Q2 2012 Phoenix, Arizona Office Property Sales Analysis

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Q2 2012 Phoenix, Arizona Office Property Sales Analysis

Metro Volume and Pricing

Investment activity has slowed slightly from the pace seen in 2011.* The total for the latest quarter for 11 completed transactions was $157 million at an average selling price of $115 psf. For the $372.5 million exchanged in 19 transactions through mid-year, the average was $141 psf. In the latest quarter’s largest deal, third-largest in a year, Artis REIT paid Trammell Crow Company, Clarion Partners LLC and Scottsdale-Paradise Lane LLC $79 million ($307 psf) in cash for the 257,000-square-foot Max & Kierland multi-tenant office property at 16220 N. Scottsdale Road, Scottsdale. The deal closed on May 25. The Class A property, built in 2008, was 13.0% vacant at sale date.

Since the quarter ended, Westport Capital Partners LLC acquired the 220,000-square-foot Agave Center in Tempe, thus “boosting its Arizona portfolio to more than 670,000 square feet,” GlobeSt.com reported in August. The building was “more than 80% occupied” at sale date. The price was not disclosed. “This project is a good example of Phoenix’s coming recovery, and the strong conviction that many of today’s investors have in the future of the market,” stated an executive with Jones Lang LaSalle in a prepared statement. “Over approximately 10 weeks, Agave Center received strong buyer interest, secured multiple offers from local and national buyers, and closed without any significant delays.”

Top Submarkets

Activity was substantial in several submarkets in recent quarters. Scottsdale led all others in volume sold over the past four at 1.23 million square feet. The dollar total was $234 million. Second in total property transacted was the Tempe submarket with 1.07 million square feet trading for $155 million. The Uptown submarket followed with 540,310 square feet selling for just $17 million. Leading in mean price, meanwhile, was the Northwest submarket, in which 418,379 square feet sold at an average of $263 psf. Scottsdale followed with an average of $190 psf.

Cap Rate Comparisons and Forecasts

Average cap rates measured by the quarter have skipped about somewhat during the recent term without establishing a clear directional trend. The average for the latest quarter was 8.7%, up 90 basis points for the period and tied with the second quarter of 2011 for the highest rate since the third quarter of 2010. The steadier 12-month rolling cap, on the other hand, has tracked a gradual descent. At 8.3%, the 12-month rate per the latest quarter duplicated the previous quarter’s rate but was down 30 basis points year-over-year and was down 100 over two years. Reis expects the 12-month rate to remain above 8.0% in the period ahead. 12-month rolling caps per the latest quarter for the Western region and the U.S. as a whole were 7.4% and 7.5%, up from 7.2% and 7.4% the quarter before.