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Phoenix office market report Q2 2021

Phoenix office market report Q2 2021 July 6, 2021

Key office takeaways:

Economic conditions

Reopening efforts have enabled the Phoenix unemployment rate to rebound from a high of 13.5 percent in April 2020 to 6.0 percent in April 2021.

Post-COVID office-using job losses totaled 3.2 percent compared with leisure and hospitality job losses that totaled 13.2 percent, underscoring the disproportionate impact the pandemic had on the discretionary segments of the local economy.

Office demand

Leasing activity is on the mend as office workers return and the economy reopens. Post-pandemic leasing activity has decreased by 30.8 percent compared with the prior 20-year annual level.

Healthcare-related companies remain a dominant driver of office demand; however, tech companies Robinhood and Arrivia accounted for two of the top five largest deals to date in 2021.

Office supply

Vacancy totaled 16.2 percent in Q2 2021. While elevated compared with historical levels, the aftermath of the Global Financial Crisis caused the Phoenix vacancy to surpass 21.0 percent from 2010 and 2011. 

The sublease market accounts for 1.9 msf of vacant space. 

9.4 msf of office space is under construction and proposed.

Pricing trends

Asking rents have remained steady, decreasing by 0.5 percent over the past two years as landlords prompted tenant commitments through concessions packages and favorable lease provisions while keeping base rents relatively steady.

Demand is rising as the economy reopens and tenants that postponed their long-term occupancy strategies re-enter the market. 

Capital markets

Deal volume is returning to pre-COVID levels. Nearly $1.2B of Phoenix offices have been sold since the beginning of 2021, an increase of 48.2 percent compared with the same period one year ago.

Asset pricing has increased by 10.3 percent from December 2019 to Q2 2021 as previously sidelined investors return to the market.

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