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Looming vacancies will leave downtown Phoenix high-rise half-empty

[Source: Jan Buchholz, Phoenix Business Journal] — Freeport-McMoRan Copper & Gold Inc.’s decision to vacate one of downtown Phoenix’s high-rises in the middle of an economic recession will leave a prominent building with a significant hole to fill.  As city and downtown officials herald the deal to combine the mining giant’s corporate headquarters with a Westin hotel in the new One Central Park East building, the potential loser is Mitsubishi Estate New York Inc., which purchased One North Central in March 2008 for $127 million.

With Freeport-McMoRan vacating 185,000 square feet and another major tenant, Ryan Cos., vacating about 20,000 square feet, Mi­tsu­bishi will be faced with 50 percent vacancy — and the challenge of filling the space in a very difficult real estate market.  Ryan, which developed One North Central in part as a build-to-suit for Phelps Dodge Corp. in 2000, is moving into a new building it will finish soon at 3900 E. Camelback Road.  Phelps Dodge merged with Freeport in 2007, creating a much larger mining company.

Colliers International in Phoenix is the leasing agent and representative for the 410,000-square-foot One North Central, but could not get permission from Mitsubishi to discuss that company’s plans to fill the space.  According to research firm CoStar, the building currently is 97 percent leased — but that will drop to 50 percent within six to seven months, when Freeport and Ryan vacate.  “I don’t think the folks who bought One North Central knew what they were getting into.  No question, One North Central will face difficulties,” said Tyler Wilson, senior associate with Grubb & Ellis/BRE Commercial LLC in Phoenix.

Andrew Cheney, a Phoenix broker with Lee & Associates, is more optimistic. “Mitsubishi will feel pain in the short term, but has the staying power to re-lease it at recessionary lease rates,” he said. [Note: To read the full article, visit Looming vacancies will leave downtown Phoenix high-rise half-empty.]

Despite mayor’s optimism, downtown Phoenix feels real estate, consumer stress

[Source: Mike Sunnucks, Phoenix Business Journal] — Phoenix Mayor Phil Gordon extolled the economic resilience of downtown Phoenix [last] week during this annual “State of Downtown” speech.  Gordon said Arizona State University’s expansion of its downtown campus, construction of the mixed-use CityScape project, and the light rail system are helping the area. He also said while sales tax revenue is down citywide, it is up 13 percent in downtown Phoenix.  “Yes, it’s been a tough year economically for everyone.  You’ve heard all about it, read all about and felt it,” Gordon said.  “But in spite of it all, we’ve still got a lot going on in downtown Phoenix.”

Notwithstanding the mayor’s optimism, downtown Phoenix faces some economic problems.  High-rise condominium developers face questionable financial futures because of troubles with pricing and occupancy.  The Hotel Monroe redevelopment at Central Avenue and Monroe Street remains stalled, and the boarded-up building has become a haven for pigeons.  The total amount of vacant space in downtown Phoenix stands at 1.05 million square feet — up from 630,400 square feet in the first quarter of 2007, according to Colliers International.  The downtown vacancy rate is 13.8 percent, compared with 8.5 percent in first-quarter 2007, according to Colliers.

Downtown also is feeling the effects of pulled-back consumer spending.  A number of downtown businesses have closed because of the recession, including Weiss Guys Car Wash at Grand Avenue and Van Buren Street and the China Inn restaurant at the Colliers Center.

The two downtown pro sports teams also face economic challenges.  The Arizona Diamondbacks had a poor season on the field and drew about 381,000 fewer fans than in 2008, according to ESPN.  The Phoenix Suns have gotten off to strong start on the court — but, like other sports teams, they face hurdles in attracting and keeping fans during the consumer doldrums.  [Note: Read the full article at Despite mayor’s optimism, downtown Phoenix feels real estate, consumer stress.]

Office vacancy rates in metro Phoenix hit record

CPENight

Rendering of One Central Park East, downtown Phoenix

[Source: J. Craig Anderson, Arizona Republic] — At no time in the Phoenix area’s history has so much office space sat empty.  Nearly 1 out of every 4 square feet of Valley office space was vacant in the third quarter ending Sept. 30, commercial-real-estate experts said.  That’s about 28 million square feet of empty space, according to Phoenix commercial-realty brokerage Colliers International, one of several Valley firms tracking the progress of sales and the leasing of office, industrial and retail buildings.

