Late ’09 Recovery Predicted for Metro Phoenix Commercial Real Estate Market

Posted By Mike Padgett

July 9, 2009


PHOENIX, Ariz. – The commercial real estate market in metropolitan Phoenix continues experiencing the symptoms of a struggling economy, with increasing vacancies in the office, industrial and retail sectors.

But despite the uncertainty in the housing and credit markets, economists at the W.P. Carey School of Business at Arizona State University and the Arizona governor’s office believe “that the nation and Arizona will begin to feel the effects of a recovering economy by the end of the year,” according to the second quarter analysis from CB Richard Ellis.

Following are highlights of the report:

Office market:

• Affected by the continued economic downturn and the delivery of 519,612 square feet of new space, the office vacancy rate rose for the eighth consecutive quarter, ending the second quarter at 23.7 percent. This is 90 basis points higher than last quarter and 500 basis points higher than one year ago.

• Absorption in the second quarter was negative 253,029 square feet, with more than half of the Valley’s 25 submarkets reporting in the red. The Southeast Valley submarket experienced the strongest absorption of space, at 94,392 square feet.

• The average asking lease rate continued to decline, ending the second quarter at $23.91 per square foot. This compares to $24.78 per square foot at the end of the first quarter and $25.71 per square foot one year ago.

• The amount of office product under construction remains at its lowest point in four years, with 2.2 million square feet of new space in the pipeline scheduled for delivery in 2009 and 2010. More than a quarter of the space under construction in the Valley has been pre-leased.

Industrial market:

• Economic uncertainty continues to stall demand for industrial space, and for the third consecutive quarter the Valley has experienced negative absorption, posting a loss of 1.6 million square feet of occupied space. All but five of the Valley’s 28 industrial submarkets reported negative absorption in the second quarter.

• The industrial vacancy rate continued to rise, ending the second quarter at 15.2 percent. Distribution buildings represented the bulk — 15.9 million square feet or 39.2 percent — of all vacant industrial product Valley wide.

• The average asking lease rate for existing industrial product has declined 14.5 percent in the past 12 months, dropping from $0.69 per square foot to $0.59 per square foot at the end of the second quarter.

• Construction activity continued to decline, with only 2.5 million square feet of industrial product under construction at the end of the second quarter. This compares to 2.9 million square feet of product under construction at the end of the first quarter and 5.8 million square feet one year ago.

Retail market:

• Store closings, caused by cutbacks in consumer and business spending, continue to drive the vacancy rate higher, ending the second quarter at 10.5 percent. This is the ninth consecutive quarter of rising vacancy.

• The retail market had negative absorption of 174,276 square feet at the end of the second quarter. Year-to-date, the market has experienced negative absorption of 964,373 square feet.

• The second quarter of 2009 represents the first time in seven years that product under construction was less than 3 million square feet. In the first quarter, four retail centers broke ground, totaling 639,125 square feet.

• The availability of big box space has continued to increase. At mid-year there were 272 spaces greater than 10,000 square feet available Valley wide, representing 8.2 million square feet of vacant space. Last year there were 155 spaces and 4.1 million square feet available.

For more information, visit CBRE’s Website,

(To avoid missing news and features on, sign up for convenient email alerts in the FeedBurner box in the right rail. Your email address will not be used for any other purpose.)

(Comments from readers are moderated and will not appear until the administrator has approved them.)

(Ideas for interesting news stories about Arizona residents and the state’s business community are welcome. Please send your ideas and suggestions to

Jul 9th, 2009

Comments are closed.