November 16, 2015

Phoenix Commercial Real Estate on Solid Ground and Expanding

The market is good and getting better, though things are still shaky in some areas according to participants in the Commercial Real Estate Broker Forum, a bi-annual gathering of some of the Valley’s most successful commercial real estate brokers.

Experts say the Phoenix-area commercial real estate market is on solid ground, and they feel optimistic about the future. Ninety percent of those participating indicate the market is expanding and 100 percent agree the metro Phoenix market is moving up.

Arizona State University’s W. P. Carey School of Business gathered the group in September to discuss their insights and thoughts about what will happen between October 2015 and March 2016. The event includes a survey about real estate market trends on multi-family, retail, industrial, office and more. Participants come from a variety of sectors, specializations and brokerage houses across the Valley. The event is moderated and co-organized by Pete Bolton, executive vice president and managing director of Newmark Grubb Knight Frank’s Phoenix office.

“Those who know this market best are feeling good about where we are and confident we will continue to expand, though little change will occur before the end of the first quarter in 2016,” explains, Mark Stapp, director of the Master of Real Estate Development program at the W. P. Carey School. “I think we can see the sunlight, although concerns still exist and the geography of the expansion is not uniform.”

Below are some highlights from the survey for the metro Phoenix area. To view the full report, visit the Center for Real Estate Theory and Practice page under the Commercial Brokers Survey.

Overall real estate market

  • 90 percent of participants believe we are in an expansion cycle.
  • 100 percent responded that the metro Phoenix market is moving up.
  • 82 percent agree that uncertainty in the federal government is affecting the commercial real estate market and hindering our local growth potential. This is down from 100 percent at this time last year.

Multi-family real estate market

  • 50 percent believe that apartment rents are headed up in the next six months, which is down from 75 percent six months ago.
  • No participants believed that vacancies will increase.
  • All participants believe the greatest rent growth will be in class “C” apartments.
  • Participant comments: Last year we did 5,400 new units. Right now we are at 7,900 units year to date. We’re seeing a crack in A+. The trajectory on rent is running up. A+ is getting soft.

Industrial real estate market

  • Participant comments: Big box industrial has been soft for some time. It has been a long haul but very recently we have seen an uptick in big box commitments and we’re optimistic. Out-of-market employers are now touring facilities; it will be plateauing in terms of demand.
  • No participants believed that either rents or vacancy would increase in the next six months.

Office real estate market

  • Only 9 percent of participants believe that office vacancy rates will go up in the next six months, while 82 percent agree that office rents will go up during that time frame.
  • Participant comments: Making employees happy is now a key consideration. Dealing with the human resources department is now required when even considering renovating a space.

Retail real estate market

  • Similar to office real estate market, only 9 percent of participants believe that office vacancy rates will go up in the next six months, and 80 percent agree that office rents will go up during that time frame.
  • Participant comments:  
    • The local, foodie thing is huge. It’s a different world than it was at beginning of the recession.
    • If you look at the baby boomers and you combine them with the millennials, they are not cooking at home as much as they used to. They would rather eat out but they still go to the grocery store. However, food is the least part profitable of a grocery store, the retail items make the money.
    • High-end areas are being leased up.

Capital markets

  • 45 percent say interest rates for commercial loans are headed up in the next six months.
  • 55 percent believe investor returns are headed up in the next six months.

Land and home real estate market

  • Only 27 percent agree that the tight inventory of homes on the market is affecting the commercial side. This is the lowest rate in the past two years.
  • 94 percent say land prices will continue to rise and 90 percent say homebuilders will continue to purchase land.