Office Rents Increase, Market Shows Recovery

PHOENIX-Phoenix's Q3 2013 office market saw strong absorption rates, with 880,000 square feet in gains after a weak first half. Meanwhile, asking rents increased 1% year-over-year, according to a Colliers International report.

Compared the first half of 2013, the number of $10 million-plus office deals in Phoenix during Q3 more than doubled. Fewer distressed properties on the market pushed median sales prices up by $40 per square foot, to $104.

“While any one of these measurements might signal improvement in the market, the combination of these trends amplifies the sense that the market is moving in the right direction,” the report concludes.

Office vacancy rates dropped to 20.1%, and although lower than last quarter's 20.8%, the rates remain among the nation's highest.

Average rents came in at $20.32 per square foot, with the Downtown South Central Business District showing the strongest rates of $24.63 and Downtown Mesa with the weakest, just shy of $14.

The 44^th Street Corridor posted the lowest Q3 vacancy rates at 12%, down year-over-year from 19%.  The highest vacancy rates occurred in the Gateway Airport/Loop 202 area. Still, the 30% vacancy rate showed an improvement from last year Q3's 33% rate.

Corporations appear to be a big driver in improving market conditions, according to the report. Companies including State Farm, GoDaddy and USAA plan to hire more workers and build new projects.

State Farm signed off on two properties totaling 300,000 square feet in Tempe's Discovery Corporate Center. The company also has a 2 million-square-foot property under construction in a new Tempe Town Lake development called Marina Heights. Vanguard moved into a Class A, 136,000 square-foot space in Scottsdale Airpark.

Regus, the executive suite provider, signed leases at San Tan Corporate Center, Stapley Corporate Center and Scottsale Financial Center III, reported Jones Lang LaSalle. Spaces range between 12,000 and 14,000 square feet.

Jones Lang LaSalle also reports several big-name tenants shopping for property. Wells Fargo is looking at 400,000 square-foot properties in Phoenix and Verizon is considering 170,000 square feet in the southeast Valley. American Express and Chase need properties between 100,000 and 150,000 square feet.

In one of the quarter's biggest sales, Hines purchased the Class A North Scottsdale Kierland One building for $29.3 million, or $167 per square foot.

Mutual of Omaha Bank purchased a 73,000 square-foot Cotton Corporate Center building on South 48^th Street in Phoenix for $11.6 million, or $158 per square foot. The Class B building is in the Airport Area.