Banner Health’s corporate headquarters in Phoenix is busting at the seams after a yearlong period of growth, and the state’s largest hospital system now is eyeing a bigger space in midtown Phoenix.
The move would not only give Banner the option to take up even more office space in the future, but it could also be a game-changer for midtown, which still is plagued by the aftermath of the Great Recession.
Over the past year, Banner has acquired several small hospitals and, most recently, the University of Arizona Health Network, which made the hospital system Arizona’s largest private employer with almost 40,000 employees.
As a result, it’s become a tight squeeze at Banner’s 140,000-square-foot corporate headquarters in Phoenix near 12th Street and McDowell Road, said Kip Edwards, Banner’s vice president of development and construction. Edwards said they considered expanding the current site but ultimately chose to lease a much bigger space just two miles away in midtown.
“We evaluated just for the corporate space, the cost of building a new building on site, so we expand, versus leasing and the lease cost was more economical,” he said.
This summer, Banner plans to relocate 800 employees — mostly from its current headquarters and some from its other corporate office in Mesa — into a 220,000-square-foot space at the Phoenix Plaza, a two-building corporate center on the northeast corner of Central Avenue and Thomas Road. Edwards said that will amount to 12 floors in both buildings. It’s current headquarters will then be converted into academic medical clinics and doctors’ offices.
Over the next three to five years, Banner hopes to lease another 100,000 square feet to accommodate another 600 employees.
“That was one of the nice things about that location,” he said. “They would have a number of floors that would come available over time and they fit pretty well with our schedule so we’re getting the space when we need it, but not before.”
Phoenix Mayor Greg Stanton mentioned Banner’s plans in his State of the City address last week.
“It’s a smart move that will save this company up to $20 million,” Stanton said.” When it’s done, Banner’s investment will produce 800 new jobs in the city of Phoenix. Good paying, Banner Health jobs.”
The move is also a huge deal for midtown, said Michael Crystal, a commercial real estate broker at Newmark Grubb Knight Frank’s Phoenix office who specializes in the area.
Crystal said the Banner lease deal is one of the biggest in midtown’s history, and it should have a ripple effect on the area.
“It’s not just the square footage,” he said. “It’s the amount of people that will be coming to work in and out of midtown every day, which will be great for retail, the amenities around, and also help the core market, which has been very popular in housing.”
Midtown is the large cluster of office towers located along Central Avenue between Thomas and Camelback roads, just north of downtown Phoenix.
It’s one of the Valley’s largest employment centers with many desirable attributes, such as a centralized location, easy transportation access and a hip, urban setting.
Yet, it’s had an especially rough time recovering from the recession.
At the end of last year, offices in midtown were 29 percent empty, according to Newmark Grubb Knight Frank’s latest office report.
That’s one of the Valley’s highest office vacancy rates — and completely unchanged from the year prior — hence why Banner could find 12 empty floors on the same property.
Crystal said things have been improving this year, however Banner’s move could be midtown’s big break. He said it could even spur the redevelopment of Park Central Mall, which was Arizona’s first regional mall that’s considered to be the heart of midtown, but has been a desolate shadow of its former self for the past several years.
The widespread assumption among area real-estate experts has long been that midtown’s revival hinges on the redevelopment of Park Central — an unlikely scenario given its complex ownership structure.
But Crystal said the opposite appears to be taking place, given Banner’s relocation on top recent growth in the area's amenities, residential demand and renovations of high rises.
“I don’t know what it’s going to take to redevelop Park Central if it’s not all of this activity,” he said.
The Banner deal isn’t set stone quite yet, which is unusual in real estate for such announcements to occur ahead of logistics being finalized.
“The word got out as part of a broader discussion about banner’s growth of the formation of our academic division, so we decided to just be open about it,” said Edwards, noting the lease deal is in its final stages and only a few last details remain to be worked out.
