Executive Summary
- Q2 total sales volume doubles y-o-y
- average price per square foot reaches $174
- Camelback East home to largest sales of Q2
- just one large office project in the Q3 pipeline
The Phoenix office market was an attractive scene for investors during the second quarter of 2017, with 20 notable deals closed for a total of $513 million. The average price per square foot for office buildings trading on the market is holding steady, roughly on par with the average of the past five years, according to in-depth Yardi Matrix data (see ‘Methodology’). Overall, the market saw significant improvement compared to both Q2 2016 and the first three months of 2017, a sign that buyer interest is strong and investment opportunities in the area are plentiful.
Q2 Sales Volume, Number of Deals Double Y-o-Y
A total of 20 large office transactions closed in Phoenix during the year’s second quarter, amounting to $513 million in sales volume–making it the market’s best Q2 in five years. The number of deals closed doubled year-over-year, and the dollar volume nearly doubled as well, a sign that investors aren’t losing interest in Phoenix’s office market. The total sales volume also increased significantly from Q1, when 12 assets changed hands for $275 million, though the total square footage traded rose by less than 200,000 square feet. Investors focused their attention on more affordable options, as 13 Class B and C office properties traded during Q2, and just 6 Class A assets sold.
Average Price per Square Foot Reaches $174 in Q2
The average price per square foot for office buildings trading on the Phoenix commercial real estate market climbed to $174 at the close of Q2 2017, roughly on par with the numbers recorded the previous year. Prices are holding above the average of the past five years, and well above Q1 numbers.
Average prices peaked in Q3 2016 at $243 per square foot–the only quarter in the past five years to top the $200 mark, and an obvious anomaly for the market. By comparison, the first quarter of 2017 saw prices sink to a five-year low of $102 per square foot. Excluding these singular variations, the market hasn’t experienced any dramatic fluctuations since 2013, signaling that buyer interest is steady and prices don’t tend to vary drastically in Phoenix.
Camelback East Submarket Home to Q2’s Largest Sales
3131 East Camelback Road (Yardi Matrix)
A total of 20 notable office transactions closed during Q2 2017, most of them involving Class B properties. The largest deal of the quarter was the $81.7 million sale of 3131 and 3133 East Camelback Road. The two Class A office buildings were bought by Goldman Sachs Asset Management from Lincoln Property Co., in a portfolio deal funded by a $47.2 million loan placed with the Canadian Imperial Bank of Commerce, per Yardi Matrix data. Lincoln continues to act as property manager for the garden-style office buildings located in Phoenix’s Camelback East submarket.
Camelback Commons – 4742 North (Yardi Matrix)
The second-largest deal of the quarter was another portfolio deal. Regent Properties paid $66.4 million to acquire Camelback Commons – 4722 South and 4742 North – from a partnership between McCarthy Cook and Morgan Stanley Real Estate Investing. The two four-story Class B buildings were completed in 1986 and are managed by CBRE. The building located at 4722 North 24th St. features 177,944 square feet of office space, while 4742 North 24th St. incorporates 158,477 square feet. The June sale was funded by a $52.8 million permanent loan held by BBVA Compass Bank.
59 KSF Medical Office Project on Track for Q3 Delivery
The Quad – Phase I – 6330 E. Thomas Road, Scottsdale (Yardi Matrix)
Just two office projects exceeding 50,000 square feet were delivered to the Phoenix market in Q2. In Scottsdale, EverWest Real Estate Partners completed the 75,000-square-foot Phase I of its Quad project. Located at 6330 East Thomas Road in Downtown Scottsdale, the one- and two-story development is currently home to Opendoor, Forward Tilt and JBI, per Yardi Matrix data. Upon completion, The Quad will incorporate a total of 14 office buildings and a plethora of amenities. Phase II of the project will comprise seven office buildings and is scheduled for delivery in October, according to CBRE.
The second notable office project delivered in Q2 was the 89,889-square-foot Allred 40 development in Phoenix. Douglas Allred’s two-story, Class A project is located at 4039 East Raymond St. in South Phoenix and is currently on the lookout for suitable tenants.
The year’s third quarter is set to be even lighter in terms of office completions for the Phoenix market. The only project scheduled for delivery in Q3 is SimonMed Imaging’s Westgate Healthcare Campus – Buildings A, B & E in Glendale. The 59,000-square-foot, three-building development at 9980 West Glendale Ave. has been in the works since 2015, with completion estimated for late September.
Methodology
- Data source: Yardi Matrix (download raw data);
- Square footage parameters: over 50,000 square feet;
- Minimum amount per transaction: $5,000,000;
- Transactions recorded up until July 17th, 2017;
- We excluded ‘ownership stake,’ ‘ground lease,’ ‘controlling interest’ and ‘portfolio’ transactions from our calculation of the average price per square foot.
