Despite its name, Phoenix’s new highway, Loop 101, has contributed to one-way traffic — in the office sector, that is. Aided by the increased freeway access, office developers and tenants in the Valley of the Sun continue to focus on the suburb of Scottsdale and the northeast sector of metropolitan Phoenix. According to Blaine Black, senior vice president at Trammell Crow Company in Phoenix, there were 605,000 square feet of office space under construction in the entire Phoenix metro area at the end of 2003. The northeast market contributed 573,000 square feet to that total.

“The completed Loop 101, strong amenities, including several high-end retail centers and world-class resorts, the proximity to executive housing, and the prestige of a Scottsdale address, all continue to drive office demand in the northeast market,” says Black.

The numbers confirm the office exodus from downtown Phoenix to north Scottsdale. Fourth quarter 2003 office vacancy rates in the northern part of downtown Phoenix and in the Camelback Corridor were 26.5 and 24.1 percent, respectively, while north Scottsdale posted a 12.3 percent figure. The metro Phoenix average vacancy was 20 percent. North Scottsdale and Scottsdale Airpark registered the highest average rental rates — $22.99 and $25.21 per square foot, respectively — in the third quarter among the metropolitan Phoenix submarkets. Lease rates in north downtown Phoenix averaged $17.07 per square foot.

Given the dwindling amount of land left for development in Scottsdale to the west and south of Loop 101, Black forecasts that most office growth will occur to the north and in the “Indian Corridor,” the portion of the loop located on the Salt River Pima-Maricopa Indian Community. Nine developments, totaling more than 650 acres, are proposed for a 4-mile stretch of the Native American land surrounding Loop 101. Included in that mix is The Alter Group’s 187-acre business park, which will break ground in the first quarter of this year. Upon completion, the property will offer roughly 1.5 million square feet of office space. Across Loop 101 to the northwest of the Alter site is a 240-acre parcel, set aside for office, flex, retail and hotel uses.

The majority of office development will continue to take place in suburban markets near freeways, especially the Loop 101 bend to the northeast of Phoenix. “It will be interesting to see how everything plays out in north Scottsdale in the next few years, with so many developments being announced recently,” says Black. “Will they all get built? Will they cannibalize each other, or will growth keep up with the new supply?”

The East Valley’s Superstition Corridor should remain strong with low vacancy and no current office development. Black expects the latter to change as the economy improves this year. In the long term, look for office growth along the western part of Loop 101.

“The recent grand opening of the hockey venue, