As noted, several times in the past few months, we continue to see strength in owner-occupied office. Back-to-office is a burgeoning trend, underscored by a flight to quality—functional office space is not enough at this point; it is the properties with all the bells and whistles that are attracting attention. Asking rates remain suppressed at around $29/SF, with Phoenix joining Denver and Portland, Oregon, as the only large Western markets below the $32/SF national average in August. Another interesting data point, on a national level, is that only four major markets (San Francisco, Boston, New York, and San Jose) saw a year-over-year increase in leasing volume. Historically, the first markets to go down are also the first to rise up, which could be a harbinger for positive office trends on a broader base going forward.
Last month’s headline deal, discussed in the August issue of The Real State, was Southwest Value Partners’ acquisition of seven class A office properties across the Valley for $296 million. This month’s nod of approval from the investing community came in the form of BKM Capital Partners acquiring 900,000 SF of Phoenix-area industrial space—364 units across more than 40 buildings. Greater Phoenix continues to expand economically, and having well-located industrial buildings in the Valley is a tacit acknowledgement by sophisticated investors of our growing industrial base.
It is interesting to note that the deal consists of small-bay space, which has lower vacancies than big box properties. The principle is similar to why multifamily apartments have been so popular over the past several years: spreading risk throughout a number of units rather than being at 100% occupancy or 100% vacancy in a single-tenant property.
