Q1 2022 Office Market
As the activity in the Office market increases, so have rental rates, increasing 2.5% Y-o-Y ending at $28.18 PSF. Despite strong leasing activity in the first quarter, the market was faced with several large move-outs which resulted in -143,579 SF of net absorption. The number of sublease deals signed over 10,000 SF was also up this quarter, nearly tripling the amount signed Y-o-Y. Investment sales first quarter were heavily driven by activity in the month of March, which escalated sales to reach $893 million in first three months.
Key Takeaways
- Speculative development breaks ground
- Rental rates increased 2.5 percent Y-o-Y to $28.12/SF
- Highest number of sublease deals signed since the pandemic
The Phoenix office market continues to illustrate a strong recovery and growth. As of February 2022, Phoenix metro had grown its labor force by 89,600 employees compared to February 2021, which represents a 4.1 percent increase and office using jobs have increased 2.4 percent. Information supersector jobs have increased by 5.4 percent, Professional and Business Services supersector have increased by 3.2 percent, and Education and Health Services supersector jobs increased 2.87 percent over the same period.
Outlook
As more and more companies plan to return to the office, they are also reconfiguring what their office space will look like. As an incentive, we are seeing many companies offer a flexible work schedule allowing employees to work from home a couple of days a week. The Phoenix economy is in a healthy state and continues to attract new companies to expand and relocate. The tech company Sendoso is a perfect recent example of a company utilizing the strong labor market of Phoenix to relocate its headquarters out of San Francisco.
Speculative development that was forced to pause in 2020 will be re-evaluated in the short coming months and the market will once again see new construction break ground.
