Employees are not going back to the office like economists predicted. This lack of office demand has forced landlords to lower rates or let their buildings sit vacant.
In an effort to lease our vacant offices, we have reduced lease rates substantially to compete with other office landlords. We have noticed over the past year and a half, the office vacancy has increased drastically and now office tenants' priority is more price related rather than location or amenity related. The labor shortage has provided employees with more leverage than ever. Employees can choose where they want to work as employers face labor shortages. The work from home model does not seem to be going way any time soon.
Lately, the office leases that we have completed are leasing for less PSF compared to the warehousing rates. It seems that the office demand that does exist is either medical or from companies migrating to the region from other states.
In addition to lowering office lease rates, there are rumors of developers purchasing office buildings and converting them to multi-family housing. Phoenix is now in the works to re-zone shopping centers for multi-family as the housing shortage continues while migration from California continues to grow day by day.
Meanwhile, industrial rates continue to rise quickly as the vacancy rate is below 5% and demand is not slowing. Inflation continues to rise as materials pricing rises and incomes rise. Employers are struggling to par the market pay as salaries and minimum wage increases.
There are rumors of former copper mines re-opening as copper prices remain north of $4.00. Steel, concrete and fuel prices continue to rise quicker than the consumer price index.
Overall, the future of the Arizona economy seems much stronger compared to other states as migration, copper and lithium mining, and out of state company relocations rise.
Max Fisher, Industrial Properties Broker