By Corina Vanek | Phoenix Business Journal
The COVID-19 pandemic and its effects led to the first quarter of negative net absorption of office space in the Valley after nearly nine years of positive net absorption, according to Colliers.
The overall direct vacancy rate in the Valley in the fourth quarter was 13%. Available sublease space has decreased slightly after a peak in the third quarter, but still had a 91% increase compared to the fourth quarter of 2019.
Phillip Hernandez, research manager for Colliers International in Arizona, said much of the space that has been put up for sublease has remained on the market throughout the pandemic, especially some of the larger spaces. Notably, USAA put its north Phoenix office up for sublease very early in the pandemic, and other large office spaces have sublease space available that has not been absorbed.
“Between the Scottsdale Airpark and central Scottsdale is the biggest portion of sublease space on the market,” Hernandez said, adding that despite the slow absorption for sublease space, he expects it to go faster than some of the direct space on the market. “The majority of the sublease is class A, very desirable space hitting the market. It’s really attractive space, and I think tenants will take some of that space first.”
Nationwide Mutual Insurance, which is creating a regional headquarters in north Scottsdale, will occupy 170,000 fewer square feet than originally planned at its Cavasson development. However, because an arm of Nationwide is the owner and developer of the whole master-planned Cavasson, it will offer the space as direct, not for sublease.
No new construction projects began in the fourth quarter, but there is about 2.8 million square feet of space under construction, the largest portion is in the Scottsdale Airpark submarket. Projects under construction are about 43% pre-leased, according to Colliers.
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