The Phoenix office market is finally showing some signs of life! According to the latest Q3 2024 Phoenix Office Market Dynamics report from the Phoenix Office of JLL, we’ve seen a small but notable decline in the overall vacancy rate, down to 25.1%. This might not seem huge, but it’s the first time since 2019 that vacancies have dipped, so we’ll take it!
What’s behind this improvement? Well, part of it comes from fewer new office buildings being constructed and some existing buildings being converted for other uses, which has helped trim down the total office space available. It’s a trend that’s gradually tightening the market, though we’re still dealing with some leftover challenges from pandemic-era vacancies.
The sublease market is also on the upswing. Vacancy rates there fell to around 5%, meaning companies are starting to reoccupy spaces they previously listed for sublease. While net absorption (the total amount of space leased minus what was vacated) is still in the negative, the gap has narrowed significantly, hinting that things are slowly getting better.
On the rental side, demand for office spaces that come with all the bells and whistles—like great amenities—is pushing prices up. Direct asking rents have jumped 3.1% so far this year, which is good news for landlords who have seen some sluggishness in rent growth.
Looking ahead, the future is cautiously optimistic. The Federal Reserve’s recent decision to cut interest rates by 50 basis points is expected to ease some financial pressure on businesses, potentially leading to even more stabilization in the office market. Plus, the ongoing trend of converting old, outdated office spaces into other uses could help keep vacancy rates in check.
So, while there’s still some work to be done, it’s clear that Phoenix’s office market is on the mend. It might not be a full recovery just yet, but after a long period of uncertainty, any sign of progress is worth celebrating!
Credit: Information sourced from the Q3 2024 Phoenix Office Market Dynamics report by the Phoenix Office of JLL.
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