Office Tenant Demand Has Slowly Returned in Phoenix
Office tenant demand has started to rebound in Phoenix. Lease transactions abruptly stopped in March, with tenants either placing existing negotiations on hold or calling off the search for a new space. While activity has nowhere near rebounded to pre-coronavirus levels, some tenants are starting to re-enter the market or revive existing lease transactions. While a recession seems imminent, the return of occupier activity—even if only a little—could be a sign of confidence in the months ahead.
At first, tenants dried up pretty quick,” Jon Rosenberg, co-founder and designated broker managing partner of Levrose Commercial Real Estate, tells GlobeSt.com. “The activity is still decreased from what we had in January and February, but we are starting to see a slight uptick. We are starting to see more demand now. I am seeing some leases get done and there has been new activity. I think that will bode well for the third quarter.”
For the deals that haven’t rebounded, Rosenberg is confident that they will return as well. In fact, just as many are re-branding the job losses as job furloughs, Rosenberg says these lease deals are on pause, not dead. “Most of our tenants that have paused deals are waiting to see what is going to happen,” he says. “So the deals aren’t gone; they are paused. That doesn’t mean that they have gone away or that they don’t need a space eventually.”
In fact, Rosenberg believes that the CARES Act funding—particularly the PPP funding—will go a long way to renewing tenant confidence and boosting activity. “Businesses are starting to realize that they should be starting to look,” he says. “As the PPP and unemployment starts getting into people’s pockets, it will remove some fear that a lot of these businesses had that they weren’t going to be able to survive.”
For tenants questioning entry into the market, Rosenberg warns them not to expect a major decrease in rental rates if they wait. He gave similar advice to owner-user buyers concerned about overpaying. “If it works for you and you feel like you will need the same requirement coming out of this, then you should move forward,” he says. “In some cases, tenants may not have a choice other than to move if they are in a lease expiration. It takes time to find the right space, and if they have found that space, they should push forward. If they haven’t found a space, then they can do virtual tours and start figuring it out now.”