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September - Friday Morning Breakfast

Posted By Administration, Tuesday, October 23, 2018


Still hot...

It’s fall, but the Valley’s commercial real estate market is sizzling

More room to run. Office fundamentals in a good place. Rent growth in retail. Industrial uptick in delivery.


Those were just a few of the comments shared by panelists at the September Valley Partnership Friday Morning Breakfast. It was news that perhaps came a surprise. But it’s evident that commercial real estate in the Valley is on the upswing in a big way.


Moderator Chris Toci of Cushman & Wakefield took the sell-out audience for a ride across the Valley, asking why companies seeking out Phoenix and its surroundings markets. Is it more than the weather?  What are the hot spots? What is driving companies to come here? What is Arizona doing to land these new companies?

“Why is Phoenix hot?” Toci asked. “Are we on the edge of the abyss? Or is there more room to run?”


Michael Petrivelli, a market analyst with CoStar, provided answers.


“A key economic driver is job growth,” Petrivelli said. “During the recession we were hit hard that you did have a lot of job growth to catch up on. Now it (job growth) is being fueled by population growth.”


Assessing how property types are doing across the Valley, he had this to say.


“Office fundamentals are in a really good place. Vacancy rates have tightened. There is an uptick in delivery of industrial products and vacancies are at all all-time low. Retail is doing well as household growth and income continue to climb.

“Overall, the picture looks good. We will see some of the strongest job growth through 2022,” he said.


The topic of co-working space produced some interesting thoughts. Asked if co-working startups are going to survive, Tiffany Winne, Executive Vice President with Savills Studley, said they are not.


“It is the most exciting industry in America today, and We-Work is the darling,” she said. “I would not put a dollar of my money in it. Although we don’t have WeWork here, I see a co-working glut.”


Job growth in the tech sector is key the Valley, according to Brad Smidt, Senior Vice President of Business Development for GPEC. Asked if his city is prepared for this tech economic boom, Bill Jabjiniak, Economic Development Director for Mesa, said an emphatic “yes.”


“For being one of the most conservative cities in the country, yes we do,” Jabjiniak said. “We have grown by more than 6,000 people and will be at about 534,000 in 5 years. All our tech employers tell us they have no trouble attracting talent. We have great universities, and the dynamic of real estate is changing.”


Supply and demand is also driving the Valley’s commercial real estate hot market.


“In terms of office, we’re see a flight to talent,” Petrivelli said. “There is young talent, and so much new construction in Tempe and Chandler. That’s where the highest concentration of talent is going. Infrastructure, specifically the loops 303 and 202, will have huge impacts on the industrial sector. We’re seeing retail construction in the faster growing areas such as Gilbert, Chandler, and Goodyear.”


“Yin and yang,” Toci remarked. “Tempe or Camelback Corridor?”

Winne said she doesn’t see any crossover.


“There is not a lot of tech friendly real estate office space on Camelback. They (clients) are looking to Tempe. That space is also increasing in downtown Phoenix.”


Winning submarkets in the Valley? Deer Valley and Gilbert, Smidt said. USAA is adding to its already expansive operation in North Phoenix. Deloitte is opening a 102,000 SF U.S. delivery center in Gilbert.


Jabjiniak said it’s companies such as EdgeCore, which recently broke ground on a $150 million, 180,000 SF date center in Mesa, that are selecting his Southeast Valley city.



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