July 30, 2017

Just the Facts – Trbo’s 2017 Mid-Year Market Report

Craig Trbovich Commercial Real Estate –

Phoenix commercial real estate continues to expand in 2017.  Lease rates are up and vacancies are down across the board as the market benefits from seven straight years of economic growth.

Nationally, all the fighting in Washington and in social media is taking up too much of our elected officials’ time and energy.  It’s hard to envision much getting accomplished in the current environment, which is sad.  I hope they can turn their attention to what is most important soon – The People!  Enough said, I’ll take a lesson from Joe Friday for this report with “Just the Facts”.


And here they are –


US Unemployment Rate – 4.4% in June, down from 4.9% a year ago and up slightly over May’s 4.3% as more people entered the workforce.  May’s rate was the lowest rate since June 2001!  Wage growth, although showing improvement over the past 24 months, was only 1% over inflation over the past 12 months.

Gross Domestic Product – Real GDP grew 2.6% in the second quarter after a sluggish 1.4% in the first quarter this year.  Year to date, the economy grew 1.9%.  By comparison, GDP over the past five years averaged about 2.1%.                                                            

Consumer Price Index – Year to date, CPI has increased 2.2% over the previous year.  The annual increase in the CPI has averaged less than 2% since the recession, but 2017 could be first year to go above that number.

Interest Rates – Rates have increased three quarters in a row, but with inflation remaining at around 2% and an unimpressive GDP, the Fed may hold off in coming quarters.  It will be important to pay attention to the Fed’s plans to reduce its balance sheet as those assets (treasuries and mortgage-back securities) mature.

Tax Reform – Tax reform is a Republican priority for 2017 and is sure to surface soon.

Retail Sales – Retail sales for the first half of the year were up 4.5% over the previous year.  The average increase over the past five years has been 3.4%.

Housing Starts – Housing starts were up 7.4% in the first quarter, in line with housing starts over the past three years.

National Debt – Since 2008, our national debt has grown from 64% of GDP to 104% of GDP; an increase from $9 trillion to $20 trillion. As a comparison, from 1966-1986, US Debt averaged 35% of GDP, and from 1986 to 2008, the average was 58%. As interest rates increase, the impact on the federal budget will attract more and more attention.  For example, a 1% increase in interest on $20 trillion in debt is a $200 billion a year increase in interest payments for Uncle Sam (and us).


2017 Phoenix Market

Arizona’s economy in its 7th straight year of growth with employment and GDP at all-time highs.  Housing permits continue to increase and unemployment remains low at 5.1%.  In sync with the US economy, State GDP has remained positive, though not stellar, averaging about 3.85 growth over the past three years.


Phoenix Office

Phoenix office continues to have good fundamentals.  Vacancy continued lower in the first half of the year as lease rates rose post recession highs. And net absorption remained positive as new product is introduced.  On a national level, office vacancies are at 9.6% compared to 14.6% in Phoenix, significantly lower than the Phoenix Market.  However, Phoenix submarkets such as Tempe, Mesa, and Scottsdale are much closer to the national average.  Phoenix average lease rates of $23.82 compare well to the national average of $24.40.



Vacancy and Rental Rates                                             Absorption and Deliveries


Sales Volume                                                              Average Price Per SF



Phoenix Industrial Warehouse

The industrial warehouse market has held on to steady growth over the past five years and that trend continues. Local vacancies of 8.7% are higher than the 5.0% on a national level and lease rates on a local level are equal to the national average $5.94. And note the whopping Net Absorption for the first six months of 2017 below!



Vacancy and Rental Rates                                             Absorption and Deliveries


Sales Volume                                                              Average Price Per SF



Phoenix Retail

Retail is a segregated market including shopping centers, malls, power centers, specialty centers and general retail. Combined, vacancy rates have remained below 10% in recent years and lease rates have steadily increased.  Nationally, vacancies were at 4.9% and the average lease rate was $16.83.



Vacancy and Rental Rates                                             Absorption and Deliveries


Sales Volume                                                              Average Price Per SF

(Source: CoStar Group, Inc.)


In the past five years, we have completed over 6,000 transactions at CPI.  That is an average of over 120 transactions per month!  Valley-wide, no other commercial real estate firm negotiates, prepares, and completes more transactions than CPI.  And I am a member of our exclusive CPI Investment Specialist Team.  For a no obligation analysis of your property, please call me at (480) 522-2799 to “TrboCharge” your investment real estate today.








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