How Phoenix’s Office Market Compares to Other Cities So Far in 2023

Article originally posted on Phoenix Business Journal on July 25, 2023

Despite a recent uptick in asking rental rates, your dollar goes further to lease an office in Phoenix than it does in other major metro markets. A recent analysis by CommercialEdge, which is part of Santa Barbara, California-based real estate software company Yardi Systems Inc., found Phoenix to have an average asking rental rate of $27.73 per square foot in the first half of 2023 through June.

The national average was $37.82 per square foot, and only Chicago, Minnesota’s Twin Cities, Dallas and Orlando had lower rates than Phoenix. Manhattan and San Francisco’s office markets commanded top dollar with asking rates of $70.56 and $63.61 per square foot, respectively.

Local market reports from Avison Young, CBRE Group Inc. and Cushman & Wakefield found asking office rates ranged between $29 and $31 per square foot during the second quarter, which was trending upward from rates in the first quarter.

CommercialEdge found Phoenix’s total office vacancy rate of 18.8%, which was in the bottom half of 25 markets surveyed. For city-to-city comparisons in the report, CommercialEdge looked at office buildings 25,000 square feet and larger. Year-over-year, Phoenix had the highest jump in basis points at 490 across each of the markets surveyed. That meant Phoenix’s vacancy jumped from 13.9% at this point last year to the 18.8% mark reported at the close of the first half.

Doug Ressler, manager of business intelligence for Yardi, found that Phoenix’s office market is considered to be bifurcated with 10% of buildings accounting for 56% of office vacancy, while 60% of buildings have no vacant space at all.

According to CoStar Group Inc., there are roughly 500 existing properties, or 5% of the office buildings in the Valley, that account for about half of the vacancies in the market. Those buildings were built in 2014 or earlier and are less than 75% occupied. A few examples of these buildings are Chase Tower in downtown Phoenix and Galleria Corporate Center in Old Town Scottsdale, CoStar said.

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