PHOENIX—Apparently Phoenix Mayor Greg Stanton has thrown down the gauntlet. According to Andy Weflen, regional director of analytics for GlobeSt.com Thought Leader Xceligent, a rivalry of sorts has grown between the mayors of Arizona's urban heart and Tempe. And it seems that the state capital—long suffering from a lack of a definitive vital CBD—may have just gotten the leg up. Stanton, in his April State of the City address, unveiled that Uber, the app-based car-on-demand company, took some 40,000 square feet in what serves as the city center, and a trail of corporate users, coincidentally or via its lead, have followed.

“You could consider our suburban offices the prime-time office locations, while the Phoenix Downtown was really not that way,” says Weflen. “The mayor started to talk about bringing back that part of town, and a big move in Phoenix to fill in the city instead of keep expanding out.”

An appropriate approach for a city named Phoenix, no? But whatever the motivation, other names—and even bigger-ticket leases—began coming in, and Weflen cites two as just the start: Southwest healthcare system Banner Health, on the heels of the Uber announcement, revealed its intention to take 220,000 square feet in Central Phoenix for a consolidated headquarters—expandable to a full 300,000. The Arizona Department of Child Safety has also taken 100,000 square feet in Midtown.

And in an interestingly cluster effect, Weflen reports that “providers and suppliers are starting to set up offices near Banner and Child Safety.” San Francisco-based Dignity Health has signed for nearly 31,000 square feet, with intentions to occupy in Q3. All three of these healthcare leases are located within a mile of each other.

Weflen adds that this new burst of activity comes in addition to the ongoing development of multifamily—especially mixed-use—that is being spurred in Central Phoenix by the local campus of the Arizona State University, ironically an extension of the main Tempe campus.

Phoenix MSA Vacancy Changes—
Submarket by Submarket
 
Submarket   Total Vacancy Rate (%)
    2015 Q1 2015 Q2
Tempe   8.96% 8.93%
South Scottsdale   10.37% 10.27%
Chandler   14.82% 15.10%
Downtown   17.03% 17.20%
Camelback Corridor   20.97% 20.64%
Midtown   26.85% 25.42%
       

But no supporters of the Phoenix CBD are ready quite yet to do a victory dance. Clearly (see chart) the city center has a way to go. “There's still a lot of vacancy on the table in Midtown and Downtown,” says Weflen. “But, with the likes of the Arizona Department of Child Safety moving in, vacancy dropped almost 1.5% in Midtown from Q1 to Q2, which is a decent gain compared to the other submarkets.”

In the local Xceligent office, a recent Advisory Board meeting also produced a clear wait-and-see attitude, one that Weflen reflects. “I'm curious to see what the ultimate primary user type is going to be,” he tells GobeSt.com. While healthcare is a clear early favorite, the former Viad headquarters has been revitalized as the Central Arts Plaza, directly across the street from the Phoenix Art Museum.

Will Downtown become a button-down corporate center, or a trendy, hip and artsy home to the arts? Ultimately, it may not matter. What is clear is that, after years of taking a backseat to the likes of Camelback Corridor, Scottsdale, Tempe and Chandler, the Phoenix central business district is at last becoming something.

 

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John Salustri

John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.