Greater Phoenix's Q1 Office Absorption Peaks Above 1M SF

According to a report released by Cushman & Wakefield of Arizona Inc., the year-to-date absorption for the area was 1.1 million sf in the 61.5-million-sf inventory. "The entire year-end total absorption for 2005 was three million sf," says Tom Johnston, C&W's managing director. "To jump out at a million in the first quarter this year is tremendous."

Johnston tells GlobeSt.com that, given the trends, the chances are excellent that office market absorption will beat 2005 levels. "I think we'll finish between 3.5 million to 4 million sf," he adds.

The Chandler/Gilbert submarket filled 274,372 sf in an inventory of 1.4 million sf. The main player was the 225,000-sf lease signed by Countrywide Financial Corp. in the just-completed Chandler Commons Office.

The other hot area for absorption was Midtown, which had 205,580 sf leased in its 9.9- million-sf stock. The main leases contributing to the uptick were inked by Phoenix International School of Law and Maricopa County Government, both inbound to 4041 N. Central Ave., and Orcutt Winslow Architects at 3003 N. Central Ave.

As a result, the region's overall vacancy dipped to 12.6% versus 16.1% a year ago. The lowest vacancy rates were in the Chandler/Gilbert submarket at 3%, with the Deer Valley Corridor following at 5% and CBD at 7%.

"We're approaching equilibrium, which allows tenants to move freely through the market," Johnston says. "Once we get to 10% vacancy and below, it gets hard to attract big users to the market because there isn't enough space."

Johnston says the high absorption and low vacancies have thrown the area into a landlords' market. "We've been there since the fourth quarter," he says. The average weighted rent is now $20.82 per sf.

The pendulum isn't likely to swing any time soon, with Johnston predicting it will remain an owners' market for three to four years. "We could see some free rents, but at a higher face rate," he says. "Concessions are falling by the wayside too."