Phoenix Office Market
Office occupancy in the first half of 2023 contracted by 500,727 SF. Net absorption losses have slowed in recent quarters but are expected to continue in the second half of this year and into 2024. Under-construction space has trended down sharply since 2020. Hybrid work models and rising sublet availability are factors in deterring developers from the office market. Vacancy and asking rents both increased year over year. Vacancy grew to 21.8%, with only 82,272 SF of new product coming online in the first half of the year.
Phoenix Industrial Market
Net absorption in the first half of 2023 measured 13.3 million SF, surpassing construction deliveries (8.5 million SF) by a large margin. Leases signed in the past couple quarters with later occupancy dates as tenant improvement work completed was a factor. The 50.4-million-SF construction pipeline trended downward for the second consecutive quarter; construction deliveries are historically high, while new construction starts are sharply decelerating. Preleasing in under-construction product ended at 32.8% at quarter-end. Vacancy decreased down to a new record at 3.8% as asking rent growth velocity slowed significantly to 5.1% in the first half of 2023. Vacancy is likely to increase over the next few quarters amid strong construction deliveries and as user demand finds an equilibrium between services and goods.