- Industrial breaking records. The pandemic forced an even greater shift to ecommerce and logistics management; Phoenix’s appeal as a hub includes convenient transit access, cost advantages in land and labor, and fewer power and natural disaster issues than coastal locations. During the 2021 fiscal year, the Greater Phoenix Economic Council worked to bring nearly three dozen industrial users into the market, and is working with seven additional prospects. Industrial notched record-breaking construction in the first six months of 2021.
- Retail in recovery mode. Social restrictions had an outsized effect on retail, so it’s a bright spot that sales volume and momentum have returned to pre-pandemic levels—although prices remain below the 2007 peak. Investment activity has been highest in the East Valley and high-income, dense areas of Scottsdale and North Phoenix, focused on 1031 exchanges and grocery-anchored retail centers, drive-thrus, and drug stores.
- Multifamily experiencing low vacancies and soaring rents. June saw another decrease in overall vacancy rates and increase in year-over-year asking rent growth and absorption in Greater Phoenix. Roughly 90% of units underway are Class A units, so affordable supply remains a looming concern. Despite rising prices and cap rates below 5%, sales volume in Q2 2021 hit the highest quarterly mark in the market’s history. With high demand from a sales and rental perspective, now may be an optimal time for multifamily owners to consider selling. • Office tries to find its way. Vacancies (including direct and sublet space) are at 14.2% according to CoStar, while other firms using different methodologies estimate the rate as high as 18.4%. From health concerns to employees seeking work-from-home options, there are no easy answers. If you are looking for glimmers of hope, there are a few. Transaction volume in the first half of 2021 was on pace with 2019’s activity, net absorption was positive for Q2, and the pace of subleasing activity has slowed somewhat. We are seeing increasing activity in medical offices and net-leased single-tenant properties.
One of the strangest aspects of the pandemic-caused recession was its brevity. In technical terms, a recession is defined by two consecutive quarters of negative GDP—conditions that the National Bureau of Economic Research recently concluded were met in the span from February 2020 to April 2020.
The COVID recession was the shortest in U.S. history, but also one of the deepest, plunging 31.4% in Q2 2020, only to experience a stimulus-fueled bounce of 33.4% in Q3. The fast recovery was a testimony to how much stronger the national and Arizona economies were compared to the Great Recession. Of course, the recession in commercial real estate went beyond the two-month technical definition, and not all sectors weathered it equally.