April 2024 – Knowing The Numbers in Commercial Real Estate

Office Market

Despite being more than four years removed from the onset of COVID, pandemic-catalyzedshifts in demand continue to drive uncertainty in the Phoenix office market. Users arescrutinizing the efficiency and sizing of their space amid these shifting workplace strategies.Some tenants have opted to shrink and consolidate their footprints, while others are no longerleasing bigger blocks in anticipation of future headcount growth. The structural lowering ofdemand has led to a more than 50% increase in vacant space since 19Q4, with 2023 markingan acceleration of the move-out trend compared to the prior two years.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	196M	16.2%	$29.49	-201K	1M
4 & 5 STAR	72M	25.2%	$34.98	-26K	844K
3 STAR	85M	12.8%	$27.28	-85K	173K
1 & 2 STAR	39M	7.1%	$23.18	-89K	0

INDUSTRIAL MARKET

The Phoenix industrial market is navigating a period of dislocation as record supplyoverwhelms tenant demand. Builders delivered more than 23 million SF in thesecond half of 2023, outpacing the cumulative completion total from 2017 to 2019.The substantial supply injection, much of which was built on spec, caused vacancyto spike from the low 4% range in 23Q2 to 9.8% today.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	461M	9.8%	$13.58	-93K	37M
LOGISTICS	334M	11.5%	$13.12	99K	31M
SPECIALIZED	93M	3.8%	$13.56	-127K	6M
FLEX	34M	9.0%	$18.48	-66K	773K

MULTI-FAMILY MARKET

Though renter demand has rebounded over the past 12 to 18 months, Phoenix’s aggressive deliveryschedule continues to overwhelm sturdy leasing activity, causing market conditions to weaken. Vacancyhas been on a steady upward trend over the past eight quarters and now stands at the highest level inover a decade at 10.3% as of early 2024. Amid increased competition, local operators have shifted theirfocus to maintaining occupancy at the expense of revenue gains, keeping rent growth decidedly negativeat -1.8% and concession usage elevated. This persistent imbalance between supply and demand isexpected to continue in the coming quarters as the full effect of the construction pipeline is felt.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION UNITS	UNDER CONSTRUCT UNITS
TOTAL:	386K	10.3%	$1,556	313	38K
4 & 5 STAR	182K	11.1%	$1,794	255	25K
3 STAR	144K	10.2%	$1,408	56	13K
1 & 2 STAR	60K	8.3%	$1,145	2	136

RETAIL MARKET

The Phoenix retail market is firing on cylinders in early 2024, with vacancy, space availability,and rent growth at multi-decade bests. Powerful demographics, healthy consumptiongrowth, and the expanding local economy underpin robust retail demand. Additionally, a lackof construction and limited store closures further contribute to tight market conditions. Thesedynamics are expected to continue over the near term, setting Phoenix up for another year ofoutperformance.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	242M	4.7%	$24.86	21K	3M
POWER CENTER	32M	4.0%	$27.66	-5K	38K
NEIGHBORHOOD CENTER	91M	5.5%	$24.21	-9K	287K
GENERAL RETAIL	85M	3.0%	$23.78	20K	2.3M

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