Apr 10, 2023 - News

Older Phoenix offices sit empty while new ones are in high demand

Illustration of office chair on a “welcome” home mat

Illustration: Eniola Odetunde/Axios

The pandemic's work-from-home push has permanently upended metro Phoenix's office market.

What's happening: Many people continue to work remotely and those who've returned to in-person work are demanding more from their office spaces.

  • That has created a divide in the market, with older offices struggling to find tenants while new facilities with high-end amenities leasing up before they're even completed, CBRE executive vice president Bryan Taute tells Axios Phoenix.

By the numbers: Phoenix finished 2022 with an office vacancy rate around 24%, according to CBRE, a commercial real estate firm. That's the highest it's been since 2014.

Meanwhile, a swanky new mixed-use project dubbed The Grove, at 44th Street and Camelback Road, leased all of its office space before it opened early this year, according to brokerage firm JLL.

  • It's packed with conveniences like on-site dining, and it boasts views of Camelback Mountain.

The intrigue: Taute says there is growing demand for offices with private spaces, larger work areas and easy parking, norms people got used to while working from home.

  • But the biggest ask: Employees want a coffee shop, lunch options and a place for after-work drinks within walking distance, he says.

What they're saying: "[The pandemic] shined a light on the fact that a lot of the office environments across the city and really across the country were not really somewhere where people were really excited to go to work," Taute says.

  • If employers want their workers to come back to the office, they'll have to give them a better experience, he adds.

Context: Almost 30% of Americans worked from home last year, according to a new survey from the Bureau of Labor Statistics.

  • That's down from 40% in 2021 but still well above the pre-pandemic rate of about 5%, according to Nicholas Bloom, a Stanford economics professor who's been tracking the trend for years.

What's next: It's not yet clear what will become of the older, underutilized office spaces sprinkled around the Valley, Taute tells us.

  • A lot of the suburban stock will likely be bulldozed and redeveloped into apartments, he said, which is much needed given the state's stark housing shortage.
  • As for the urban office spaces: They could be converted into apartments or hotels, but that's an expensive undertaking especially with high interest rates and inflated construction costs, he said. So they may be sitting empty for a while.

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