Back in 2006, when housing was really starting to cool in Phoenix, a lot of construction shifted from residential to commercial. Many people in real estate assured us that commercial projects would not take the hits that we were seeing in the residential market. Since then, we’ve watched as a large number of commercial/office projects have gone in, including many that were planned to serve developments that have been cancelled or never filled in. Now commercial and office rents are starting to suffer: [Thanks L!]
Soaring home-foreclosure rates, abandoned suburban development tracts and slumping home prices have made Phoenix a symbol of the nation’s housing crisis. Now, the Valley of the Sun also can claim a commercial real-estate market that is one of the most badly burned by the residential flameout.
This year, the Phoenix metropolitan area’s average annual office rents are expected to fall 5.6% from 2007 while retail rents will drop 6%, the steepest percentage declines of the 54 markets surveyed by Property & Portfolio Research Inc., a Boston-based real-estate research firm. The warehouse and apartment sectors are expected to log the second-worst rent declines. All sectors will have to absorb a slew of newly completed buildings before the supply begins to taper off significantly next year.
I disagree with the statement that these buildings will "have to be absorbed". These excess buildings can stand around "unabsorbed" like the housing inventory–taking up space and driving down prices.
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Down 5.6%? Down 6%? Ouch.
A few months ago, Greg Swann presented a rather trite, back-of-an-envelope analysis and concluded that it was a great time to buy in Phoenix (what a surprise!), because the rents now supported the prices.
He apparently forgot not only that home prices can drop, but rents can drop, too.
Guess he needs another envelope now … LOL
I talked to a mattress retailer in vegas yesterday who said some shopping centers are now offering month to month to come in. These are national credit shopping centers. It’s getting stranger and stranger.
Twist,
Long time reader- first time post. Great site.
I’m jere in east mesa/Gilbert and in my travels over the last two weeks I’ve seen over a 4 mile span 7 NEW commercial office/retail that are finished and 100% empty or have at most TWO tenants. Another 3 existing office/retail are visually 30% occupied. Seems like most are totally/mostly empty or 95-100 full! Makes sense… shoppers go where they can fullfill most errands quickest. amazing also…there are MANY new projects in the works! No matter where you go you here, you have 2-3 choices of any of the same retailer/franchise likly within the same driving range. Commercial building is on Steriods!! Again!! Most learned nothing/nada/zer/zip from the overbuilt 90′s in Phoenix!! I’ll Breath now.
Shhhhh, don’t tell (or do tell?) the advertiser COBE on this page that comm R/E is headed south! Just Sayin. LOL! “Quality Offices, Premier Locations”……GREAT LEASE RATES TOO??? Ha!
The AD changes. Open mouth, insert foot.
Crashproofed-
The ads roll- it will probably be back.
Google does a better job of making them more site specific than they used to, but I think sometimes they just match “real estate ad” with “real estate site” without considering point of view- and we do get some odd match-ups sometimes.