Phoenix submarket office sale evokes 2008 pricing

While high-profile office transactions in top-tier markets like New York and Washington, D.C. have gotten their share of media attention lately, office transactions in markets further afield are making headlines as well. One such transaction is the recent $137 million sale of Fountainhead Office Plaza, a newly developed office campus located in Tempe, Arizona, totaling 439,000 square feet in two Class A buildings.  The complex was sold by San Antonio-based USAA Real Estate Co., to an affiliate of Newport Beach, Calif.-based KBS Realty Advisors. Representing the seller, CBRE announced the sale in a press release, citing that “this is the first major office sale [in Phoenix] over $300 psf since first quarter 2008.”

Could such a price premium be indicative of a market rebound? Not exactly. Phoenix’s average office vacancy rate remains stubbornly high at 26.4% as of July, according to Reis, which is up 20 basis points from the same time last year, while average office rents remain weak and concessions persist. Even the average vacancy rate in the Fountainhead Office Plaza market area of Tempe remains high, at 20.0% as of July, though the rate has fallen 260 basis points from the same time last year, and average rents have begun to strengthen.

Given the market’s current state, what helped to cinch the Fountainhead Office Plaza deal, and at such a high price? In this case, it was complex’s 100% occupancy by the University of Phoenix and it’s long-term lease at the property, which runs to 2023, providing the new owners with a steady income stream as well as mitigated rollover risk. As far as Phoenix’s other office investors are concerned?  They will need patience if they expect to see the premium asset prices that come with higher occupancy levels and rents.

Additional apartment, retail, and office sector details like commercial property rates, commercial vacancy rates, asking rents, current inventory, lease terms, employment data and more are available for Phoenix and hundreds of metros and thousands of submarkets/neighborhoods nationwide—at ReisReports.com.