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News release

PHOENIX, AZ

Phoenix Skyline Bounces Back, with Even More Room to Improve

JLL’s 2016 Skyline reveals the steady and changing forces of trophy assets


​PHOENIX, June 30, 2016 – The office buildings that make up the Phoenix Skyline have entered new territory in 2016, with rents and tenant demand achieving impressive gains over the last 12-24 months. And while JLL’s 2016 Skyline shows that rent growth across much of the nation may be peaking and moderating, Phoenix’s Skyline and trophy assets (those ultra-premium office towers within the Skyline) still look to have some significant runway ahead. 

  • Phoenix’s Skyline will continue to tighten as its Downtown live-work-play environment evolves, but at present still lags behind comparable suburban high-rise assets.
  • Skyline and trophy rents continue to rise, making areas like Midtown an increasingly attractive alternative.
  • High barriers to entry for Skyline properties persist, with Phoenix owners confident about rent and value growth.
  • Landlords need to retain the gold standard of their Skyline assets, mindful they don’t tarnish with complacency. 

“The Phoenix Skyline is back, and is delivering dynamic environments for tenants and profitable returns for investors,” said JLL Managing Director John Bonnell. “While we’re nowhere near the extremes of markets like Oakland and Austin – where Skyline rents are up by more than 68 and 43 percent, respectively, since 2010 –we can celebrate tremendously healthy fundamentals that are encouraging Skyline building renovations and attracting new companies across the tenant spectrum.”

Gone today, here tomorrow

Many U.S. markets are expecting to enter a new era of availability with the delivery of 34.4 million square feet of Skyline buildings and 62.4 million square feet of non-Skyline developments nationwide. This will inevitably begin to shift the balance from landlord-favorable conditions and ease the leasing environment for tenants.

Phoenix’s Skyline still has plenty of available space and has maintained its neutrality even as more space is leased, causing it to lag behind the few comparable high-rise buildings in suburban markets with a 20.8 percent vacancy rate. As the CBD continues to evolve as a hip live-work-play destination, new companies are expected to add to the Skyline’s demand.

More, more, more

The country’s fastest growing office markets are nearing a peak and tenants are feeling the pressure. In the short term, premium pricing for coveted Skyline buildings will be exacerbated as new trophy buildings are delivered, forcing some tenants to look to lower cost options or different markets altogether.

Skyline rates in Downtown Phoenix are well above the market average of $23.75 as the submarket gains traction with tech companies. For tenants looking for lower rates, Midtown buildings in our Skyline offer an affordable alternative to trophy space, while still delivering ample amenities and accessibility via public transit. Tenants looking for the most coveted trophy spaces will continue to feel pressure of dwindling large available blocks of space and premium pricing, with trophy rates averaging $28.29 per square foot.

Ready, steady, go

Though the economy is on steady ground and expected to remain stable over the next 18-24 months, it’s the broader global economy that continues to weigh on the minds of investors. Combined with the concern over the trajectory of the technology industry in real estate expansion; investors have reason to give pause.

Investors in the Phoenix market, however, have benefitted from tech demand, which has grown more slowly – but also more consistently – than other comparable markets. In that process, Downtown Phoenix has emerged as a viable alternative to Phoenix’s “traditional” tech markets in Tempe and Scottsdale, encouraging investors to act and improve upon their current Skyline assets.

On the road

High barriers to entry in primary markets, resulting from cost and competition, may make Skyline assets harder to acquire. A combination of peak pricing and scarce investment opportunities could encourage migration, leading investors to hot secondary markets where rent growth is still achievable and tenant demand persists.

In Phoenix, there there are currently several investment opportunities within the Skyline, as the downtown area continues to reinvent itself. With an increase in multifamily, retail and cultural growth surrounding the Skyline, investors are confident that these buildings will achieve rent growth as demand continues to grow.

What have you done for me lately?

Despite the rise in popularity of older creative buildings and fringe markets, Skyline assets still have lasting power. Owners must keep pace with the changing times to remain competitive, particularly in Skyline buildings with below-average occupancy. By investing in common areas, building systems and office space, owners can turn lackluster buildings into a substantial payoff.

Skyline properties are also feeling pressure from newly renovated warehouse space and historic buildings emerging in Downtown Phoenix, and these newly competitive properties have encouraged owners to invest in their Skyline assets. Owners are also well aware of the emerging tech demand, and have improved retail, common areas and collaborative spaces to attract new-to-market companies.

About the Skyline Review

Investors and tenants alike can access JLL’s Skyline via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 52 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios. In addition, the site will offer videos and infographics. All information will also be available via mobile access. 

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. 

In Phoenix, JLL is a market leader employing more than 540 of the region’s most recognized industry experts offering office, industrial and retail brokerage, tenant representation, facility and investment management, capital markets, multifamily investments and development services. In 2015, the Phoenix team completed 17.2 million square feet in lease and sale transactions valued at $930 million, directed $125 million in project management and currently manages a 16.4 million-square-foot portfolio. For more news, videos and research resources on Jones Lang LaSalle, please visit www.jll.com or www.jll.com/phoenix.