David A. Wetta, Marcus & Millichap's senior vice president and regional manager in Phoenix, says "high levels of new space and reduced demand during the economic slowdown culminated in an increase in vacancy throughout the Phoenix market."
Vacancy is pushing about 19%. It is forecast to jump to 21% as more product comes on line. Improved economic conditions won't spark demand significantly until early 2003, researchers say.
Unlike 18 months ago, local businesses are focusing on core needs instead of forging ahead on expansion plans, Wetta points out. But a rebounding economy in the second half of this year will, in turn, make metro Phoenix more attractive to larger companies seeking to relocate to the Valley.
The market, like most every place, is battling higher insurance premiums, increased utility bills and decreased rents due to concessions and high vacancies from submarket to submarket. Readily available economic stimulus packages, particularly heavy on the incentives, may be the region's saving grace as carrots are dangled for combined office and industrial development. Older product, say researchers, will come down in price 3% to 4% as investors seek out value-add opportunities while the market is at a low point.
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