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2022 Q3 Greater Phoenix Office Market Report

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Phoenix Commercial Real Estate Office Market

Q3 2022 Office Market

Three projects delivered during third quarter totaling 472,722 square feet. This brings year-to-date completions to 759,722 square feet. There are currently 1.2 million square feet of office space under construction, marking the lowest level of product under construction since 2017. Rental rates marginally increased in the third quarter, rising 4.0 percent year-over-year ending at $28.88 per square foot. An additional 828,713 square feet of sublease space hit the market during third quarter, an increase of 50 bps quarter-over-quarter and 140 basis points year-over-year.

Key Takeaways
  • Year-to-date sales volume reached $2.2 billion
  • Rental rates increased 4.0 percent year-over-year to $28.88 PSF
  • 828,713 square feet of sublease space was added to the market
Despite the economic headwinds that are feared in the US economy, the Phoenix MSA is battling to maintain a healthy environment. As of August 2022, Phoenix metro had grown its labor force by 87,100 employees compared to August 2021, which represents a 3.9 percent increase.

The third quarter posted a positive level of net absorption for the second consecutive quarter ending at 189,874 square feet, bringing the year-to-date level to 550,540 square feet. Direct vacancy increased 20 bps quarter-over-quarter ending at 13.6 percent. Sublease availability continues to sprout throughout the market.

Investment sales volume during the third quarter fell to the lowest quarter of the year ending at $593 million, bringing year-to-date volume to $2.2 billion. Year-to-date sales volume is currently 30 percent higher than the first three quarters of 2021. The median price per square foot declined 5.8 percent quarter-over-quarter ending at $173 per square foot, for the quarter.

Outlook:
The labor market continues to be the dominant driver of the office market. However, with the shift in interest rates, we are starting to see more and more mortgage companies look to sublease their space as the home lending market slows. Next quarter the market will be hit with two very large vacancies that will end this year’s run of positive absorption. Speculative construction will remain relatively low due to the flexibility of work from home model, but the trend of increasing rental rates will stay, especially in top tier Class A properties.

Phoenix Commercial Real Estate Office Market

2022 Q3 Greater Phoenix Office Market Report

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