Office Absorption to Drag Through Mid-Year

PHOENIX-End-of-2012 uncertainty in our nation's capital is expected to place a sizeable drag on office leasing activity and subsequently net absorption here through mid-year 2013, according to Matt Kolano, a research analyst on the Phoenix market from Jones Lang LaSalle. This drag is exacerbated by weak leasing activity seen in late 2012, as well, he adds.

Fiscal-cliff concerns, which dominated business decisions during the second half of 2012, became more pronounced as the year wore on and as we approached 2013 with no deal in sight, Kolano says. But surprisingly, it didn't negatively impact local employment activity. “This should have ground local hiring to a halt, but surprisingly job creation in the greater Phoenix MSA didn't slow a bit. Companies continued to hire local talent in droves—between August and October, the local economy added 60,000 jobs.”

Kolano adds that professional and business services, the employment sector most closely tied to office-space demand, added an additional 2,600 jobs to Phoenix in October alone, and job growth in the second half of the year helped push the unemployment rate down to 6.9% from 7.4% in August. “This compares to 8.1% unemployment in Arizona and 7.8% unemployment nationally.”

Despite the positive job numbers, and almost in complete contrast to them, leasing activity in the fourth-quarter here nosedived, falling 39.2% from the dismal third-quarter 2012 numbers, which speaks to the hesitancy by tenants to sign leases in the light of the fiscal cliff, Kolano says. “Furthermore, overall activity in the market has seen a 61.3% decrease from what was seen 12 months ago.”

Heading into 2013, John Bonnell, managing director for JLL in Phoenix, tells GlobeSt.com, “The first 60 days of the new year have kept us busier than we've been in a long time. Small- to medium-size tenants (1,000 square feet to 10,000 square feet) are regaining confidence and are back out in the market, looking for space that offers a flight to quality and value. We're also tracking more than a dozen Fortune 500 companies who have their sights set on Phoenix. These are large, national and global firms who need 50,000 to 200,000 square feet for relocation, expansion or entirely new operations. This is a significant increase over last year's activity and should continue to help create new jobs in our market and speed up our recovery—a combination that has us cautiously optimistic that 2013 will upstage 2012 and will set us up for a very strong 2014, 2015 and 2016.”

As GlobeSt.com reported earlier this month, Business Real Estate Weekly recently reported that Digital South Price 2 LLC, a company formed by San Francisco-based Digital Realty Trust Inc., paid $24 million to acquire 241,000 square feet of office-flex space along Chandler's Price Road corridor in Chandler, AZ. Amkor Technology Inc. was the seller in the all-cash transaction.

Have you noticed a disparity between job creation and leasing activity in your area? Tell us about it in the comment box below.