Metro Phoenix recorded 2.1 million total square feet of office absorption in 2017. This marks the fourth straight calendar year with at least 2.0 million square feet of positive absorption gains, the longest streak of its kind ever recorded in the Phoenix office market. The total also ranks Phoenix as the fourth highest market with absorption gains in the United States. Phoenix ranks behind Dallas, Seattle-Bellevue and New York, and edged out top primary markets Silicon Valley and Atlanta.
This accomplishment is significant for Phoenix considering our office inventory is less than half the size of Dallas, and about a fourth of New York’s inventory.
When compared to markets of similar sizes, such as Orange County and San Diego, Phoenix absorbed a higher percentage of its inventory at 2.4 percent compared to Orange County’s 0.6 percent and San Diego’s 1.2 percent. Seattle-Bellevue is the only market of similar size that absorbed a higher percentage of its inventory at 4.2 percent.
Southeast Market Area continues to be home of the majority of absorption and new construction
The Southeast market accounted for 54 percent of Metro Phoenix’s 2017 absorption. This area contains just 30 percent of the Valley’s office inventory, but has recorded a majority of the market’s net absorption since the end of the recession. Tempe, the most in-demand submarket, was home to over 29 percent of the market’s total alone.
Users have been attracted to new developments in the area, which boasts a large share of the market’s construction activity. Tempe alone has been home to over 43 percent of the construction activity in the Southeast since 2014. State Farm’s new campus in Tempe encouraged a wave of build-to-suit activity in the submarket, and investors see the value in this too. The recent sale of the campus was the largest office transaction ever recorded in the state. The mega-campus traded hands in the fourth quarter for a whopping $928 million. The landmark sale is expected to have a top-down effect on the market, reinvigorating investor interest in Class A and Trophy assets.
Source: JLL Research
To learn more about the office market in Metro Phoenix, download our Q4 2017 Office Insight report.
About the author
Kiana Cox is a senior research analyst in the JLL Phoenix office who works closely with brokerage and support professionals throughout the western region, as well as colleagues throughout the global JLL organization, to provide best-in-class research that differentiates JLL.