Report: Vacancy rates for office and retail spaces in metro Phoenix are declining

Vacancy rates for office and retail spaces in the Valley were down in the third quarter of this year, while the amount businesses paid for those spaces was up. Those findings and more were revealed in a new report from commercial real estate firm CBRE.

Senior Vice President Dave Barrett joined The Show to talk more about the numbers and what they mean.

Amber Victoria Singer/KJZZ

Full conversation

MARK BRODIE: Let's start with, with retail spaces. You found that the vacancy rate was down by about 5% and the rent rate was up by almost $19. That seems pretty significant.

DAVE BARRET: Sure. Yeah. Obviously, we've had a lot of new retail opportunities throughout the Valley. You've seen 80,000 to 100,000 new residents coming into the Valley, kind of because of the cost of residential, your opportunities to live in and around, you're kind of having to move to the outskirts areas.

So a lot of what we've seen is higher, higher rental rates, lower, lower vacancy rates in those areas in the, both the suburban and the more, the areas around. I think you're seeing maybe some improved economics, let's see, improved income levels for the folks that are working here.

You're also, I think there was some pent-up demand coming out of it. In the run-up to COVID, prior to, you saw a lot of the retail owners, a lot of retail groups were trying to shed space, maybe to shrink their footprints. I think that was the impact of maybe e-commerce.

BRODIE: OK. 

BARRET: I think then shortly thereafterward you saw, you know, folks obviously wanting to get back into the community after COVID. So, you know, get out and have those experiences. And so I think that encouraged more retailers to open.

You saw probably some entrepreneurial nature that came out of that as well, where you had folks that had been sitting, you know, and decided that they wanted to maybe take the risk of being an entrepreneur, opening up a coffee shop, a flower shop, restaurants, those types of things. So I think a lot of that has driven the vacancy rate down, and in doing that, that's always gonna have an impact on the rents.

BRODIE: Right, supply and demand there. So are there particular parts of the Valley that are seeing more growth, more retail opening up? 

BARRET: Yeah, I think in the West Valley, Avondale, Goodyear are seeing a tremendous amount because of the residential opportunities that are there.

I also think you're seeing it in areas like Apache Junction, where you have some new master-planned communities that are going in out there, 5,000, 6,000 houses that are being constructed. All of those are having an impact on either anticipatory while the construction is going on, or you really are maybe having some, you know, obviously some good opportunities for retailers in those parts of town.

BRODIE: It's the old line, retail follows rooftops, right? 

BARRET: Absolutely, yeah.

BRODIE: So let's talk about office space, because we saw also that the vacancy rate, down by a pretty good amount, almost 22% there, rent up as well there. 

Is this the same kind of concept, a sort of pent-up demand from maybe even pre-COVID? 

BARRET: Yeah, yeah, absolutely. Office activity has increased dramatically. I think you're also seeing a significant slow of sub-lease space coming on the market. You do still have that flight to quality where users around town were maybe in a couple of hundred thousand square feet trying to shrink their footprint down and moving to something nicer to give a better experience for their employees.

BRODIE: Yeah. And what does all of this say about the state of the Valley's economy? Can you take lessons from these numbers? 

BARRET: We think so. Obviously, if it's a, we think it's all positive. Obviously, the retail rents, that's positive. The vacancy rates going down is positive. The, you know, continued influx of people into the Valley is very, very positive.

The office market really kind of took it on the chin early on because, you know, COVID was supposed to be the death of office, right?

BRODIE: Yeah. 

BARRET: And I think the realization that that's not actually the case, that you do need to have a place to come into to work. You're never going to get away from the work from home concept. That's still something that works its way into discussions. It's still something that employers have to plan for.

Seems like nationwide, they've settled on about a three-day week, a work week, being in the office. And I mean, I think that speaks highly of when you have companies actually making decisions and not pushing them off, that's always a good thing. That means that they can see the light at the end of the tunnel. And so we've taken that as super positive.

BRODIE: Well, so I want to ask you more about sort of the work from home, in office issue, because it seems as though there's been sort of a pendulum where everybody was remote, then everybody's being called back to the office. And now, as you say, a lot of firms have sort of settled on this hybrid model. 

What does that mean for the kinds of spaces that companies need and the kinds of spaces that are being developed?

BARRET: I think where it impacts it, for starters, you know, companies are still trying to be efficient in the spaces that they have. And that sometimes means that some of the amenities that they would have normally had in their space, now I think the developers are looking at putting that as a shared amenity in the building so that it is something that they can control the quality of.

But then still be able to offer that to a new tenant or a new occupier of the space. So I think it's a better environment for the employee, and it's certainly something on their minds when companies go in and begin to look for new space.

BRODIE: So companies are thinking about what the employee experience is like, but maybe not sort of in the foosball, ping pong table, free snacks way. 

BARRET: Yeah, no, not quite that way anymore, yeah, absolutely. And then I think the developers are looking at it as a, you know, newer buildings, they're just going ahead and kind of biting the bullet and paying for that to be put into the space.

A lot of times we'll go out with users and they'll eliminate buildings that don't have certain types of amenities. But I also think there's that, that concept of if you're in a smaller footprint, that maybe you don't have space for all of your employees, right? I think employers are a lot of times now planning for more of a one, you know, one and a half to one seat kind of scenario, but then that also means that they don't typically have, if they need to have an all-hands meeting or something along those lines, they don't have that in their space.

And so developers are coming in and saying, OK, fine, we can solve that problem for you.