Wednesday, October 19, 2011

Office-space rent prices decline in Valley

Owners of Phoenix-area office buildings continue to struggle with declining rent prices despite a modest improvement in the overall vacancy rate, according to third-quarter reports issued by commercial-real-estate firms this week.

The average lease rate reported for office space varies from one firm to another based on slight differences in measurement criteria, but all agree that prices in the third quarter reached their lowest point in years.

"The last time rates were this low was first-quarter 2005," Matt DePinto, research manager at commercial-real-estate firm NAI Horizon in Phoenix, said in a report issued Monday.

CBRE, formerly known as CB Richard Ellis, the area's largest commercial brokerage, said in its third-quarter report that advertised office-lease rates have fallen for the past six consecutive quarters and have reached an average of about $21 per square foot per month in the Phoenix area.

CBRE excludes small office properties of less than 10,000 square feet from its data.

Advertised asking prices for leased office space are down about 18 percent from the end of 2008, CBRE analysts said, but additional discounts and concessions by property owners have effectively lowered the price of office rents by as much as 40 percent.

The most positive news in the third quarter was that the vacancy rate for office properties continued to decrease slightly, as it did in the second quarter, according to a report from commercial-real-estate firm Grubb & Ellis in Phoenix.

The Grubb & Ellis report, which includes in its data office properties of at least 20,000 square feet, said the vacancy rate fell to 27 percent from 27.6 percent in the previous quarter.

CBRE's data, which includes properties as small as 10,000 square feet, reported a slightly lower vacancy rate of 25.8 percent in the third quarter, down from 26 percent in the second quarter.

NAI Horizon's DePinto said deeply ingrained problems in the Phoenix-area office market are preventing the lower vacancy rates from causing rent prices to go up.

A slowdown in new leasing activity, corporate downsizing and a glut of vacant office space continue to plague the market, he said.

It's a problem that could take years to resolve, DePinto added.

Office space generally is separated into three categories based on its quality and location. Of the three, Class A is considered the best, followed by Class B and Class C.

DePinto said a lot of office tenants have been relocating from Class C or Class B space to Class A space during the past several quarters as their existing leases have expired.

It has been typical for office tenants to relocate to a higher-quality but smaller space, DePinto said, which has done nothing to relieve the Phoenix area's oversupply problem.

"This activity, though normal for a market such as this, is a majority of the transactions," he said.

"The space left behind does nothing to improve conditions, other than leave lesser-quality space in its wake and keep vacancy rates flat from quarter to quarter."

by J. Craig Anderson The Arizona Republic Oct. 18, 2011 05:52 PM

Office-space rent prices decline in Valley

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