Largest absorption gains in Phoenix since recession – Q4 2015 Office Reports just released

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Central Business District encouraging tech migration with redevelopments
Despite having many of the live-work-play elements that attract tech companies and the millennials that often make up their workforce, the CBD has not attracted nearly as many of the tech companies that have propelled the economies of suburban submarkets in the East Valley. The “traditional” office space still prevalent throughout the CBD has been one of the key issues deterring new tech companies, and developers have responded with several key redevelopment projects. While older office buildings are overhauled with more collaborative space and higher ceilings, the Phoenix Warehouse District is also emerging as an urban center with new live-work-play opportunities.

Construction boosts net absorption gains as tenants take new space
A majority of the largest positive net absorption gains in the fourth quarter have been from new construction, with over 1.0 million square feet of absorption concentrated in just eight buildings. While 729,000 square feet of the positive absorption stemmed from completed build-to-suit projects, the majority of new deliveries have been speculative projects with significant pre-leasing success. With the help of these new deliveries, the market recorded the largest single-quarter net absorption gain since the second quarter of 2006, reaching 1.7 million square feet in the fourth quarter (2.9 million square feet total in 2015).

More options for large tenants available within Tempe submarket
Just a few months ago, Tempe’s Class A vacancy rate reached as low as 3.2 percent, with few options for tenants that required 20,000 square feet of space or more. Still one of the Valley’s most popular submarkets, more options have become available for large tenants willing to pay a premium, including large sublease availabilities in Tempe Gateway and the newly delivered Hayden Ferry III. Only five Class A buildings in the Tempe submarket are able to accommodate a tenant of at least 20,000 feet, and due to the high demand for these spaces, some landlords are refusing to divide floors or will only entertain multi-floor deals.

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