Among the most desirable commercial real estate properties in the Phoenix metro area are not surprisingly, Old Town Scottsdale and the Mill Avenue region of Tempe. On their quest to find walkable neighborhoods and exceptional Class A Phoenix office spaces, companies will have to look elsewhere during this current submarket upsurge. “Both areas are 100% leased,” says Jerry Noble, Managing Director of Cushman & Wakefield of Arizona.
The rise in popularity of these areas due to job growth and a favorable economic outlook, has led to an increase in prices for all classes of real estate spaces. According to our data the average rent for A Class office space is $24.83 per square foot; B Class is $19.74; and C Class goes for $15.10 per square foot.
Over the last year, prices have risen in the higher quality office buildings. We are seeing Phoenix in the midst of a flight to quality office space. C Class office space is the only type of building to have a drop in rent from 2014-2015.
In fact, in the past few years, prices have increased in almost every submarket of Phoenix’s office space. The popular Chandler region in the southeast valley has seen almost a 20% increase during the last 2 years. Closely behind is Deer Valley in the northwest valley with an almost 15% price increase.
Technology and Finance Spurs Growth
According to Noble, the growth in the southeast valley is technology related while in the northwest valley where the Loop 101 is a dominant office corridor, the growth is related to more traditional companies such as large insurance and financial institutions. The region includes campuses for American Express and Discover Financial Services.
While throughout the past year rents have mostly increased, the growth in downtown Mesa and other submarkets outside of the city center have seen the largest 1-year growth in rents. “This market recovery is being led by technology,” says Noble. “The southeast valley has always been home to these users since Microsoft and Intel dropped anchor many years ago. So most of this activity has clustered where the talent is—the southeast valley.”
While the rise in rents are not uniform, along with Mesa, Paradise Valley and South Scottsdale office space, have also experienced significant increases. This continues to demonstrate the growing submarket strength and shifting dynamics throughout the Phoenix area. “We are in our fourth year of recovery and the better submarkets are moving forward and gaining pricing power,” Noble says.
Local companies are moving to more desirable submarkets organically because of this recovery and as Noble explains, there are still more companies moving businesses or increasing their presence from the Midwest and California. These new companies are contributing to the demand in Phoenix office space.
As the commercial real estate landscape in the Phoenix area changes, Class A spaces are leading the way. There’s a noticeable shift from the long-established areas such as the Camelback Corridor, still very popular with traditional businesses, to the east valley.
With almost every region monitored experiencing a price increase in the past two years for Class A, B and C spaces, the market is poised for continued growth. Are the Phoenix submarkets primed for takeoff? Possibly. However, what is certain is that they are already on the runway.