By almost anyone’s measure, the local market for commercial real estate is as bad as it ever has been.  But even the most pessimistic analysts and brokers agree that the real-estate crash positions Phoenix as an attractive relocation area for companies in more expensive states, such as California.  “Actually, the leasing agents are optimistic,” said Broker Mindy Korth of Phoenix-based CB Richard Ellis.  Still, Korth said only one thing can rescue the Valley’s real-estate market and economy: jobs.

Although their numbers vary slightly, all the local brokerages pegged the Valley’s overall office-vacancy rate at 20 to 25 percent.  Jim Achen of the Phoenix commercial-real-estate brokerage TransWestern said it’s likely the problem will get worse before it gets better.  “Unfortunately, I think our vacancy is going to inch up a little further,” Achen said.

Within the next few months, about 2 million more square feet of office space will open, and less than 20 percent of it has been reported as spoken for by a future tenant.  One of the soon-to-open buildings, the 400,000-square-foot One Central Park East office tower in downtown Phoenix, has yet to announce a lease agreement despite plans to open by the end of the year.  Korth said One Central Park is a desirable location that ultimately will find its audience.  But she agreed with other experts that the high prices paid by companies such as One Central Park developer Mesirow Financial Real Estate Inc. could make it difficult to pay the bills, based on today’s lower lease rates.  [Note: Read the full article at Office vacancy rates in metro Phoenix hit record.]

Downtown Phoenix parking costs soar, but can light rail compete?

[Source: Sean Holstege, Arizona Republic] — The price of parking in downtown Phoenix grew faster than in any major U.S. city, according to a recent industry report.  The median cost of an unreserved monthly parking space was $65, up from $35 two years ago, reports real estate consulting firm Colliers International.  Phoenix rates are still low, on par with Fresno, California and Columbia, South Carolina.

Charles Miscio, senior vice president of Colliers in Phoenix, tells the Business Journal that the Metro light rail and newly expanded Phoenix Convention Center have helped drive up parking rates – 24 percent in monthly rates and 12 percent in daily rates.  He says the trend will continue.  “With the light rail’s capability of moving more people in and out of downtown, we are beginning to see entertainment venues and businesses shift from the Camelback Corridor and other metro areas to downtown Phoenix to take advantage of light rail traffic,” Miscio said.  “This shift is also driving more auto traffic into downtown, increasing parking garage usage and rates during both the daytime and evening.”

Three years ago I wrote a piece explaining how low parking rates can undermine light rail.  Metro is trying to attract riders who chose to take the train over driving their personal car.  By the economic laws of supply and demand, cheap and plentiful parking those riders can get to work cheaper in their cars.  Metro can’t compete.

A downtown office worker who drives a car that gets 20 mpg now pays $70 a month to commute one mile, not counting upkeep or insurance.  That’s significantly more than Metro’s Platinum Pass at $55 a month.  Had Metro been in service two years ago, that same commuter would have paid $40 a month to drive – less than the $45 cost of a monthly pass.

Now the tables seem turned, with rail being the cheaper, but necessarily more convenient option.  It’s a little more complicated because many downtown employers offer deep discounts on parking and transit.  And cost isn’t the only factor in deciding how to commute.  But it will be interesting to see how the competition plays out.  Will parking garages charge less to capture some of the rail riders or will more people turn to the trains?  [Note: Read the full blog entry at Downtown Phoenix parking costs soar, but can light rail compete?]

Metro Phoenix construction booms as vacancies rise

[Source: Phoenix Business Journal] — Nearly 2.8 million square feet of new office space is under construction in the Phoenix metro area even though absorption rates ran into the negative category during the first quarter of 2009, according to a report released Monday by Colliers International.  Absorption, the net new amount of leased space compared to the previous period, was a negative 497,720 square feet, Colliers reported.  That means given all of the office space available in the Phoenix area, nearly 500,000 square feet of vacant space came back into the inventory during the first three months of the year.  That negative absorption likely will continue as major office projects come on the market in the next 12 to 18 months, the firm said.

Two of the largest projects under construction are in downtown, which will see more than 1 million square feet of new office space: Central Park East and the Wachovia Tower (part of the CityScape project).

Phoenix-area office vacancies are lowest in downtown’s central business district at 14.6 percent.  Rates are the highest in the northeast Valley at 23.1 percent.  Overall vacancy rates rose to 19.9 percent, compared to 19.1 percent at year end.  Rents are dropping in response to increased supply with the average at $24.72 per square foot annually compared to $25.54 in the fourth quarter.  [Note: To read the full article, click here.]