At the close of the second quarter, the Phoenix office market continued to perform well. Healthy tenant demand resulted in a significant amount of net absorption leading to a decrease in vacancy over the last year.
Following a relatively slow start to the year, net absorption picked up in the second quarter and totaled 742,568 sq. ft. At the end of the first half of 2018, there was 897,000 sq. ft. of net absorption.
The marketwide average vacancy rate was 16.2% in the second quarter. Vacancy fell 30-basis-points (bps) quarter-over-quarter and 80 bps year-overyear, supporting healthy market fundamentals.
The market’s average asking rental rate at the end of the second quarter was $25.61 per sq. ft. (FSG-annual).While the average rental rate remained constant quarter-over-quarter, it climbed 2.3% year-over-year.
Approximately 2.9 million sq. ft. remained under construction in the metro. Nearly 75% of this space is speculative development—signaling continued
developer optimism in the market. New development is highly concentrated in the Southeast Valley which accounts for 1.3 million sq. ft. of space underway.