By Corina Vanek | Phoenix Business Journal
Office leasing activity has begun to level out in the third quarter after a steep drop in April, but one expert expects the Phoenix metro will continue to see an overall reduction in space needs over the next few quarters.
“I do expect supply to outpace demand, putting upward pressure on vacancy,” Jessica Morin, director of market analytics for CoStar Group Inc. in Phoenix said during a presentation on third quarter commercial real estate statistics.
The Valley does not have a large amount of office space under construction, which will keep the amount of new supply lower and prevent even higher vacancy. About half of the office product under construction is build-to-suit space, and most is higher priced class A office space, according to CoStar.
The Scottsdale Airpark submarket has the most office space under construction in the Valley — totaling about 800,000-square feet. Once that space comes online the submarket’s supply will increase by about 6%, according to CoStar. Tempe has the second-largest amount of space under construction, with about 617,000 square feet, representing a nearly 4% increase in the submarket’s overall supply.
Much of the construction in the Scottsdale Airpark comes from Cavasson, Nationwide Realty Investor’s massive mixed-use development that will include the regional headquarters for the insurance giant, as well as office, retail and apartment space available for lease. Choice Hotels has already leased a building at Cavasson for a tech center.
Additionally, an increase in the availability of sublease space on the market will contribute to negative rent growth over the next year, Morin said.
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