Third Quarter Brought Strong Net Absorption, Declining Vacancies and Escalating Rents

Phoenix, AZ – Colliers International in Greater Phoenix released its third-quarter 2016 Office Market Report for Greater Phoenix.  Report highlights are outlined below.  For more details, refer to the attached report or click here to view online.

• Greater Phoenix posted a strong 930,000-square-feet of net absorption during the third quarter. This marks the 13^th consecutive quarter for positive net absorption in the city.
• Vacancy throughout all classes of space has decreased to 16.3% with some submarkets dipping below 15%.
• Employment growth in Greater Phoenix has slowed to an annual pace of approximately 2.2 percent at the end of 3^rd quarter, which is down from 3.5 percent a year ago. Despite the slower job growth, companies continue to expand in the office sector.
• Rental rates are on the rise, increasing more than 5% in the past 12 months to $23.22 per square foot. A few submarkets are recording double-digit annual rent gains.
• Investment activity increased in the third quarter and sales for 2016 are closely tracking to 2015 levels. The median price in the 3^rd quarter was $141 per square foot, bringing the year-to-date median price to $130 per square foot.  The 4^th quarter is typically robust in the investment sales sector, so a strong finish to the year is expected.
• Developers delivered approximately 470,000-square-feet of new space to the market during 3^rd More than 1.8 million square feet are currently under construction, with approximately 1 million square feet of those being speculative space.

According to Colliers International of Greater Phoenix, demand for office space is expected to remain healthy through this year and further strengthen in 2017.  Net absorption is being driven by employment growth, which has slowed somewhat, but remains positive.  The steady tenant demand has driven down vacancy rates and pushed rental rates higher.  Rent growth should continue for several more quarters as the overall market vacancy approaches the 15% range.  As inventory is absorbed, we are experiencing more modest construction activity than in previous recoveries.  This will help prevent the market from becoming overbuilt.

Investment activity will remain healthy for the remainder of 2016 with a big push at the end of the year.  Strengthening market fundamentals are attracting more investors to the market. Cap rates have remained essentially flat in 2016, averaging in the mid7% range.  Prices are trending higher in response to demand.  interest rates remain low and no clear signals of an increase are on the near horizon.

Cushman & Wakefield | Picor is reporting Tucson’s industrial vacancy continued its positive trajectory, improving by 50 basis points over Q2 2016 to end at 8.1%, the lowest level recorded since Q4 2008. With the completion of HomeGoods’ 858,288-square-foot (SF) distribution center, total net absorption to date in 2016 exceeded 1.2-million-square-feet (MSF), marking the first year over one MSF since 2006. The pendulum has moved to center in a balanced landlord/tenant market. Concessions are minimal and pressure is occurring on lease rates in some submarkets, particularly in the northwest, where rents have increased 10.0% to 15.0% over the last 18 months. The strongest part of the market is in the 5,000- to 10,000-SF range, with the preponderance of activity in that size level. Spaces over 50,000-square-feet still suffer from limited demand.

As a bellwether of the market’s health, after the lease of 55,000-square-feet with additional land, occupancy at the UA Tech Park stands at roughly 95%, with several transactions on the horizon which would bring the park to virtually full occupancy.

The sale market saw heightened activity, both from investors and end users. Buyers accustomed to an environment of distressed pricing are beginning to see increased competition for product and pressure on pricing and values.

Three user projects were under construction, including Worldview’s 150,000-square-foot facility and approximate 20,000-square-feet buildings for both Old Dominion and Switchgear Solutions.

ECONOMY
Greater Tucson was recently named the third fastest-growing (employment) metro area over 500,000 population by Bloomberg, with year-over-year job growth of 4.2% in July and total employment of 378,050. The national housing recovery has improved Tucson’s prospects for population growth and is expected to spur construction. Arizona was the only state in the U. S. to experience month-over-month construction job gains in July 2016, and was one of three states to report year-over-year construction job growth. Nationally, September consumer confidence was at the highest level since 2007.

OUTLOOK
Tucson’s existing businesses, both large and small, have been quietly growing headcounts and have accounted for the Tucson region’s path to vibrancy over 24 months. Meaningful collaboration between public and private sectors has facilitated many hiring decisions and recent employment announcements will add future, positive impact. Planned hiring by Caterpillar (600 jobs), Worldview (448), ADP (400), C3 (1,132), Samsung SmartThings (80), and Tucson Medical Center (61) combine for a forecasted economic impact of over $3 billion. Other job announcements have occurred, with more expected. Future opportunities will arise from innovation and tech in the sharing economy, as well as job growth’s positive influence on the housing market.

To access full report click here: tucson_ind_3q16

Chandra Reilly joins Building Design + Construction’s talented 2016 class

TEMPE, AZ –Sundt Construction Inc.’s (www.sundt.com) Hospitality Project Director Chandra Reilly has earned a coveted 40 Under 40 Award from Building Design + Construction (BD+C), one of the construction industry’s leading trade publications.

Reilly received the national recognition based on her leadership skills, inventiveness, sustained career progress, people skills, client relations, academic training, dedication, personal integrity, technical skills and community outreach/volunteer work.

“There is something very humbling about receiving recognition like this at a national scale from a well-respected publication,” said Reilly. “It certainly reinforces the responsibility I have to continue pushing myself to do great work and to bring my best self to the job every day. I work with some incredible people who make me look good just by being themselves, and for that I am always grateful.”

Reilly has been with Sundt since 2013 and is responsible for the development and leadership of the general contractor’s hospitality construction work. Her group is working on $250 million in hospitality projects, all of which have been acquired since Reilly took on her current role.

In addition to her professional experience, Reilly has been active within her community. For the past 12 years, she and her husband have supported the Sojourner Center, an organization that works to keep women safe and provides them with opportunities to re-start their lives after leaving abusive situations. Reilly participates in Sundt’s nonprofit organization, the Sundt Foundation, and also takes part in the American Heart Association Heart Walk and Thirst-Aid bottled water drive to help the homeless in Phoenix.

An alumna of Arizona State University, Reilly has a bachelor’s degree in Global Business, a minor in Spanish and certificates in International Marketing and International Finance.