Progress for Phoenix & Tucson Office Markets: Guest Post by Reis

Continuing our series of quarterly guest posts from the sharp analysts at Reis, Inc., we share this update on Tucson office vacancy as well as the Phoenix office market. Read on for some good news, with indicators moving in the right direction.

Stronger Quarter of Net Absorption in Phoenix

Phoenix’s office vacancy rate fell back to 25.8% in the second quarter thanks to its strongest quarter of net absorption since the fourth quarter of 2011. This came after rising to 26.0% in the previous period. The vacancy rate remains well above its pre-recession trough of 11.5% in the third quarter of 2006.

Asking and effective rents both increased 0.3% in the quarter after inching up by 0.1% in the prior quarter. Both asking and effective rents are up a very tepid 0.8% over the past year.

Not surprisingly, construction activity remains muted in response to the lack of even moderate demand for space. Vacancy is not expected to move much before the end of the year, but vacancy declines should start to mildly pick up pace in 2014.

Tucson Experiences Largest Vacancy Decline Since 2011

Tucson The office vacancy rate in Tucson fell 60 bps to 15.2% in the second quarter, the largest quarterly decline in vacancy since late 2011.  Net absorption turned positive after two straight quarters of negative figures.  This was also the largest quarterly absorption figure since late 2011.

In response to increased (yet sluggish) demand for space, asking and effective rents increased 0.2%, the first rent increase since the second quarter of 2012.  Rent growth will be positive but only marginal for the second half of the year.

Luckily, property owners have not had to contend with any new supply – there have been no completions in the market since 2009.  This further highlights the lack of demand for space – with no new construction in several years, even moderate demand would have pushed the vacancy rate by a decent amount.  As a result, the vacancy rate will remain relatively stagnant over the next couple years.

Brad Doremus is a Senior Analyst at Reis, Inc. 

Editor’s Note: Market statistics vary from those quoted in Cushman & Wakefield | 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.

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