The Phoenix office market’s healthy fundamentals fueled from strong tenant demand put downward pressure on vacancy, which resulted in a rise in
asking rental rates over the last year.
Net absorption in the fourth quarter totaled 975,866 sq. ft., resulting in 2.5 million sq. ft. of net absorption year to date. Year-end net absorption in
2018 was above the markets long-term average of 1.9 million sq. ft. per year, yet slightly down from heightened activity one year earlier.
In Q4 2018, market-wide vacancy fell 120 bps over the last 12 months to 15.2%. Despite a substantial amount of deliveries, Class A vacancy increased
only slightly by 40 bps year over year to 10.8%. Over the same period, vacancy fell most significantly among Class B properties, tumbling 170 bps to
The market’s average asking rental rate at year-end was $26.55 per sq. ft. (FSG annual), a 4.2% annual increase. Average rent for Class A and
Class B properties both increased 2.0% year over year to $35.32 per sq. ft. and $25.68 per sq. ft.,respectively.
During the fourth quarter, developers delivered 647,399 sq. ft. of office space, accounting for almost half of the deliveries during the calendar year.
Approximately 2.6 million sq. ft. are under construction in the metro. Nearly 62% of the space underway is speculative development, which signals developer’s optimism in tenant demand.
Phoenix is projected to remain a top market for employment growth. Tenants will search the market for quality space in the most high-demand submarkets (Tempe and South Scottsdale) where employers can attract top talent.