Office vacancy in Phoenix among highest in nation

TEMPE, Ariz. — Phoenix’s real estate market is continuing to rebound from the recession in 2008, yet the city still has some of the largest amounts of vacant office space in the country.

In the third quarter of 2014, 17.6 percent of the city’s roughly 169-million square feet of office space was unoccupied according to a report from CoStar.

Phoenix ended the year on a positive trend with vacancy numbers dropping to 16.9 percent, but Dan Colton, principle broker with Colton Commercial Real Estate in Tempe, Ariz. said that’s still far above the ideal 12 percent vacancy rate.

While too much vacancy means a lack of businesses and tenants occupying viable space, having a high vacancy rate in a city can actually help put it in a good position for luring businesses, Colton said.

“A high vacancy attracts businesses; a low vacancy discourages businesses from considering your community,” he said.

High vacancy helps create a pro-tenant marketplace that allows for an abundance of space and lower prices according to Colton, which are all factors that can help position cities in the minds of companies seeking relocation or expansions; while lower vacancy rates drive up costs and could mean businesses have to create entirely new developments in order to relocate.

Even though commercial real estate in Phoenix is currently a renter’s market, Colton said now is also a unique opportunity for property owners to invest in upgrades to existing properties, which can then help entice companies looking into renting office space.

“In choosing a site, finding a property that their employees desire – an open floor plan, a lot of natural light, providing abundance in amenities, walkability, sustainability – all of these factors are put into the formula,” he said.

Besides low prices and an abundance of space, Colton said Phoenix has other factors that contribute to its attractiveness for relocating businesses, especially when compared to some of Phoenix’s nearby metropolitan competitors such as Denver and Dallas.

“Phoenix has one economic engine that surpasses Dallas and Denver and that’s Sky Harbor Airport,” Colton said. “It offers access to hundreds across the United States and the world on a daily basis. Sky Harbor Airport represents almost a $30 billion economic engine.”

Colton said alongside Sky Harbor Airport, Phoenix’s other amenities and its reputation as a resort town also makes it an attractive place for companies to headquarter operations for the southwest and Mexico in Valley.

All these factors add up to Colton forecasting a continued drop in office vacancy in Phoenix, an upward trend for the city’s real state and economic environment, and the city becoming the top destination for businesses.

“Phoenix is on the upswing and will surpass both Dallas and Denver within the next two year in demand, growth (and) desirability,” he said.