The Metro Phoenix office sector continues to improve as the New Year gets underway. With vacancy rates continuing to decline and rental rates steadily increasing, the outlook is positive for a stable 2014 for the sector as it transitions out of the recession. New product deliveries and construction also increased in the first quarter of the year, with 272,710 SF being delivered and over 1.9 million SF in the pipeline.
Vacancy rates for the first quarter of 2014 dropped significantly, coming in at 18.7% overall, down from 19.4% at the end of 2013. Vacancy has seen great strides in the last year; in Q1 2013 the vacancy rate sat at 20.5% overall for the office sector. Vacancies also seem to be leveling between product types; when tenants could no longer afford their high-end spaces, vacancy rates increased dramatically for Class A space, and then began to readjust as those products became more affordable in the last two years and tenants were able to upgrade. At the beginning of 2011, the difference in vacancy percentage between Class A and Class C was hovering around 8%, while now they are almost identical. This will begin to level the playing field for all product types instead of the focused activity in higher end space.
