Middle Market Digest: This Week in Southwest

The office market in Phoenix has leveled out. In the third quarter, the market performance was flat with sales down 3%. The market still saw acquisition activity, including a $148 million apartment acquisition from the Bascom Group. Los Angeles continued to see substantial deal flow as well, including the completion of financing deals. The deals took place across asset classes. Los Angeles also saw a new ground breaking announcement for The Culver Steps. The two markets dominated deal activity for the week, which has been an ongoing trend for the last several weeks. Here’s a look at this week’s trends, announcements and deals that you may have missed in Southern California, Utah, Arizona and Nevada.

BY THE NUMBERS

PHOENIX—The Greater Phoenix office market leveled off during third quarter. Net absorption and new construction figures were low and vacancy remained flat. The Greater Phoenix office vacancy rate remained unchanged at 16.3%, 30 basis points below a year ago. The most significant decline in vacancy is being experienced in class-A properties. This category of office building had a 40 basis point dip in vacancy during third quarter to 14.1%. This helps balance some modest increases in the mid- to lower-tier buildings. Vacancy is generally trending lower with 12 of the area’s 25 submarkets posting recent vacancy rates under 15%. Rental rates are rising, but at a slower pace than in recent years. Average asking rent is now $24.20 per square foot, 3.2% higher than a year ago and .6% higher than mid-year 2017. Despite declining vacancy in class-A properties, rental rates in those assets are growing at a much slower pace than the market as a whole. Net absorption was positive in the third quarter, but a few tenant move-outs dragged down the overall total. Sales of office buildings also dropped during the third quarter, down 3% from second quarter. Year-to- date, sales activity is down six% from one year ago. The median price of properties changing hands was $139 per square foot, down slightly from the median price in second quarter.