Office Space Demand Remains Strong in the Valley

PHOENIX-Demand for office space remained strong in the metro area market during the third quarter of 2003, pushing net absorption to its highest year-to-date level in the last three years and dropping the Valley’s overall vacancy rate by 1.7%.

“We’re digging ourselves out of a hole,” Jeff Hartland, Senior vice president of the office division for Grubb & Ellis, tells GlobeSt.com. “The numbers are looking up but right now, its with cautious optimism.”

A Grubb & Ellis study shows increasing signs that the Valley’s office market is getting stronger even though vacancy rates remain at 20.1% and landlord concessions continue to be rampant. Yet despite the double-digit rate, which is down from 21.8% just a year ago, vacancies declined for the fourth straight quarter as more than 212,000 sf was absorbed to bring the year to date net absorption total to more than 727,000 sf.

An improved economy and renewed interest in the Phoenix market contributed to the uptick, Hartland says. “There does seem to be a more upbeat mood in the market so there does seem to be some legs to this improvement,” he notes.

But not everyone is seeing the benefits of better economic conditions. Downtown, Uptown and the Camelback Corridor were the only three submarkets that recorded negative net absorption at the close of the third quarter, with the city’s Uptown market suffering the most.

“The Uptown market continues to get creamed. Their vacancies are still around 30% and concessions are rampant,” says Hartland, “but if you’re a tenant looking for a good deal, this is it.”

Tenants are finding those good deals in class A offices space, which remained the strongest sector with year-to-date net absorption of 922,000 sf. Class B and C properties, however, continued to suffer from negative absorption totals as tenants moved into more upscale quarters.

Meanwhile, construction activity continued to remain strong with 618,920 sf of new building space coming online, all in the North Scottsdale market.

If economic conditions continue on their present course, the Valley’s office market should see slow improvements into the next year, Hartland says.