Vacancy increased quarter-over-quarter for the first time in two years to 14.4% in Q1 2020, up from the year-end total of 14.1%.
Year-over-year vacancy decreased 60 basis points from 15.0% in Q1 2019.
The Phoenix office market weathered a slow March and started the year off on an encouraging note. Phoenix had positive net absorption for the 39th straight quarter with 340,411 sq. ft. in Q1 2020.
There is currently 2.3 million sq. ft. of construction underway across metro Phoenix, up from the year-end total of 2.0 million sq. ft.
The Phoenix office market delivered 544,456 sq. ft. of new space in Q1 2020, down slightly from the Q4 2019 total of 558,731 sq. ft.
Of the total space delivered in Q1, the Tempe submarket represented 82%, or 444,942 sq. ft.
The demand for office space in the Valley is strong, creating strong market rates across all classes.
The average full service gross (FSG) asking lease rate increased to $27.50 per sq. ft. from $27.00 per sq. ft. in Q4 2019.
The Class A asking rate increased $0.57 from the prior year to $36.06 per sq. ft. Comparatively, Class B office rates saw an increase year-over-year to $26.67 per sq. ft. FSG, $0.70 higher than in Q1 2019.
Overall vacancy increased 30 bps to 14.4% from the 12 year low Q4 2019 total of 14.1%.
Aside from the year-end 2019 rate, vacancy remains low overall, and is at its second lowest point since Q4 2007 when the vacancy rate was 13.9%