Commercial real estate in the Valley is stagnant

The performance of office and retail commercial real estate was stagnant in the third quarter, but the industrial sector got a major boost from an online retailer and a bottled-water seller, metro Phoenix real-estate analysts reported.

With no new office construction under way, the Phoenix area's third-quarter office-vacancy rate held relatively steady but showed no improvement compared with the previous quarter, according to reports from commercial real-estate brokerages.

The reported third-quarter vacancy rate varied slightly from one firm to another, ranging from 26 percent to 28 percent.

But each firm's market update shows little movement in the Phoenix area's office-vacancy rate.

The reports generally showed a slight decrease in lease rates, with Phoenix commercial real-estate firm CB Richard Ellis reporting rent prices of $22.25 per square foot, down from $23.44 a year earlier.

In the retail sector, the firm also reported little change in the vacancy rate compared with the second quarter. The Valley's average retail vacancy rate was 12.3 percent, it reported, up from 10.9 percent a year earlier.

As with office properties, the asking price for leased retail space was down considerably from the previous year.

Third-quarter average rent for retail properties was $15.71 per square foot, down from $17.37 a year earlier.

Of particular concern, the company said, was the notable increase in available "big-box" space, which CBRE defines as single-tenant retail properties of at least 10,000 square feet.

At the end of the third quarter, there were 303 empty big-box spaces in the Valley, more than double the 132 spaces available at the end of 2007, the report said.

Although third-quarter data for the office and retail markets continued to cast a shadow over the Phoenix area's economic future, results in the industrial sector offered a ray of hope.

Almost every meaningful trend regarding industrial properties was moving in a positive direction, according to CBRE's report.

The vacancy rate decreased for the second consecutive quarter, ending the third quarter at 15.3 percent. A year earlier, the vacancy rate had been 18.4 percent, according to the firm.

Although lease rates were down about 5 percent from a year earlier, the net change in rented space took a giant 1.7 million-square-foot leap in the right direction.

The positive absorption of space was primarily due to two large, Phoenix-area deals in the third quarter, one for a 1.2 million-square-foot Amazon.com distribution center and the other for a 250,000-square-foot Niagara bottled-water plant.

by J. Craig Anderson The Arizona Republic Oct. 14, 2010 12:00 AM



Commercial real estate in the Valley is stagnant