Desmond: Because Phoenix was late to recover, our office market is still in the 7:30 to 8:00 p.m. range on JLL's Office Property Clock. This falls squarely in the recovery zone. Every other major Western market–such as Seattle, Los Angeles, San Diego and San Francisco–is much further along. Many are at 10:00 p.m. or 11:00 p.m. on the clock, and some are getting close to midnight. People who actively invest in these major MSAs tend to have a common concern that all of the West is near the peak of the market, and that some level of recession will not be far behind. However, in Phoenix, there is actually tremendous runway–more than any other Western US market.

GlobeSt.com: What should sellers know about investors' current mindset regarding office investment in Phoenix?

Desmond: Investors are looking at the entire US market with an eye toward when this cycle will peak, when the next downturn will begin and how to ensure they're not caught at an inopportune point in the middle. Phoenix sellers need to recognize this mindset and price their product accordingly. While some core Phoenix office space is achieving rents near or at $40 per-square-foot, there is typically a 30 to 35% spread between premier office product rents and buildings not enjoying a premier A location. Sellers need to understand where their asset is located on the spectrum, knowing that not every project can demand the highest rents. To secure strong investor interest, sellers need to provide defensible growth assumptions that are supported by leasing momentum at current market rates. Investors also expect the physical appearance of a property to be attractive to today's younger tenants. If it's not, sellers should expect a discount to pricing. Areas like Old Town Scottsdale, downtown Tempe, the Camelback Corridor and downtown Phoenix have great recovery stories that resonate with today's investors because they attract tech and creative space tenants.

GlobeSt.com: Are there investors ready to buy in Phoenix today?

Desmond: Yes! There is still a lot of opportunity to make intelligent office buys in Phoenix. Some of the most active current investors are entities who have previously owned or currently own office properties in Phoenix. These investors appreciate today's strong local fundamentals and the ability to capture a higher rate of return in Phoenix, as compared to other Western markets like Los Angeles, Seattle or the Bay Area. They are seeking upside through properties in recovering submarkets, often in buildings that are 60 to 80% leased and/or present an opportunity to market-to-market existing rental rates.

Premier Phoenix submarkets are also achieving top values. For example, since 2014, investors of 100,000 square feet or larger, multi-tenant office buildings have completed a total 75 transactions representing $2.9 billion. Five of these transactions occurred along a 10-block stretch of the Camelback Corridor, between 22nd and 32nd streets. The combined value of these acquisitions was $660 million. That's more than 22% of total investment activity. These acquisitions were also all completed by institutional investors, confirming the strong and broad demand for Phoenix office space from well-informed groups. Look for more significant transactions to take place in the CBDs of Phoenix, Tempe and Scottsdale. As submarket success stories begin to spread to other areas of the Valley, more sellers will be able to draft on that success.

PHOENIX—Are Western office markets reaching the peak? Are investors ready to buy? What time is it on the office property clock on the wall? Dennis Desmond, senior managing director, JLL–Phoenix discusses these and other office-related issues in this GlobeSt.com exclusive.

GlobeSt.com: If you could tell investors one thing about today's Phoenix office market, what would it be?

Dennis Desmond: Investors are watching major Western office markets approach their peak, and they think this is happening in Phoenix as well, but it is not. The Phoenix office market was clobbered during the recession–far more than any other western city. We lost 300,000 jobs, office vacancies shot into the mid-30% range and the bottom dropped out of rents. In the past 24 months, we have seen jobs return and the Phoenix housing market rebound, which are both strong signs of recovery. Local office rents and occupancy rates have also improved. In some Phoenix submarkets, rents and occupancy are approaching all-time highs, but these scenarios are still fairly isolated–happening predominantly in our premier submarkets. The rest of the Valley is still working to catch up. With these fundamentals in mind, it is a mistake to lump Phoenix in with the rest of the West. Most investors can still buy Phoenix office buildings with the expectation of as much as two or three years of solid rent growth and lease activity ahead of them.

GlobeSt.com: How does this coincide with Phoenix's position on JLL's Office Property Clock?

Desmond: Because Phoenix was late to recover, our office market is still in the 7:30 to 8:00 p.m. range on JLL's Office Property Clock. This falls squarely in the recovery zone. Every other major Western market–such as Seattle, Los Angeles, San Diego and San Francisco–is much further along. Many are at 10:00 p.m. or 11:00 p.m. on the clock, and some are getting close to midnight. People who actively invest in these major MSAs tend to have a common concern that all of the West is near the peak of the market, and that some level of recession will not be far behind. However, in Phoenix, there is actually tremendous runway–more than any other Western US market.

GlobeSt.com: What should sellers know about investors' current mindset regarding office investment in Phoenix?

Desmond: Investors are looking at the entire US market with an eye toward when this cycle will peak, when the next downturn will begin and how to ensure they're not caught at an inopportune point in the middle. Phoenix sellers need to recognize this mindset and price their product accordingly. While some core Phoenix office space is achieving rents near or at $40 per-square-foot, there is typically a 30 to 35% spread between premier office product rents and buildings not enjoying a premier A location. Sellers need to understand where their asset is located on the spectrum, knowing that not every project can demand the highest rents. To secure strong investor interest, sellers need to provide defensible growth assumptions that are supported by leasing momentum at current market rates. Investors also expect the physical appearance of a property to be attractive to today's younger tenants. If it's not, sellers should expect a discount to pricing. Areas like Old Town Scottsdale, downtown Tempe, the Camelback Corridor and downtown Phoenix have great recovery stories that resonate with today's investors because they attract tech and creative space tenants.

GlobeSt.com: Are there investors ready to buy in Phoenix today?

Desmond: Yes! There is still a lot of opportunity to make intelligent office buys in Phoenix. Some of the most active current investors are entities who have previously owned or currently own office properties in Phoenix. These investors appreciate today's strong local fundamentals and the ability to capture a higher rate of return in Phoenix, as compared to other Western markets like Los Angeles, Seattle or the Bay Area. They are seeking upside through properties in recovering submarkets, often in buildings that are 60 to 80% leased and/or present an opportunity to market-to-market existing rental rates.

Premier Phoenix submarkets are also achieving top values. For example, since 2014, investors of 100,000 square feet or larger, multi-tenant office buildings have completed a total 75 transactions representing $2.9 billion. Five of these transactions occurred along a 10-block stretch of the Camelback Corridor, between 22nd and 32nd streets. The combined value of these acquisitions was $660 million. That's more than 22% of total investment activity. These acquisitions were also all completed by institutional investors, confirming the strong and broad demand for Phoenix office space from well-informed groups. Look for more significant transactions to take place in the CBDs of Phoenix, Tempe and Scottsdale. As submarket success stories begin to spread to other areas of the Valley, more sellers will be able to draft on that success.