Vacancy rates in the Metro Phoenix office market dropped considerably during 2018, finishing at 15.6 percent, declining over 180 basis-points (bps) since fourth quarter of 2017 (17.4 percent). The vacancy rate is anticipated to continue to drop in 2019. The Metro Phoenix office market continued to experience robust demand in the fourth quarter of 2018, absorbing +640,000 square feet (sf). This brings the 2018 total to +2.8 million square feet (msf), more than double the square footage absorbed in 2017 (+1.4 msf). Absorption was positive in all quarters of 2018; and in 18 of 22 submarkets for the year, with no strong winners or losers. With the bulk of development concentrated in just three submarkets (Tempe North, Price Corridor and Downtown), Cushman & Wakefield expects submarket absorption to be more uneven, with higher highs and lower lows, in 2019 and 2020.
Throughout 2018, developers delivered just under 1.3 msf of new product to the Metro Phoenix office market. Seven speculative projects introduced over 734,000 sf and three built-to-suits (bts) delivered over 545,000 sf. Currently, Metro Phoenix has 2.7 msf under construction, with 13 speculative projects totaling 2.2 msf and four bts projects totaling 563,000 sf. Bts projects can move very quickly in Metro Phoenix. Freedom Financial is expected to deliver the second of their two bts buildings in the Tempe North submarket within five quarters. The first building broke ground in January 2018 and phase two is expected to deliver first quarter 2019. Phoenix has shorter construction periods than other cities, so the current pipeline for 2020 deliveries is not yet complete.