Q4 2020 Office Market
COVID-19 cases spiked again as the colder winter months arrived in Arizona, but with the help of a business-minded governor, the state did not enter a second lockdown like many neighboring states had to unfortunately bear. The vaccine distribution provides a path to normalization, which should lead to an economic catch up and optimism for the year ahead to deliver pent-up growth.
From the peak of unemployment in April hitting an all-time high of 12.5 percent, metro Phoenix has gradually and diligently been moving in a positive direction. The area has recovered nearly 79 percent of the initial jobs lost. In the months of October and November the financial activities industry increased 0.24 percent and 0.82 percent respectively, compared to the same months last year.
- Q4 posted 143,434 SF of negative net absorption, marking the market’s first quarter of negative net absorption following an astonishing run of 34 consecutive quarters of positive net absorption.
- Sublease availability slightly decreased after reaching a pinnacle in third quarter; however, it still indicated an increase of 91 percent compared to Q4 2019.
- The direct vacancy rates increased this past quarter to 13%, increasing 30 bps over the quarter and 80 bps over the year.
- Office vacancy, overall, had been trending downward until last year, but is now in an upward path.
- Under construction activity remained steady this quarter with buildings that had previously broken ground; however, no new projects were started this quarter.
- Scottsdale Airpark submarket continues to lead development in the Valley with 785,111 SF, which are 45% pre-leased, marking a decrease from the previous quarter after Nationwide gave back over 170,000 SF of direct space.
- Investment sales soared to over $570 million late in 2020, after lower sales in the first three quarters that reached only $647 million dollars combined.
New construction will be delivered with a standard health certification to adapt to the changing environment, touchless technology will be available at premier buildings, and office density will decrease to allow for appropriate distancing.
Vaccine progress will remain a dominant market narrative throughout 2021. As confidence grows, we will see a transition year, moving back to services from goods, and to in-person from virtual. The scars of 2020 will remain vivid from businesses that did not survive.
In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.