"Robust" demand will help drive down vacancies for office properties around the Valley this year, according to a report.
"Sizable job creation, record-low vacancy, rising rents and higher yields" are attracting investors to office buildings in the Phoenix metro area, says the report from Marcus & Millichap. Nevertheless, the study pegs vacancies in the Phoenix area still among the highest in the nation, helping to explain why Phoenix dropped one spot, to 26th place, among 46 metro areas analyzed for office-investment potential.
San Jose, Calif., is the top office market, ahead of Seattle-Tacoma, San Francisco, Portland and Boston, based on expectations for employment, vacancy rates, construction activity, rents and other variables. St. Louis is the lowest-rated office market.
Insurance and technology industries account for much of the demand for office space around the Phoenix metro area, according to Marcus & Millichap, which cited expansions by State Farm and Farmers Insurance. "Tech companies seeking a low-cost alternative to Silicon Valley or Southern California are migrating to the metro area, and existing tenants are adding to payrolls," the report said.
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Relatively few new-building completions this year will help drive down vacancy rates and support average rent increases of more than 5 percent for the third straight year, according to the forecast. The East Valley and Scottsdale remain attractive markets for tenants seeking office space, though affordable rents in northwest Phoenix will support that area. Metro Phoenix's vacancy rate is expected to drop moderately to 17.7 percent.
Nationally, Marcus & Millichap sees office vacancies easing 0.2 percent to 14.3 percent, marking the low point of the current economic cycle, with asking rents rising 3.5 percent on average. The company predicts higher interest rates and inflation, moderating job growth as the labor market tightens and increased economic growth, with more government spending.
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