Southwest Human Development has signed a 17,797-square-foot sublease for the entire third floor of a Class A office building in Phoenix. The tenant, the largest nonprofit child development organization in Phoenix, will also keep its offices at 2850 N. 24th St., some 5 miles from the new address.
CBRE arranged the lease on behalf of Base Commerce. Following the company’s acquisition by Nuvei at the end of 2020, the tenant was looking forward to exiting its lease, Kavin Calihan, executive vice president at CBRE, said in prepared remarks.
Southwest Human Development’s space is move-in ready after undergoing tenant improvements in 2019. The organization will share the building with Archicon Architecture & Interiors and Touchstone Rehab, a physical rehabilitation center.
According to CommercialEdge data, Cityscape Development Corp. owns the 51,810-square-foot building at 5055 E. Washington St. The 2008-built property occupies 2.3 acres within Harbor View Business Park, some 3 miles from Tempe and roughly 6 miles from downtown Phoenix.
The three-story building features floorplates averaging 18,000 square feet. The property has a parking ratio of 5 spaces per 1,000 square feet.
The sublease market, a hot-button issue in Phoenix
The nationwide rise in office vacancy due to work-from-home policies and last year’s economic downturn lead to available sublease spaces more than doubling in major metros in 2020.
Sublease market is a hot-button issue in Greater Phoenix as well, as availability in the metro increased to nearly 4.5 million square feet in the second quarter of 2021, reaching 85.5 percent year-over-year in June, as shown by a recent Colliers report.
According to the Phoenix Business Journal, tech-specialized submarkets such as Tempe, Sky Harbor Tempe and Scottsdale account for 52 percent of the sublease inventory in the market.
Office vacancy in Phoenix increased to 18 percent in June, well above the 15.6 percent national average, CommercialEdge data shows. The uptick over the previous month is attributed in part to tenants continuing to adjust their office needs, as well as completions picking up pace, according to a second-quarter Lee & Associates office market overview.
Silver linings on the horizon
Despite negative absorption (107,902 square feet) in the second quarter of 2021, the figure marks a significant improvement compared to the 550,501 square feet of negative net absorption in the first three months of the year, according to the same report from Lee & Associates.
In June, Phoenix had 1.7 million square feet of office space in the pipeline, according to CommercialEdge data. Along with planned projects, the metro’s development pipeline equals 5.9 percent of total inventory, in line with the national rate.
As hybrid work models are being implemented and workers return to offices, sublease availability is expected to abate, allowing rent rates to increase. Class A office rents were the only ones to decline over the second quarter, according to the same Colliers report.