February 2024 – Knowing the Numbers in Commercial Real Estate

Office Market

Even though over four years have passed since the start of the COVID pandemic, changes indemand caused by it still generate uncertainty in the Phoenix office market. Users are carefullyevaluating the effectiveness and size of their current office spaces in light of evolving workplacestrategies. Some tenants are choosing to reduce and centralize their space while others arerefraining from leasing larger areas, anticipating future staff expansions. The persistent decreasein demand has resulted in a more than 50% rise in vacant office space since the fourth quarter of2019, with 2023 witnessing a faster pace of moving out compared to the previous two years.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	196M	15.9%	$29.69	-199K	990K
4 & 5 STAR	70M	24.8%	$35.02	-178K	803K
3 STAR	87M	13.0%	$28.27	114K	187K
1 & 2 STAR	40M	6.8%	$23.39	-135K	0

INDUSTRIAL MARKET

The Phoenix industrial market is in flux as an abundance of supply overwhelmstenant demand. In the latter half of 2023, builders delivered over 23 million SF,exceeding the total completed from 2017 to 2019. This surge, much speculative,spiked vacancy from around 4% in 23Q2 to 8.5% today.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	450M	8.5%	$13.30	-573K	44M
LOGISTICS	323M	10%	$12.86	-8K	39M
SPECIALIZED	93M	3.5%	$13.10	-76K	5M
FLEX	34M	8.9%	$18.44	-489K	659K

MULTI-FAMILY MARKET

Although renter demand saw a resurgence in 2023, Phoenix faced an aggressive delivery schedule thatoutpaced robust leasing activity, resulting in weakening market conditions for consecutive years. Vacancyhas steadily risen over the last eight quarters, reaching its highest level in over a decade at 10.9% inearly 2024. Faced with heightened competition, local operators have shifted their focus to maintainingoccupancy, leading to negative rent growth at -2.0% and increased concession usage. This ongoingimbalance between supply and demand is anticipated to persist in the upcoming quarters as the fullimpact of the construction pipeline is realized.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION UNITS	UNDER CONSTRUCT UNITS
TOTAL:	382K	10.9%	$1.557	891	35K
4 & 5 STAR	180K	11.6%	$1,786	614	24K
3 STAR	143K	10.8%	$1,399	294	11K
1 & 2 STAR	60K	8.5%	$1,146	-17	0

RETAIL MARKET

In early 2024, the Phoenix retail market is firing on all cylinders, boasting multi-decadebests in vacancy rates, space availability, and rent growth. Strong demographic trends,steady consumption growth, and the burgeoning local economy provide a solid foundationfor robust retail demand. Furthermore, the relatively low amount of new construction andminimal store closures add to the tight market conditions. These factors are anticipated topersist in the near term, positioning Phoenix for another year of exceptional performance.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	242M	4.5%	$24.85	159K	2.6M
POWER CENTER	32M	3.8%	$27.49	13K	51K
NEIGHBORHOOD CENTER	92M	5.6%	$24.24	15K	181K
GENERAL RETAIL	85M	2.8%	$23.91	-122K	2.1M

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