off,” says Krumwiede. “Several companies came in and really put Tempe on the map with other big destination cities. There aren’t very many available sites left, and it is expensive to be in Tempe. Mesa is the beneficiary of all of that success. We are literally right next door.”

While office pre-leasing isn’t necessarily a widespread trend, it is a sign of a healthy market where supply is meeting, but not exceeding, demand. “The market is at a very good equilibrium, depending on the location and submarket,” adds Krumwiede. “The Tempe, Mesa market has high demand and limited supply of properties. It feels really healthy, and it is the market that we like to be in. At this time, it is a good market for both tenants and landlords.”