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4/24/23
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This report provided by real estate services firm Avison Young
While office rental rates fell slightly for both class B and C buildings in Phoenix, average rents increased for class A space as demand for trophy office properties continues. According to Avison Young’s First Quarter 2023 Phoenix Office Market Report, well-located, quality assets with amenities are being sought out more than ever as businesses look to attract and retain employees and encourage a return to the office.
Overall, the office vacancy rate ended in Q1 at 22.8% as sublease space has been elevated and companies shrink their footprint in an effort to right-size.
“The headwinds of the economy, higher interest rates, and a sluggish return to the office have hit office properties harder than other commercial property types across the nation. While Phoenix has been more resilient than a number of major markets and still has strong fundamentals, the increased amount of available sublease space has led to a 10-year vacancy high and a very low investment sales volume. Tenants are looking for smaller spaces and continuing a flight to quality, which has led some office owners to look at repurposing their properties,” said David Genovese, Avison Young Principal and Managing Director – Phoenix.
Office sales volume was down significantly last quarter with $110.7 mil transacted throughout. Over the past decade, Phoenix has averaged a quarterly transaction volume of $435.5 mil. Though sales volume is down for office, it should be noted that more owners are opting to repurpose their properties into more stable product types rather than sell to preserve property values.
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