"Virtually all of the net absorption has been in class A," Michael Beall, senior director with Cushman & Wakefield of Arizona Inc. tells GlobeSt.com. "We're seeing very little in class B and C."
Beall said tenants who once settled for back-end offices are finding that cut-rate deals on class A space will allow them to move into upscale office parks that give them a better location and more visibility.
"With the market being soft, class A office space is being reduced so that people that would have rented class B space can now get class A space at virtually the same price," Peter Nieman, senior vice president of Colliers International tells GlobeSt.com. "There's more opportunities to lease quality space than there was two or three years ago."
In the Phoenix market, class A space is renting for between $25 per sf to $30 per sf, just a few dollars more than the $17 per sf to $24 per sf asking price for class B offices, Nieman said.
That's putting the squeeze on building owners on the lower end of the scale. "People who own class B and class C space are having a hard time renting," Nieman said. But even prime office space is facing a rental crisis. "Most (landlords) are feeling the stress," he added.
Even building owners with tenants are willing to negotiate better leasing deals to keep their buildings occupied, Beall noted. "Landlords are generally approaching their tenants well in advance of their lease expirations and recasting their deals," he said. "Landlords are sacrificing immediate cash flows in order to secure long-term occupancy and tenants are able to reduce their out-of-pocket expenses. It's obviously a big win for the tenants, but it's a heck of a lot less expensive for a landlord to offer that deal to an existing tenant than to lose that tenant.
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