Housing gets most of the attention in metro Phoenix because of the past year’s rise in home prices, but the commercial real-estate market may be on the upswing as well.
Commercial market veteran Pete Bolton, executive vice president and managing director at Newmark Grubb Knight Frank in Phoenix, offers current views on the office, industrial and retail market.
Question: Summarize how the Phoenix commercial real-estate market is faring and how Wall Street and other investors are affecting it.
Answer: The Phoenix-area commercial market is moving along — finally — at a modest pace. The good news is that activity levels, as far as tenants are concerned, have definitely increased over the past 18 months. Expansions are starting to occur, again at a very modest pace. Corporate America is not confident enough overall to start making the moves it needs to make to improve our market substantially. As far as Wall Street is concerned, the effect of their perception is that stocks for companies in the commercial real-estate sector have remained well below where they were in 2007-08. There are hundreds of billions of dollars sitting on the sidelines waiting to invest in commercial real estate. I would put Phoenix in the middle of the country as far as recovery — we certainly aren’t at the bottom; we are halfway through the recovery process.
Q. What’s going on in the office market? What kind of tenants are looking for space now?
A. Most of the new space/expansion space is coming from a very patient corporate America that is taking a flier on the fact that, after five years in a commercial real-estate hole, it’s got to get better. They have to make a commitment to office space somewhere, sometime. We actually have submarkets in the Valley that have 5 percent vacancies, but then on the other hand, we have a few that are between 20 to 25 percent vacant.
Q. Phoenix’s calling card to many companies is its warehouse market. There’s some speculative building under way. What does that mean for the industrial market?
A. Warehouse/distribution space has been filling quite nicely during 2012. The big-box distribution space of 150,000 feet or more is not available today. There are a few speculative buildings under way in this category, but it has taken well over a year to get financing, permits, etc., to build these big distribution centers. They will fill as soon as they are near completion. As far as the building you see around town, most of it is build-to-suit activity for tenants either coming into town or needing to expand to larger facilities. Industrial space overall has a 12 percent vacancy — we like to see it around 10 percent for it to be a healthy market.
Q. Rooftops are selling, and new-home building is up last year. What’s happening with retail?
A. Retail is definitely responding to an anticipation of a better world/U.S./Phoenix market. At the peak, we saw a 13 percent vacancy, but it has decreased to 11.8 percent. Retail strip centers are doing the best at this time — pad sales are picking up and activity has definitely increased. These are all good signs of a recovering market. I believe the home-building excitement plays a part in this. Alternative uses for larger spaces continue to be an interesting part of retail absorption. As the small spaces absorb, tenants will start to gravitate towards these larger centers. Then everyone, landlords and tenants, will be feeling better.
Q. What is the forecast for the commercial market for next year?
A. If you were to take a poll of the commercial brokerage community, it would certainly tell you that on the whole, things are getting a lot better than they have been over the past four years. This has been a tough go for commercial real estate in all sectors, with a possible exception of multifamily investment sales during the second half of 2011 and to date in 2012. Our forecast is that we see an increase in activity continuing throughout office, industrial and retail sectors in 2013 and beyond. So 2013, 2014 and 2015 will be good years for commercial real estate. And it’s about time.
By Catherine Reagor The Republic Fri Nov 9, 2012
Real estate exec sees commercial looking up
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