Metro Phoenix Forecasted to Hold Reins Steady in 2002

On the bright side, "nobody is fleeing the market," Eric Wichterman, Grubb & Ellis vice president in Phoenix, tells GlobeSt.com. It's a different scenario from previous recessions. "The leverage is so low this time around covering debt service that owners aren't forced to sell. They will fix the problems instead of selling," he says. Part of that undoubtedly stems from a decline in selling prices. Class A office product is going for an average of $128 per sf instead of the $152 per sf in 2000; class B, $110 per sf versus $111 per sf; and class C, $56 per sf versus $61 per sf. Still, Wichterman emphasizes, building value has not fallen.

"There are fewer buyers, but it matches up fine since there is fewer product available," Wichterman says. The big sale hanging fire is Opus South's Esplanade to one of the few institutional investors with eyes for metro Phoenix. The class A office building will be sold upon its completion while another institutional investor has optioned Opus' second marquee project on the five-building site.

The 2001 sales of class A product resulted in 1.5 million sf changing hands in comparison to two million sf in the prior year. The big hit came in class B transactions, in which only 1.7 million sf was sold in comparison to 3.8 million sf in 2000.

For the most part, 2002 will look much like 2001, according to Wichterman. Overall vacancy is now 16% while stabilized properties are falling in the 12% to 13% range. But future vacancy should improve since there's no new construction coming that's not already under way, he says.