In Valley, 80 mil square ft. of business space is vacant
by J. Craig Anderson - Jan. 11, 2011 12:00 AM
The Arizona Republic
The Valley's real estate boom-and-bust cycle left an almost unimaginable 80 million square feet of excess office, retail and industrial space on the rental market at the close of 2009 - the rough equivalent of 1,600 football fields.
The unprecedented oversupply of commercial real estate sent vacancy rates soaring in all categories, while lease prices tumbled, according to reports from area commercial real-estate firms.
Market analysts said the oversupply problem is going to get worse before it gets better, although few new projects are planned beyond those started before the market took a dive. About one-quarter of metro Phoenix's rentable office space, or nearly 20 million square feet, sat vacant at the end of 2009, according to Phoenix-based Cassidy Turley/BRE Commercial - formerly Grubb & Ellis - the Valley's largest commercial property broker.
There was almost as much unused retail space on the market, about 17 million square feet, Phoenix brokerage CB Richard Ellis reported, including more than 8 million square feet of empty "big-box" retail, defined as spaces of 10,000 square feet or more.
Industrial and warehouse properties finished the year with about 43 million square feet of vacant space on the market, nearly 17 million of it in empty distribution centers, CB Richard Ellis reported.
"As 2009 closed, the metropolitan Phoenix economy continued to feel the effect of the recession as both the commercial and residential real-estate markets were impacted by the deepest recession since the Great Depression," Jeff Cooledge, firm research manager, reported.
The vacancy rate for office properties was about 25 percent as of Dec. 31, compared with about 19 percent a year earlier, the report said.
The vacancy rate for retail properties ballooned from less than 8 percent at the end of 2008 to more than 11 percent, and industrial-property vacancy jumped from 13 percent to 16 percent.
As a result, lease rates for all property types plummeted.
The average office lease rate dropped by 10 percent to about $23 per square foot annually. The average retail rate fell about 9 percent to just above $17, while the average industrial lease rate dipped about 15 percent to 56 cents.
Another 1.4 million square feet of office space still is under construction and expected to hit the market this quarter, CB Richard Ellis reported. As of Friday, only about 300,000 square feet of the soon-to-open space had been pre-leased.
About 760,000 square feet of retail space was under construction at the end of 2009, along with roughly 870,000 square feet of industrial space.
Once those projects are completed, developers aren't likely to build much for years to come, local experts said.
"In an overbuilt market, any new construction is not expected for some time," Cooledge said. "The lack of office development is not new to the metro Phoenix market, as no new product was built between 1992 and 1995."
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Empty offices, stores and distribution centers
A record 80 million square feet of commercial real estate sat on the market at the end of 2009.
Vacant square feet: 20 million
Vacancy rate: 25 percent
Average lease rate: *$23
Vacant square feet: 17 million
Vacancy rate: 11 percent
Average lease rate: $17
Vacant square feet: 43 million
Vacancy rate: 16 percent
Average lease rate: 56 cents
*Price per square foot per year.
Sources: Cassidy Turley/BRE Commercial; CB Richard Ellis