Is Spec Justified?

Phoenix's economic recovery is prompting Trammell Crow to consider not just one—but two—spec office developments. It's pretty bullish on industrial, too, and both sectors are sure to be hot topics at our Phoenix State of the Market event on April 29. (Register here.) But will numbers sustain confidence? (Considering how invested people are in fantasy sports, you'd expect them to appreciate some stats.)

Event speaker Trammell Crow's Sven Tustin (seen here fishing for trout—or grabbing trout—on a trip he took with his son Bergen to Steamboat Lake, Colo.) tells us there are two distinct areas where there's opportunity for new office: North Scottsdale and the Southeast Valley. Now it's actively looking for land sites, and he says the firm would want to move relatively quickly with spec once it acquires office sites.

Office isn't the only product type that Trammell Crow is pursuing; it recently announced plans to develop Park Lucero, a six-building, 618k SF industrial park in Gilbert that will partly be spec. Trammell Crow's Cathy Thuringer says the company will start Phase 1 this summer: three buildings encompassing 210k SF that will be entirely spec and geared toward tenants within the 5,000 to 80k SF range. (Need 90k SF? Go on a diet.) There's been a tremendous amount of activity in the Southeast Valley, particularly, from 10k SF to 100k SF users.

But Phoenix's industrial market has been giving mixed signals as of late. Net absorption during Q1 was 348k SF, one of the lowest in some time, according to Colliers research. And the slowdown in demand has been most pronounced among large distribution users, the report states. Add a 4M SF surge in spec construction, which has driven vacancy rates up to 13.6%. But Colliers notes that's uneven as the airport area and the Northeast and the Northwest valleys all saw drops in vacancies in the past year to 10.8%.

Cassidy Turley's Andy Markham (snapped on a trip to the Empire State Building) just banged out one of those smaller industrial deals. He, along with Miachael Haenel and Will Strong, brokered Pet Club's 45k SF lease at Carver Distribution Center in Tempe. “Big box is still getting the looks, it's just a little bit slower from the absorption side,” he says. CT's Q1 absorption numbers vastly differ from Colliers' at 3M SF, accounting for Intel's 2M SF expansion. What he sees: lots of build-to-suit activity, yet not a lot of absorption of existing space. But he suspects the flood gates will open by mid-year as the economy continues to improve. “You still have lots of spec buildings planned, because nobody believes absorption is turned off permanently in Phoenix.” (Opinion is everything, like high school or politics.)