As a commercial property owner in the Phoenix area, you have seen the market evolve rapidly. One issue consistently stands out as the biggest challenge in commercial property sales: high vacancy rates, particularly in the office sector. This problem, driven by post-COVID shifts in work patterns, creates significant hurdles for both sellers and buyers, impacting property values and transaction dynamics across Greater Phoenix, including Scottsdale and surrounding areas like Tempe and Mesa.
Phoenix’s office market is grappling with a vacancy rate of around 27.2%, one of the highest in recent years, according to Cushman & Wakefield. The shift to hybrid and remote work has led to a “flight to quality,” where tenants prioritize Class A properties in prime submarkets like Scottsdale, Tempe, and Camelback, leaving older or less desirable buildings with high vacancy. This creates a “shadow space dilemma”—unused space leased but unoccupied—further depressing demand. For sellers, this means properties with high vacancies, especially Class B or C offices, are harder to sell or fetch lower prices, often 20% below market rates for distressed assets. Buyers, meanwhile, face risks of purchasing under performing properties with limited rental income potential, requiring significant reinvestment for upgrades or repositioning.
This issue ripples across the transaction process. Sellers struggle to attract buyers without offering concessions like free rent or lower rates, while buyers hesitate due to uncertain returns in a high-interest-rate environment. 73% of office loans maturing soon are difficult to refinance. Industrial and retail sectors fare better, with low vacancy rates (sub-5% for retail), but the office market’s challenges dominate sales concerns due to its size and visibility.
Addressing this requires strategic restructuring, such as lease renegotiations or property repurposing, to stabilize income and appeal to investors.
For sellers and buyers in Phoenix, navigating this high-vacancy landscape demands expert guidance. Partnering with firms like Scottsdale Desert Inspections for thorough pre-sale inspections, including mold and structural assessments, can mitigate risks and enhance transparency, making properties more attractive despite market challenges. Contact us for more details.
