Office occupancies post major decline

by J. Craig Anderson - Jan. 8, 2009 12:00 AM
The Arizona Republic

Valley businesses abandoned their offices in the final three months of 2008 at a rate that one large commercial real-estate brokerage said it has not seen in its nearly 30 years of tracking the statistic.

It's alarming evidence that supports accounts of plans on hold, continued layoffs and bankruptcies in a market that is accustomed to uninterrupted growth.

CB Richard Ellis released its fourth-quarter report Wednesday on the absorption rate for office, retail and industrial space, with all three sectors showing unusually poor results.

Office properties suffered the most, losing a net 548,334 square feet of occupied space in the last quarter of the year. That's 10 times the amount of negative absorption seen in the previous three quarters.

CB Richard Ellis broker Jerry Noble said nothing in the first three quarters of 2008 prepared him for the office-market freefall he saw in the final quarter.

"It was probably one of the worst quarters Phoenix has ever experienced," he said.

Office projects in the Phoenix metro area lost a total of 603,112 square feet of occupancy in 2008, making it the first year of negative absorption CB Richard Ellis has reported since it began tracking the market in 1981.

The vacancy rate increased by more than 5 percentage points to 19.1 percent, up from 13.9 percent a year earlier.

In the retail sector, vacancy increased to 7.5 percent from 6.2 percent at the end of 2007. The increase was caused by store closings, and commercial brokers say more of those are on the way after a dismal holiday shopping season.

Retail finished the year ahead by 3.4 million square feet in terms of absorption, but the fourth quarter saw a loss of 232,798 square feet, the report said.

Occupancy of industrial space increased by 629,838 square feet in 2008, according to the report. It was the first year since 1990 in which less than a million square feet of additional industrial space was occupied by businesses in a single year.