Phoenix Office Rebounded Swiftly After the Second Wave

The Phoenix office market rebound quickly after the second wave of the pandemic struck the market in July. During the summer months, Arizona made headlines as one of the nation’s hotspots for the coronavirus outbreak. Although the outbreak was severe, office lease transactions stalled for only a few weeks before rebounding—a mild response compared to the initial onset of the pandemic. In addition, no deals were canceled, only stalled.

“We saw a little bit of a slow down for a few weeks, and it didn’t lead to a lot of confidence or optimism when Arizona was on the front page of national news periodicals that we were averaging 3,500 to 4,000 cases per day. It caused a small pause, but there weren’t a lot of transactions that died, like we saw at the start of the pandemic,” Ryan Timpani, managing director at JLL, tells GlobeSt.com. “Everyone realized that the cases would subside, and we would shut down the bars again and the gyms. We finally got the caseload under control, and we got back to re-opening pretty quickly. There was not a huge blip, but there was a little slow down.”

However, office users have continued to be hesitant to tour properties, either favoring virtual tours or implementing social distancing measures on site. “When the deals started picking back up, there was a hesitation to tour,” says Timpani. “It took a little longer for LOI turns and lease turns because people were taking a keener eye at the rents.”

The second wave also didn’t deter new market entry, particularly among technology companies that have been eyeing Phoenix as an expansion market. “We are seeing technology companies earmark Phoenix as a future home. Robinhood, Amazon and Zoom have all announced plans to expand to Phoenix,” says Timpani. “That is because of the quality of life, affordability and the net migration story, which I think is going be the thing that we can all hang our hat on. Maricopa County led the nation in population increase, and we are seeing that is only going to accelerate here. The residential market is a good bellwether for what is taking place in the greater Phoenix economy as a whole. Corporate America is really aware of that.”

The pandemic has shifted market fundamentals in major metropolitans, and there could be significant price deductions coming in Los Angeles and San Francisco. However, Timpani doesn’t think that declining office rents will be enough to usurp interest from Phoenix. “Even if there was a huge real estate discount to be had in coastal cities, we would still be seen as huge value play,” he says. “It isn’t just the cost of real estate, but the cost per employee is so much lower compared to coastal cities. That coupled with the quality of life here, makes this an attractive market.”