With the COVID-19 crisis and its after-effects top of mind, businesses and investors across the Phoenix metro area have rightfully been asking questions about the health and the direction of the office market. While it is impossible to predict the full impact of the pandemic, there is no question that COVID-19 will alter the local commercial real estate landscape.
Right now there are two divergent perspectives at play in the market: the generally optimistic view of the landlord community, contrasted with a tenant-driven perspective that anticipates and expects downward pressure on the office market. Each individual landlord naturally has their own take, but the general mood has been surprisingly optimistic despite the major economic disruption COVID-19 has caused statewide and nationally. Conversely, the businesses who occupy office space take the opposite view, expecting rates to have already dropped and concessions to have risen.
While we concur that Phoenix may not be impacted as severely as other major office markets, we do anticipate significant rate compression, heightened concession levels, and increasing availability rates. Below we examine the respective mindsets behind these two opposing views and suggest an analytic path forward we will use in the coming months to continue to monitor the market.