MARCH 2024 – Knowing the Numbers in Commercial Real Estate

Office Market

Despite being more than four years removed from the onset of COVID, pandemic-catalyzed shiftsin demand continue to drive uncertainty in the Phoenix office market. Users are scrutinizing theefficiency and sizing of their existing office space amid these shifting workplace strategies. Sometenants have opted to shrink and consolidate their footprints while others are no longer leasingbigger blocks of space in anticipation of future headcount growth. The structural lowering ofdemand has led to a more than 50% increase in the amount of vacant office space since 19Q4with 2023 marking an 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	16.1%	$29.61	-680k	810K
4 & 5 STAR	72M	25.3%	$34.94	-429K	623K
3 STAR	85M	12.8%	$28.04	-48K	187K
1 & 2 STAR	39M	6.9%	$23.17	-202K	0

INDUSTRIAL MARKET

The Phoenix industrial market is navigating a period of dislocation as recordsupply overwhelms tenant demand. Builders delivered more than 23 million SF inthe second half of 2023, outpacing the cumulative completion total from 2017 to2019. The substantial supply injection,much of which was built on spec, causedvacancy to spike from the low 4% range in 23Q2 to 9.1% today.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	453M	9.1%	$13.57	408K	43M
LOGISTICS	326M	10.6%	$13.11	1.1M	37M
SPECIALIZED	93M	3.6%	$13.54	-219K	5M
FLEX	34M	9.2%	$18.51	-516K	794K

MULTI-FAMILY MARKET

Though renter demand rebounded in 2023, Phoenix’s aggressive delivery schedule overwhelmed sturdyleasing activity, causing market conditions to weaken for back-to-back years. Vacancy has been on asteady upward trend over the past eight quarters and now stands at the highest level in over a decadeat 10.6% as of early 2024. Amid increased competition, local operators have shifted their focus tomaintaining occupancy at the expense of revenue gains, keeping rent growth decidedly negative at -1.9%and concession usage elevated. This persistent imbalance between supply and demand is expected tocontinue 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:	384K	10.7%	$1.563	2K	35K
4 & 5 STAR	181K	11.4%	$1,792	2K	24K
3 STAR	143K	10.8%	$1,407	528	11K
1 & 2 STAR	60K	8.5%	$1,142	19	0

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	4.6%	$24.88	369K	2.7M
POWER CENTER	32M	4.1%	$27.63	-88K	43K
NEIGHBORHOOD CENTER	92M	5.5%	$24.25	93K	230K
GENERAL RETAIL	85M	3.0%	$23.90	0K	2M

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