Phoenix Office is Sluggish. Here's Why.

The Phoenix office market has had decent momentum so far in 2015, but a space mismatch is still holding velocity back, according to Savills Studley SVP and Phoenix branch manager Tiffany Winne. "Phoenix is still dealing with a space mismatch," Tiffany tells us. That is, too much traditional office space in Downtown Phoenix and not enough tech/back office space in Scottsdale and Tempe. It's one factor in relatively tepid leasing the last two quarters (Q4 '14 and Q1 '15), which Savills Studley puts at 4M SF all together, a decline from 4.6M SF during the previous two quarters. It's a little harder for companies to find the kind of space they want, where they want it.

Phoenix's overall vacancy rate ended Q1 at 20.1%, unchanged from the prior quarter, but down from 21% a year ago. Class-A has seen a sharper drop: fully 150 basis points since last year, according to Savills Studley. Even so, the company believes in the long-term strength of the market: in March, it opened its first-ever Phoenix office, inking a deal for space at Anchor Centre East and tapping Tiffany to head it.

In some markets, however, tenants are finding the space they need. Small office tenants are a strong driver of the Glendale office market, DTZ senior managing director Bob Buckley tells us, adding that dynamic was instrumental in the recent sale of the 44k SF Arrowhead Business Center on West Bell Road. With average suite sizes of 1,500 SF, the buyer (Dunbar Real Estate Investment Management) "saw the stability in the current rent roll and the potential upside of leasing out the five available suites.” Bob, along with colleagues Tracy Cartledge, Steve Lindley and Ben Geelan, repped the seller, Investors Warranty of America.