The real estate market is complex, and various sectors can perform differently. For the Phoenix real estate market, the lowest and most underperforming sector continues to be the one dedicated of office space. Although Phoenix seems to be coming a more and more attractive destination for tech based companies, the numbers are more than disappointing.
How did the situation look by the end of 2014?
The end of last year proved that Phoenix has one of the highest office space vacancies in all the US. According to statistics, the vacancy rate for office buildings in Phoenix was 21.4% in December 2014. Such numbers are not to be taken lightly, and certain connections must be explained.
How does Phoenix fare on a national scale? The national median is 14.5%, and there are only three cities where office vacancy is worse than in Phoenix: Las Vegas with 25.7%, Colorado Springs with 22.6% and Cincinnati with 22.4%.
At the other end of the scale, Brooklyn has only 4.2% vacancy rate for office buildings, Midtown Manhattan has 7.1% vacancy rate, and San Francisco, just 7.4%.
Why is office vacancy rate important for Phoenix?
Whether real estate agents like it or not, the many sectors of this market are interdependent and one’s performance or under-performance can lead to an important impact on others. Lowering the office space vacancy percentage under 20 can give a great signal that the real estate market is on its way to recovering, but it may take some work to get there.
Confidence does not seem to be lacking though, and investors are not afraid of investing in new office buildings. In December 2014, as if ignoring the data concerning the office space vacancy rates, a 190,000 square foot manufacturing plant located in Tempe started a process of conversion to become a new office building. With an investment of over 11 million dollars, the people behind this project show that they have faith in the recovery of the real estate market and that the new building will swarm with workers soon enough after being reopened.
The elephant in the room?
The main factor that contributes to the sluggish sector of office buildings is the fact that housing is still lagging behind and demographics do not look as encouraging as needed, either. The truth is that the new generations are less interested in getting married before the age of 25, and they also have fewer kids.
Major downsizing in all the areas of the Phoenix real estate market once the bubble burst and the enthusiasm from before 2006 is now demonstrated by lack of rebound in the commercial sector.
In a nutshell, if the housing sector will take long to recover, the office sector may take even longer. Positive signs do exist, like the investment from Tempe, and the increase of importance for Phoenix in the new tech wave that seems to be underway. Nonetheless, real estate investors are advised to not get drunk on tap water, since the sector of office space is not expected to bounce back anytime soon.