In a cool year for Valley office market, sales and leases heated up in the fourth quarter
Despite a slow year for office real estate, the biggest investment sale and largest lease since the pandemic began took place in the fourth quarter of 2020.
Office investment in the fourth quarter hit $570 million, nearly reaching the total amount of investment sales that took place in the first three quarters combined, which reached $647 million, according to Colliers International research. The biggest sale of the year, the Grand2, closed in November for $187.5 million.
Some of the biggest new office leases since the pandemic started also were signed in the fourth quarter, according to Colliers.
JFQ Lending, a Scottsdale-based mortgage lender, signed a 125,000-square-foot lease at 7720 N. Dobson Road in Scottsdale for the company’s new headquarters, which is the largest new lease since the pandemic. Zak Kottler and Joe Cosgrove of LevRose Commercial Real Estate represented JFQ Lending. Ruth Darby of Keyser represented the sublessor, International Cruises and Excursions.
“The majority of office tenants are currently putting their requirements on hold due to the pandemic but JFQ Lending is full steam ahead with their rapid growth structure, acquiring a new, much-needed space for their corporate headquarters,” Kottler said in a statement. “It was a constantly-evolving search which resulted in securing a facility that checked all the boxes for their immediate needs and long-term goals.”
Another mortgage lender, PennyMac, leased in Phoenix as well, representing the second-biggest new lease of the year, also coming in the fourth quarter.
The Covid-19 pandemic and its effects led to the first quarter of negative net absorption of office space in the Valley after nearly nine years of positive net absorption, according to Colliers.
The overall direct vacancy rate in the Valley in the fourth quarter was 13%. Available sublease space has decreased slightly after a peak in the third quarter, but still had a 91% increase compared to the fourth quarter of 2019.
Phillip Hernandez, research manager for Colliers International in Arizona, said much of the space that has been put up for sublease has remained on the market throughout the pandemic, especially some of the larger spaces. Notably, USAA put its north Phoenix office up for sublease very early in the pandemic, and other large office spaces have sublease space available that has not been absorbed.
“Between the Scottsdale Airpark and central Scottsdale is the biggest portion of sublease space on the market,” Hernandez said, adding that despite the slow absorption for sublease space, he expects it to go faster than some of the direct space on the market. “The majority of the sublease is class A, very desirable space hitting the market. It’s really attractive space, and I think tenants will take some of that space first.”
Nationwide Mutual Insurance, which is creating a regional headquarters in north Scottsdale, will occupy 170,000 fewer square feet than originally planned at its Cavasson development. However, because an arm of Nationwide is the owner and developer of the whole master-planned Cavasson, it will offer the space as direct, not for sublease.
No new construction projects began in the fourth quarter, but there is about 2.8 million square feet of space under construction, the largest portion is in the Scottsdale Airpark submarket. Projects under construction are about 43% pre-leased, according to Colliers.
“We are still on a pause for spec development,” Hernandez said. “In the fourth quarter we didn’t see any buildings break ground, and I expect that to continue in the first quarter.”
Source: Phoenix Business Journal