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Phoenix Real Estate Commercial Sector Update

Update on the Phoenix Commercial Sector in a COVID-19 World

 

You may be wondering just how the pandemic has affected the commercial aspect of the real estate market in the greater Phoenix area. The good news is that the Valley is better positioned for a strong recovery than many other parts of the country. Of course, recovery cannot happen until we are over the hump and I think it’s safe to say we are far from over that hump, sadly.

One reason we are better positioned today is that Phoenix expanded significantly over the last ten or twelve years after our last recession. We have grown the economy with an educated workforce that has attracted new industries and investors not normally prevalent in Phoenix. Healthcare, financial industries, engineering, aerospace, manufacturing, and distribution all have a large presence in Phoenix. In addition, we’ve also seen a surge in multi-family investing for the last several years in the Valley.

That was then, this is now.

Vacancies are rising. Many businesses are choosing to sublease their space. Others are downsizing or simply not renewing their leases. Still, others are working with their landlords to stay in their spaces. Government loans are attempting to assist small businesses to stay in place and keep employees employed. Real estate is a lagging indicator, we are just starting to see leasing rates start to decline. More of a decrease in rental rates is expected, especially as more landlords fall behind on their loans.

The industrial sector in Phoenix has been outperforming other asset classes for several years now.

Since the pandemic, there has been a realization that our supply chain is somewhat vulnerable as well as vital to our safety and security.

Technology-based manufacturing should come back significantly as we are seeing the Valley grow with robotics, IT, and tech security industries being prevalent in our market. E-commerce seems as if it is going to continue to be a huge driver in the Phoenix market as well making the industrial sector very desirable and therefore stable.

Another sector that is highly sought after is multi-family. The pandemic has many of us working remotely. This reinforces our need for safe shelter. Rents have remained stable thanks to the CARES Act combined with our still relatively low cost of living in Arizona.

Housing is in demand and it appears that it will remain so due to the lack of inventory in the Valley. I do think that high-end apartment rentals may suffer as the unemployment rate increases.

Office and retail are where the real pain and suffering begin in the Phoenix area. Now and for the foreseeable future, the office market is showing a decline with less activity than pre-pandemic times. We expect to see further softening in that sector as companies review their need for space. We also expect a boom in remote working options to continue, further weakening the office and retail markets. A lot of big retailers like Macy’s, Stein Mart, Pier One, Lane Bryant, The Gap, Bed Bath & Beyond, have already started to call it quits as well.

Retail will have to change drastically

This will include the retail entertainment sector that has been so popular most recently. We will have to sit back and see how they reinvent themselves.

Regarding the vacant land sector, that investment is more long-term, future-focused and therefore has seen the least slowdown of all the commercial sectors, thus far.

Due to the unique needs of medical professionals to see their clients in person the medical sector has been holding steady.

Trends that were already in the works are going to be accelerated thanks to this pandemic. Phoenix has been a business-friendly, fast-growing city and it continues to be today. Overall, the thoughts are optimistic about the recovery of the economy as well as the long-term health of real estate in the Valley.

Although it is too early at this point to predict how the pandemic will affect the overall market in the long-term, there are challenges and trends that have begun to emerge.

Hold onto your hat!

If you’re interested in further discussing any of the topics I’ve covered or have questions, don’t hesitate to reach out! Email me at h@heatherbinder.com.


About the Author

Heather Binder is an accomplished real estate professional with Tru Realty in her role as the Director of the Commerical Division. She is dedicated to providing her clients with an extraordinary real estate experience. Her expertise in working with clients made Heather a natural for her role as a certified instructor at the Arizona School of Real Estate and Business.

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