The Phoenix office market hasn't faltered yet. According to a new report from Colliers International, the office market completed its 33rd consecutive quarter of growth in the second quarter, despite the economic disruption cause by the pandemic. The market continued to see positive net absorption and the vacancy rate remained below 15%. However, it could still be too early to see signs of the dislocation.
"Colliers tracks absorption when a tenant moves in, not on the sign date. 2019 set this quarter to preform very well," Phil Hernandez of Colliers International, tells GlobeSt.com. "However, the next two quarters will look drastically different if one of two things do not happen; either the Cavasson building delivers and Nationwide moves in, or we see large deals close in the next few weeks. There are a lot of large deals that have been paused since March, hopefully the tenants are able to move forward relatively soon."
Like the national market, Phoenix also saw a jobs rebound in May with unemployment trends reversing. This was largely linked to the reopening of the market. "Unemployment revolved around the state closure in April, the jobs lost were primarily with leisure and hospitality," says Hernandez. "On May 15th, the state softly opened back up, not everyone got their jobs back, but there was a sharp increase of employee returning to work. Metro Phoenix was gaining so many jobs in late 2019 and early 2020 that finance and insurance maintained a positive year-over-year growth for month January though June."
Unsurprisingly, class-A office performance is outpacing class-B performance. "Companies looking for employees are finding that an employee is more will to commit to a company depending on the quality of their office space," adds Hernandez. "This is not saying that all class-B buildings are far less attractive, but class-A buildings have a desired appeal to them."
While the market has continued to perform over the last four months, Hernandez says that the outlook for the market is still gray. "Companies are putting their space up for sublease at an incredible rate because they also do not know what is going to happen with the market," says Hernandez. "Until there is a vaccine or society feels comfortable and zero returning to work, we anticipate more sublease space hitting the market as people continue working from home. But there is an upside to this; office space layout will be reevaluated to ensure that all employees have six-foot space between each employee. This will decrease the density and increase the amount of square footage a tenant will require."
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Kelsi Maree Borland
