Rising vacancies, slower rent growth mean perks for tenants, report says
Andrew Johnson
The Arizona Republic
Jun. 17, 2008 12:00 AM
A report released Monday paints a bleak picture of metro Phoenix's commercial-office market, highlighting continued softening in the Valley's downtown and suburban areas amid a weak housing market and a persistent credit crunch.
Stalled job growth in the financial and professional-services sectors have translated to less demand for office space, according to the second-quarter PricewaterhouseCoopers Korpacz Real Estate Investor Survey.
That, combined with recent cutbacks in businesses tied to the housing market, has resulted in rising vacancy rates and slower rent growth in Phoenix and other cities.
Tenants stand to benefit from the conditions.
"Lackluster tenant demand has passed the leasing advantage back to tenants, reintroducing free rent, liberal tenant allowances, and even parking abatements," the report states.
Phoenix's suburban markets, which saw the delivery of 1.1 million square feet of speculative office space in the first quarter and is expected to add 2 million square feet more by the end of 2008, has been hit hardest.
The report said that downtown Phoenix, which historically has had some of the lowest vacancy rates for Class A, or high-end, office space in the country, is "better positioned to withstand economic adversity over the short term" because no new buildings are expected to come online for at least a year.
Two downtown office towers currently under construction, One Central Park East and CityScape, are pegged for completion in late 2009 and are expected to add a combined 1.1 million square feet of space to the area.
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