Tightened Class A Office Vacancy Driving Class B Activity – Q2 Office Insight Report

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Due to the improving economic environment, tenants are finding an increasingly supply-constrained office market in the Greater Phoenix area as there are fewer ideal options to select from. As Class A total vacancy rates decrease and asking rents continue to climb, tenants in search of office space are gravitating towards Class B product. In the second quarter of 2016, Class A office space accounted for only 37 percent of the total net absorption in Metro Phoenix, down from its 69 percent share reported at the end of 2015. Meanwhile, Class B total net absorption nearly doubled over the same time period, growing from 32 percent to 61 percent.

Midtown Submarket Activity Expected to Increase
As Class A rates and vacancy continue to influence Class B office activity, we also expect to see an increase in activity within the Midtown submarket, as it has occurred in past cycles. In 2003, average asking rents in Camelback Corridor were nearly 28 percent higher than Midtown. Asking rents continued to rise in the subsequent years resulting in tenant demand shifting towards office space in Midtown. By 2006, total vacancy in Midtown was 130 basis points lower than Camelback Corridor, at 14.0 percent and 15.3 percent, respectively.

Midtown vs Camelback Corridor asking rent and total vacancy (1999 - 2Q 2...

In the second quarter of 2016, average asking rents in the Camelback Corridor submarket were $30.04, nearly 38 percent higher than Midtown. Class A asking rents reached $33.48 and $24.03 in Camelback Corridor and Midtown, respectively. With this wide price delta, we expect to see more price conscious tenants look at the Midtown submarket.

Robinson_Vicki“The Midtown submarket is an affordable alternative to Camelback Corridor’s Class A space but it also provides value because tenants still have access to ample amenities,” says JLL Vice President Vicki Robinson. “Midtown is a great location for tenants who need convenient access to the Valley’s major freeway systems. It is minutes away from Sky Harbor International Airport and offers easy access to the businesses and amenities of downtown Phoenix and Camelback Corridor. Many of my clients appreciate Midtown because it offers quick access to all the governmental services found at the Capitol Mall and to the court system located in downtown Phoenix.”

Click here to read the entire Q2 2016 Office Insight report or visit our Phoenix Research page on our website for additional market insight.


About the author

Keeley Buyer, Research AnalystKeeley Byer is a market research analyst for the JLL Phoenix office. With four years of market research experience and eight years of commercial real estate technology experience, he continually tracks and analyzing trends affecting the Phoenix Metro commercial real estate market.


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