On May 1, Reis published data and reports for both the month of March and for the first quarter of 2013.* The following is an update on the Tucson office market and the Phoenix office market and trends to watch.
Asking Rates have Leveled Off in Tucson
Entering into 2013, the Tucson office market is finally seeing some stabilization in terms of asking rent. After a startling decline for the full-year 2012 of 0.6% and a Q4-12 drop of 0.3%, asking rents have leveled off. At the end of Q1-13 the mean asking rent of $21. 38 remained unchanged from the end of 2012. Vacancy, however, continues to be somewhat of a concern for Tucson. Vacancy, however, continues to be somewhat of a concern for Tucson, increasing 30 bps during the first quarter to 15.8%. With no new construction coming online during the first quarter, Tucson is struggling to absorb existing inventory. Given that asking rent has remained flat, this uptick in the vacancy rate is responsible for the decrease in gross revenue per square foot by 0.4% from Q4-12 (compared to a 0.8% increase nationwide).
Vacancy Still the Big Story in Phoenix
While Phoenix did not experience the same rate of asking rent growth during the first quarter as was exhibited throughout 2012 (0.7% for the year and 0.4% for Q4 2012), rent growth remained positive during Q1 2013 ending the quarter at $22.40, a growth rate of 0.1%. Vacancy is still the big story in Phoenix. With a vacancy rate of 26.0% for Q1 2013, compared to 17.0% nationwide, Phoenix is ranked 79 out of the 82 total metros nationwide covered by Reis. Total net absorption in Phoenix in Q1 2013 was negative 144,000 square feet, erasing the 122,000 square feet absorbed in Q4 2012. Job growth continues to be key to future vacancy declines in Phoenix. It remains to be seen whether sequestration will hinder the tepid progress that has been made so far in that regard.
The Road Ahead Shows Improved Rent Growth
Looking ahead, fundamentals will continue to improve in both Tucson and Phoenix. Asking rent is expected to increase in the two metros by of 0.9% and 1.9%, respectively, in 2013. The recovery effort in both Tucson and Phoenix should, however, lag national rent growth, which is expected to increase 2.5% by the end of this year.
Editor's Note: Market statistics vary from those quoted in C & W | PICOR’s quarterly reports, due to differing data sources and data sets. For details on Reis, Inc.’s survey criteria, please visit the Reis, Inc. FAQ page.
*ReisReports now offers monthly reporting, giving subscribers access to both sets of information.