That's because the positive changes were psychological, rather than economic, property investors and brokers said.
About three years after the area's commercial-real-estate market followed housing down the drain, a large number of struggling property owners who had been holding out for a miracle recovery finally began to accept the truth, investor Steven Jaffe and others said.
At the same time, a number of real-estate investment firms that had been hanging onto cash in anticipation of a desperation-fueled commercial-property giveaway finally realized it wasn't going to happen.
"The panic was gone, and the blind optimism that everything was going to turn around was gone," said Jaffe, executive vice president and general counsel for BH Properties LLC, a Los Angeles-based real-estate investment firm.
BH Properties recently acquired the 320-unit Fiesta Park apartment complex, 1033 S. Longmore, in Mesa, for $5.5 million.
It was the company's first purchase in the Phoenix in nearly three years, he said.
"Our last acquisition was in April 2008 - that's when we put the brakes on," he said.
Jaffe said the company is now actively seeking more Phoenix-area apartment buildings to buy and that it also would consider picking up some retail and industrial properties for the right price.
While sales of office, industrial and retail properties remained slow in 2010, the number of interested buyers looking for deals increased dramatically, according to area brokers and investors.
They also reported an explosion of leasing activity as businesses made a mad rush to lock in long-term lease rates at market-bottom prices.
"I'm about ready to call the bottom in the office market," said Jim Achen Jr., senior vice president at commercial-real-estate firm Transwestern in Phoenix.
Achen and fellow Transwestern broker William Zurek have closed on two huge lease deals within the past month, one for 95,000 square feet at ASU Research Park, in Tempe, to DuPont Air Products NanoMaterials LLC and the other for 135,114 square feet at 2512 W. Dunlap Ave., in Phoenix, to IT-services firm Cognizant.
In all, Phoenix-area businesses in 2010 signed new leases on a net 5.9 million square feet of office space, said Craig Henig, senior managing director of commercial-real-estate firm CB Richard Ellis in Phoenix.
All that movement rivals the amount of activity during the local real-estate market's peak years of 2005 and 2006, Henig said, but it didn't cause a significant gain in leased space overall.
The total pickup of about 234,000 square feet made 2010 a turning point after two years of net decreases, he said, but it also shows that the vast majority of activity came from local moves that did not involve any expansion.
Still, there were more announcements about new commercial construction projects during the past month than there had been during the entire previous year.
One came from luxury-apartment-community builder Alliance Residential Co., which said last week that it plans to build a 270-unit apartment community at the 26th Street and Camelback Road location that once was home to the Hard Rock Cafe, and also where real-estate mogul and TV personality Donald Trump had planned back in 2004 to build a $200 million resort.
Another came from data-center operator Digital Realty Trust Inc., which announced Monday that it would add 226,000 square feet to its existing data center at 2121 S. Price Road in Chandler.
Still, the Phoenix area isn't likely to see any big announcements about new office construction for quite some time, said Bryon Carney, president and managing partner of Cassidy Turley BRE Commercial in Phoenix.
More than one out of every four square feet of rentable office space was vacant as of Dec. 31, he said, which means a lot of excess supply that likely would take years to fill.
Still, all of the commercial-real-estate deal makers said 2011 was going to see a sharp rise in sale transactions, nearly all of them driven by sellers' financial troubles.
Henig said about 95 percent of the commercial-real-estate sales in 2010 were short-sale- or foreclosure-driven, he said, a trend that's expected to continue for at least two more years.
Achen said lenders and "special servicers," hired to mitigate securitized commercial-real-estate loan losses on behalf of the investors, have begun to step up their foreclosure activities, a sign that they believe the properties slated for foreclosure are once again marketable.
"I do think special servicers are feeling confident enough in the market to go ahead and foreclose," he said.
Scottsdale, southeast Valley gained the most office tenants in 2010
Office properties in Scottsdale and the southeast Valley added a net 782,000 square feet of rented office space, while north Phoenix and the Camelback/Piestewa Peak area lost about 774,000 square feet due to tenants vacating.
| Regional submarket | Rentable office space (sq. ft.) | Office vacancy rate | Net change in rented office space (sq. ft.) | Office under construction (sq. ft.) | Average 1-year lease rate (per sq. ft.) |
| West Phoenix | 2.7 million | 39.8% | 19,542 | 0 | $23.05 |
| North Phoenix | 8.4 million | 28.1% | (-251,931) | 0 | $19.08 |
| Desert Ridge/Paradise Valley | 1.9 million | 31.8% | 23,512 | 0 | $23.77 |
| Camelback/Piestewa Peak | 10.1 million | 28.6% | (-212,141) | 0 | $23.86 |
| Central Business District | 16.4 million | 20.7% | (-66,850) | 0 | $21.68 |
| East Phoenix | 8.7 million | 22% | (-60,143) | 0 | $19.92 |
| Scottsdale | 17.4 million | 27.4% | 437,970 | 0 | $22.40 |
| Southeast Valley | 10.5 million | 28.7% | 343,711 | 0 | $21.16 |
| Metro Phoenix | 76.2 million | 26.2% | 233,670 | 0 | $21.77 |
Source: CB Richard Ellis
Industrial-property sector improves; office and retail vacancies worsen
The vacancy rate for industrial and warehouse properties in the Phoenix area decreased in 2010. Vacancy rates for office and retail space were up slightly.
| Property type | Vacancy rate 2010 | Vacancy rate 2009 |
| Office | 26.2% | 25.9% |
| Retail | 12.2% | 11.1% |
| Industrial | 14.7% | 16.1% |
Source: CB Richard Ellis
by J. Craig Anderson The Arizona Republic Jan. 23, 2011 12:00 AM
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