Wednesday, April 11, 2012

Scottsdale's SkySong set to lease two new buildings

ASU Scottsdale Innovation Center.
The Skysong shade structure covers the central plaza at SkySong, the ASU Scottsdale Innovation Center.

SkySong, the Arizona State University Scottsdale Innovation Center, this week kicks off pre-leasing for two office buildings that will be the only sizable office construction this year in south Scottsdale.

SkySong now includes two multistory office buildings totaling about 300,000 square feet. The buildings are about 98 percent occupied and house a workforce of more than 1,000 people.

Two new office buildings, totaling about 290,000 square feet, are being planned west of the existing buildings and east of Scottsdale Road. The construction cost of the four-story buildings, SkySong III and IV, is $60 million.

The mission of the mixed-use, 42-acre development, at the southeastern corner of Scottsdale and McDowell roads, is to be a job creator and entrepreneurial hub. Plaza Cos. is the developer of the project in partnership with the ASU Foundation and USAA Real Estate Co.

"With that kind of focus, this project has experienced an above-market leasing velocity because this is where we believe companies want to come," said Sharon Harper, president and CEO of Plaza Cos. "We want to continue the development of the project in a reasonable fashion."

Scottsdale's Development Review Board is expected to consider the project at its May 17 meeting. Construction could begin on the first building when enough space has been pre-leased, she said. The financing is in place, she said.

"We're still in a very slow economic environment in Arizona, although we believe there are some markers for change, but they will come slowly and we will be cautious," Harper said.

The partners stand ready to respond with still more buildings for firms looking for 500,000 square feet or more to locate in Scottsdale, she said. The foundation has agreed to build 1.2 million square feet of office space in phases over 24 years.

"We're competing with Austin, Texas, and San Francisco, and some of the cities that are considered the major tech centers," said Nate Summer, ASU's assistant vice president of real-estate and development. "We have now an offering that's comparable or exceeds anything that they can put forward, and that's a really unique and special capacity for the city of Scottsdale to have."

The Valley's office market, including Scottsdale, still is suffering from the recession, with about 25 percent of office space vacant, said Craig Coppola, founding principal of Lee & Associates Arizona. The firm handles leasing for SkySong.

The office market literally "fell off a cliff" in 2008 and has shown very little improvement, he said. However, SkySong has bucked the trend by continuing to lease space despite the sluggish market, he said.

Before the recession, the office market was gaining more than 1 million square feet of office occupancy each year, Coppola said. The market was at a standstill last year after losing 1.2 million square feet of occupied space in 2010, he said.

"From our perspective, the value proposition of SkySong is obviously very successful," Coppola said. "The environment at SkySong is completely unique to the traditional office market with the ASU relationship, and so tenants have obviously leased more space there."

More than 70 companies are housed at SkySong and the ASU SkySong incubator. Those include high-tech and non-high-tech companies, and the complex has become a magnet for education-related firms, Coppola said.

One company has signed a lease to occupy one floor of the first new building, and "we need one more floor" leased to begin construction, he said.

"We have some activity in place, a short list of highly interested tenants," Coppola said. "But unfortunately we do need pre-leasing like everybody else in town, and we're looking for somebody to sign on the dotted line and then we can get going."

Jerry Noble, of CBRE Brokerage Service, said demand is growing for larger office space, as much as 50,000 square feet. Most of the vacancies are in smaller spaces. That could help new complexes that get financing to start construction, he said.

"For the first time in several years, users are looking for 50,000 square feet or more ... on the east side of (the Valley)," he said. "They don't have as many options as they once had and that trend is going to continue."

Overall, the office market is picking up, with more leasing activity taking place, Noble said. Also, rents are starting to increase, particularly in south Scottsdale, because of constraints on bigger and better office space, he said.

Beyond its 1,000-plus workforce, SkySong continues to bring in people from around the world, Summer said. Next week, SkySong is hosting the Education Innovation Summit, he said.

"We are bringing in 500 people who are CEOs and senior leadership from well over 100 very significant education-technology companies," he said. "These are international companies, companies from all over the country and local companies. It puts Scottsdale on the map, at the nexus of education and educational technologies."

During the recession, when other companies were contracting and disbanding, companies at SkySong were growing and the trend continues today, Summer said.

"We've had companies start with one person and be at 13,000 square feet of space with 45 people here and 100 people in the United States," he said. "We're able to leverage that and talk to more companies and attract more students to the project. It's attracting the kind of technology-development companies ... that might otherwise have not paid attention to ASU and Arizona."

SkySong has become the destination for many events. About 5,000 visitors use space at the complex for events every month, Summer said.

by Edward Gately - Apr. 11, 2012 08:51 AM The Republic |

Scottsdale's SkySong set to lease two new buildings

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