Saturday, July 23, 2011

Chandler's office vacancy rate drops sharply

Chandler's office vacancy rate dropped to 8 percent at the end of the second quarter, compared with 20.6 percent at the same time a year ago. And in January 2010, the vacancy rate stood at 25 percent.

Christine Mackay, the city's director of economic development, credited the good news to the arrival of several large companies, including Safelite, e-Bay and Advantage Mortgage.

And the economic-development staff aggressively marketed the vacant space.

"Our team's mantra last year was fill the office buildings," Mackay said.

Retail vacancies stood at 12 percent at the end of the second quarter this year; the same time a year ago they were 10.2. That market was hurt with the departure of Ultimate Electronics and Borders Books. But the retail numbers will look a bit healthier with the arrival of Hobby Lobby, which plans to locate on the northwestern corner of Loop 101 and Chandler Boulevard.

Industrial vacancies came in at 10.4 percent at the end of the second quarter; the previous year the industrial vacancy rate was 14.1 percent.

There was a lot of interest in office space last year, and Mackay predicted that this year, industrial space will start to fill up. A few tenants are close to signing leases, she said.

One catalyst in the real-estate market is Intel, which encourages its suppliers to locate nearby. When Intel said it would build a new facility, real-estate activity perked up.

"When Intel makes big announcements, we see our phones start to ring," Mackay said.

"Suppliers for Intel ramp up their capabilities."

In the retail market throughout metropolitan Phoenix, the overall vacancy rate at the end of June stood at 12.64 percent, compared with 12.21 percent at the same time a year ago, said Kevin Schuck, senior vice president at CB Richard Ellis.

A negative net absorption of 649,000 square feet was recorded during this year's first two quarters throughout the Phoenix area.

"The drag on our vacancies to a great extent is big boxes," Schuck said. "As of the end of the second quarter in metro Phoenix, for 2010, we had 305 big boxes. In 2011, at the end of the (second) quarter, we have 326."

In the past near, nearly 700,000 square feet of big-box space has been added.

The closing of Borders Books and Ultimate Electronics added to the vacancies in a big way.

Schuck said that's too tight, that a rate of 7 to 8 percent is more customary and comfortable.

The high vacancy rate is good for tenants.

"Any time you have choices, you've got more to offer to appeal to various tenants," Schuck said.

"In this re-set of the economy, we have seen people are interested in value," Schuck said. That means expansion of such retailers as Ross Dress for Less, Hobby Lobby, Goodwill, Big Lots, Dollar Tree and 99-cent stores.

"They seek to expand in this market to get a greater foothold," Schuck said.

Tenants also can move up to a higher profile location or larger space.

In the industrial market in metro Phoenix, large companies are taking advantage of low rents throughout the Valley, including Chandler, said Jerry McCormick, senior vice president at CB Richard Ellis and a specialist in industrial properties.

One Chandler spot luring a lot of interest is Continuum, the 152-acre former Motorola site on Price Road that is being converted to a science and technology park.

The owners are spending about $4 million to renovate that site's 500,000-square-foot building.

"We're seeing much more activity than we did at the end of last year," McCormick said.

"We see people moving from Class C space to Class A or B and paying the same that they were paying four or five years ago when they did their lease," McCormick said.

And most of the companies that were going to fold have gone under.

"Most of that is done," he said.

He likes to see a vacancy rate in the 8 to 10 percent range.

Throughout metro Phoenix, 18 months ago, a renter was looking for 300,000 square feet, he had more than 30 options; today, he would have two.

The industrial market is still vulnerable to the job market.

"What affects our market more than anything else has been the housing industry," McCormick said.

Builders use warehouse space to store much of their product including nuts, bolts and lumber.

"As the home industry and building improves, it will help the industrial market."

In the office market, high-tech companies looking for a highly skilled labor force are drawn to Chandler, said Greg Mayer, said high-tech companies looking for a highly skilled labor force are drawn to Chandler.

"High-tech hasn't been hit as hard as the residential market; high-tech continues to hire and Chandler being home to knowledge companies helps; those businesses include education provider EDMC, Intel, Orbital and eBay," he said. "We've not seen negative absorption in Chandler, except it happened once in the last decade with a little blip in 2005. I don't know of any submarket positive for that many years in a row."

Negative absorption means more people are moving out than moving in.

For the year to date, the area has absorbed nearly a million square feet of office space.

"We're going to have a fairly healthy absorption rate, much better than last year," Mayer said. "Last year, we eked out 100,000 square feet."

Metropolitan Phoenix lost 600,000 square feet in 2008 and 660,000 in 2009. That will be made up this year, he predicted. However, it's not an across-the-board recovery; some markets have yet to hit bottom, but overall, he's starting to see an upturn.

by Luci Scott The Arizona Republic Jul. 21, 2011 10:43 AM

Chandler's office vacancy rate drops sharply

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