Top Nav

Commercial Real Estate Trends in Arizona

HutchinsLoopNet reported that for the state of Arizona, commercial office space remained on the market for an average of 190 days in the third quarter of 2012, compared to 140 days in the third quarter of 2013. This average jumped to 230 days in the third quarter of 2014. Many analysts believe that long durations of commercial space availability are a strong indicator of a lukewarm commercial market; however, I believe that the market is far from doom and gloom for commercial landlords.

In my opinion, we are now seeing office space remaining on the market longer due to the market stabilizing, and not as a direct indicator of less movement in the market. My clients are seeing an increase in occupancy, which allows them to be less aggressive than in recent years past. This overall increase in occupancy results in other vacant spaces remaining unleased for longer periods of time. In the past couple of years, I have witnessed landlords being very aggressive, trying to combat high vacancy rates; however, now that overall occupancy has increased, they are more selective of tenants as well as terms and concessions.

Does this mean tenants cannot find attractive lease terms? That depends on the individual office complex, as every office and sub-market is different. The fact remains that there is occupancy that landlords must address and fill with tenants. As long as there is occupancy, there are deals and attractive terms that can be found. I believe stable long-term tenants do have the upper hand in this current market. A stable tenant is defined as a business with longevity, strong financials and good credit history. These tenants have the ability to negotiate very favorable terms. Landlords quickly fall in love with tenants as they bring stability to their complexes, especially when the market may be perceived as being lukewarm. Startup businesses will find it difficult to find attractive terms due to the increase in occupancy rates. Landlords no longer have to take as much risk as in the past by filling occupancy with numerous startup businesses. In the past couple of years, I saw many startup businesses negotiate favorable deals along with stable tenants. I think that trend is fading quickly.

I find it important for landlords and tenants to do their homework and develop a plan as the market becomes more stable. In the past couple of year,s any offer was being considered by the landlords, and tenants controlled the market. Landlords should develop a plan to address what type of business use they want to pursue in the future, and to gradually increase their rental rates to rebound from the past. Landlords should use this plan as an outline to analyze every future offer. Tenants should also develop a business plan that addresses desired locations and their own finances. Tenants must understand their financial constraints so they can focus on future locations that are within their budget. Always remember what locations you could afford yesterday may not be the locations that you can afford tomorrow. Good luck to all you landlords and tenants in Flagstaff! FBN


By Mike Hutchins


No comments yet.

Leave a Reply

Website Design by DRCMedia LLC