Expect More Phoenix Market Pain in 2009

PHOENIX-2008 was not a good year for Arizona’s largest commercial real estate community, with growing vacancies and falling rents plaguing every subsector. The coming year looks to bring a yet worsening performance, judging from the comments of local brokers.

“The level of tenant activity has been decreasing since first quarter, which has resulted in one of the slowest years of net absorption that our market has ever seen,” says Patrick Feeney Jr., a senior vice president at CB Richard Ellis specializing in industrial properties. “I think we’ll end this year at 1.5 million square feet of absorption. Our typical year’s activity, on a blended average, easily runs about 6.5 to seven million square feet of absorption.”

Feeney

According to John Bonnell, a senior vice president at Grubb & Ellis BRE Commercial, the office market fared no better. “2008 was a pretty flat year,” he observes. “What we saw is most tenants were paralyzed. They couldn’t get credit to expand, and they weren’t sure if they should anyway. A lot of tenants have just been sitting still. Very few deals are getting done.”

Retail, if anything, fared even worse, says Rick Murphy, also a senior vice president at CBRE. “We’ve seen a dramatic drop in rents across the board, from power centers to strip centers,” he tells GlobeSt.com. “Where guys were getting $35 per square foot, now they’re getting $25 per square foot. That’s if you can even get the tenants, and there’s not a lot of them running around.”

Bonnell

Murphy says the credit crisis has hit mom-and-pop retailers particularly hard, making it virtually impossible for them to get financing. But according to Bonnell, even many large tenants are finding the trough empty when they seek loans. “What is a ‘credit tenant’ today?” he asks. “When major banks and some of the country’s largest employers are facing bankruptcy, the easy definition is gone. You can’t assume a company is credit-worthy just because it’s a famous name.”

As a result, he continues, landlords are meticulously scrutinizing every deal that comes up to make sure the tenant is someone they want to rent to. He says property owners are likely to be even more careful in the coming year because they’re almost certainly going to have to bring rents down further. “If they’re going to make a low deal, they’re going to want to know exactly who they’re leasing to. They want to be sure it’s someone who’s going to stay in place for the term of the lease,” he states.