Phoenix’s Skyline and the Flight to Quality

JLL has made a habit out of releasing yearly skyline reports and each year they offered details on how the nation’s skyscrapers were doing in terms such as vacancy, asking rates and net absorption. However, in 2015, the firm has outdone itself by not only releasing the report digitally, but also releasing it in an eye-catching format.

Each year, JLL’s “Skyline” reports offer a snapshot of how the nation’s taller office buildings are faring. Phoenix landed 22 properties on the 2015 list, ranging in size from the 12-story Central Park Square to the 38-story Chase Tower.

To qualify for JLL’s yearly report, an office building must meet one or more of the following criteria: floor space greater than 190,000 square feet; completion or significant renovation since 1973; a downtown or midtown location; and a recognized tenant profile or architectural significance. JLL evaluates the properties in terms of vacancy, asking rates and net absorption.

Downtown Phoenix Skyline

Downtown Phoenix Skyline

“The flight to quality in earlier recovery years, coupled with an improving economy today, have led to significant supply constraints in the country’s highest-quality office buildings, and the rent gap has widened significantly,” said Julia Georgules, a vice president in JLL’s research unit, in a statement.

Yet JLL’s report also notes that not all skylines are equal in value, and that the flight to quality is more problematic in some markets than in others. In that sense, Phoenix is no exception.

According to the report, nationwide office vacancy for trophy properties is 10 percent, significantly tighter than the 15.1 percent vacancy for their non-trophy counterparts. In Phoenix, not only is the vacancy gap significantly smaller, but vacancy for trophy towers is higher. Coupled with the growing tendency among many tenants to favor unconventional spaces rather than trophy properties, it remains to be seen how Phoenix’s skyline will perform during the next few years.

“Tech users and other creative firms want unique space–they’re mostly indifferent to building quality as long as they are able to design attractive, creative environments for their employees,” commented JJ Shephard, a Managing Director with JLL’s agency leasing team in Seattle. “They have shown a preference in recent years for leasing lower-cost space in well-located historic buildings or converted warehouses because they can spend more on their space’s interior and less on rent. It allows them to create their own identity.”

Considering that Phoenix’s office market is on the rise, the question is not whether vacancies and asking rates will improve, but by how much. As of the second quarter, nine out the 22 towers identified by JLL have more than 100,000 square feet of vacant space.

Click here for more in-depth analysis of the nation’s skylines.

Image Courtesy of DPPed