by Luci Scott - Jul. 23, 2008 10:35 AM
The Arizona Republic
The office-leasing market for Class A space in Chandler has slowed, and vacancy rates have nearly doubled from a year ago. But the city is still considered one of the healthier markets in the Valley, a key to competing for companies that create local jobs.
The vacancy rate is 12 percent compared with 6.8 percent a year ago, said Christine Mackay, Chandler's acting director of economic development.
Potential tenants are still looking, but with different attitudes.
They want to see a building completed before they will even look at it, Mackay said. "They're definitely saying, 'I want to touch it, feel it, walk around in it.' "
Developers also are luring tenants by putting completed spec suites within their buildings to display the possibilities.
Mackay said tenants want to see a building completed before they sign a lease because they have more choices today.
"Before, product was flying off the shelf," she said. "Now definitely we're moving back more into a tenant market."
Many tenants are not waiting the traditional 90 to 120 days to move in, said Michael Myrick, a vice president at Grubb & Ellis/BRE Commercial.
"The key now is to move in immediately," he said.
Even with the higher vacancy rate, Chandler is still one of the healthier markets in the Valley, Myrick said.
It ranks near areas with the lowest rates, including 11 percent in midtown Phoenix and 10.4 percent in the area around Phoenix Sky Harbor International Airport.
"Overall, (Chandler) is a healthy market compared to others in Phoenix," Myrick said.
Myrick said medical offices are the strongest segment of the market.
There are virtually no medical-office vacancies around Chandler Regional Medical Center, Mackay said. The key for medical offices, however, is where they're built.
"As fast as they can build them, they sell or lease them ... as long as they're near a provider such as a hospital or urgent care center," Mackay said.
Medical-office condos in neighborhoods, however, are moving more slowly.
"Location is everything in that market," she said.
In fact, any office space is leased sooner if it's near the Santan Freeway or Loop 101, Mackay said.
"People are really not interested in looking at office product not on those freeway corridors," she said.
Compared with the rest of metropolitan Phoenix, the Chandler office market is doing well.
"A surprise to most people is that north Scottsdale is not faring very well," Myrick said. One reason is that Chandler has more affordable housing.
"Chandler is a bedroom community, where north Scottsdale ... has a lot of second homes and vacation homes," he said.
Also, CEOs live in north Scottsdale and most employees commute from elsewhere in the Valley. Chandler has many companies in which executives and employees all live in Chandler, Gilbert or Queen Creek, he said.
"They don't need a Scottsdale address; they don't need to be near the airport. They want to be close to their home," Myrick said. "It's a different mind-set."
High gas prices are having an impact, too, meaning that companies are paying more attention to their location in relation to where their employees live, he said.
"Overall in the long term, I think Chandler will remain a vibrant and healthy office market," he predicted.
He cited the city's growth and the boost offered by the completion of the Santan Freeway.
Chandler Echelon is under construction on the southwest corner of Loop 101 and the Santan Freeway. Phase I is a 180,000-square-foot office building with structure parking. Phase II is two hotels, and phase three is another 180,000-square-foot office structure.
Across the street, Park Place is under construction. The first phase will be a 250,000-square-foot office project.
Further east, Opus West is constructing a second 90,000-square-foot office building in the Chandler Airpark. Its first building was recently fully leased by Ottawa University and CDW, a technology sales and service company.
Those new large tenants brought the vacancy rate down, said Mark Krison, a broker with C.B. Richard Ellis. Another relatively new tenant is Pearson, an educational software developer that moved into a new five-story building at Loop 101 and Ray Road.
Despite more vacancies, rental rates aren't dropping, Mackay said.
The rates range from $15 a square foot for the lower-end space up to $28.50 for Class A.
In the past decade, the office market has mushroomed, Mackay said. In 1998, the total space in Chandler was 900,000 square feet. Now it's 5.1 million square feet.
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