Financial Services Sector Flourishes in Phoenix
In the past 24 months, the financial services sector has accounted for 30% of the total leasing activity in Phoenix.
“Phoenix has always been known as a good financial services market. We had campuses with Wells Fargo, American Express and Schwab. They were strong back-office operations, and they were quiet, to be honest. People knew that they were here, but they kept quiet and they had great business models for back-of-the-house financial services users,” John Pierson, managing director at JLL, tells GlobeSt.com, adding that State Farm invested significantly in the market in 2013, which lead to the rapid expansion of the sector in the market. “That spurred additional companies to take a hard look at Phoenix.”
Now, Phoenix is attracting big names in the financial services sector, including American Express, Freedom Financial and Vanguard, all of which are occupying significant square footage. “Phoenix has absolutely been on the radar, and from an employment standpoint, it has been a strong market,” says Pierson. “Employers have found the right talent both in the IT sector and in the processing and operations sector to fill their needs.”
The growth has been driven by a combination of in-migration of financial services into the market and the expansion of companies within the market. “We have new companies that didn’t have a major presence before but have really doubled down,” adds Pierson. “Insurance and financial sectors have been very strong. It has really been a combination of existing growth and new in-bound growth.”
Financial services users historically have occupied 50,000 to 75,000 square feet in the market. Today, users are occupying 150,000 to 300,000 square feet on average. “Today the standard has completely changed,” says Pierson. “We have multiple 150,000 to 300,000 square foot back office operations uses in our market. Those requirements have become a standard, and that is a new trend.”
The leasing activity has been geographically widespread, with lease deals everywhere from North Scottsdale to Tempe to North Phoenix. However, a financial services hub could be emerging in the Southeast Valley, which is largely where new leases in this industry has been signed. “That area has been our predominate growth market,” says Pierson. “Residential growth, quality of life and existing employment has driven that. We also have ASU nearby and an expanded freeway system that makes it more accessible. It is also affordable and has land for new development. A combination of all of those things has caused that area to be our strong point area.”
Looking ahead, this industry is expected to continue to grow through the next year. Rental rates, expectedly, have increased has a result of the demand, but construction activity has kept pace with demand and the new supply coming on the market will maintain balance. “We think the momentum is going to continue,” explains Pierson. “We have enough spec development that will deliver next year to keep things competitive from a rental rate standpoint. I feel that the pipeline of users that are growing and new companies that are considering Phoenix is strong. I think through 2019, we are going to feel pretty confident about the pipeline.”