COVID’s Lingering Impact
Office buildings across Scottsdale are still reeling from the effects of COVID-19, even as the city competes with Phoenix’s Camelback Corridor for the highest office rental rates in ‘The Valley’. The pandemic’s work-from-home shift and hybrid models continue to impact vacancy rates, pushing them higher than ever before.
Office Vacancy Rates: Scottsdale VS. The Valley
Scottsdale’s Office Market by the Numbers
- Vacancy Rate: 18.6%
- Space Vacant: 3.8 million square feet out of 24.6 million total.
- Average Rent: $34.54 per square foot, slightly below Camelback Corridor’s $34.96.
While Scottsdale fares better than the Valley-wide office vacancy rate of nearly 21%, downtown Phoenix, Sky Harbor, and Tempe show even higher vacancies, with about 25% of their office spaces empty.
What’s Driving The Trend?
- Hybrid work models.
- Decreased job growth in office-heavy industries.
- Older, less desirable office spaces struggle to attract tenants.
Also Read: Investment Opportunities In Scottsdale Rental Properties Market
Scottsdale’s Leasing Challenges
In just one year, Scottsdale lost over 483,000 square feet of office occupancy, and it’s not alone. Across the valley, 2.2 million square feet went unclaimed in the same period. Analysts attribute this to:
- A negative net absorption rate, meaning more companies are leaving than arriving.
- Increasing sublease availability, particularly in older properties.
Scottsdale’s Office Market Resilience
Despite these challenges, Scottsdale shows signs of recovery and remains a desirable market. Analysts are optimistic for a few reasons:
- High-quality buildings in premium locations still attract strong demand.
- Amenities-rich properties, like those in the Camelback Corridor and Scottsdale, command higher rents and see less turnover.
- The market saw a landmark deal: Samuel & Co Inc purchased a fully occupied, 366,513-square-foot building on Shea Blvd for $71.5 million.
Also Read: Why Is Rent So High In The State Of Arizona? Things To Know
What Tenants Can Expect
If you’re considering office space in Scottsdale, now might be a good time. Here’s why:
- Increased Allowances: Landlords offer higher improvement budgets, sometimes up to $100 per square foot, to customize spaces for tenants.
- Rent Abatements: Free rent periods are increasingly common, hiding effective rent declines.
- Class A Spaces Dominate: Top-tier offices in desirable areas are driving demand, but Class B properties face tough times.
Future Outlook
While the overall market sentiment is cautious, Scottsdale’s office market is poised for steady improvement. Expect the following:
- Rent Stability: Annual rent growth may hover around 1% through 2025.
- Interest Rate Impact: Anticipated cuts could spur more leasing activity.
- Tenant-Friendly Deals: Discounts and incentives remain plentiful as landlords compete to fill spaces.
Also Read: WalletHub Measures 182 Cities, Scottsdale 3rd Best City To Rent
FAQs
1. Why is the Scottsdale office market still struggling post-COVID?
Work-from-home trends and hybrid work models have reduced the demand for traditional office spaces.
2. What types of offices are performing best in Scottsdale?
Class A spaces in high-demand areas like Camelback Corridor and central Scottsdale continue to attract tenants due to their amenities and modern features.
3. Are rents expected to rise significantly soon?
Not likely. Rent growth is predicted to stay modest at around 1% annually through 2025, with competition and subleasing keeping prices in check.
4. What’s driving premium rents in Scottsdale?
Desirable locations and amenity-rich buildings keep rents relatively high, even as vacancy rates remain elevated.
5. Should I lease office space now or wait?
With generous incentives like tenant improvement allowances and rent abatements, now could be a great time to secure a deal.
Scottsdale’s office market may still feel the pandemic’s effects, but it’s clear the city’s premium spaces and desirable location keep it in the game. If you’re in the market for office space, this could be a good time to take advantage of tenant-friendly conditions.
Also Read: The Greater Phoenix Rental Market Sees Significant Changes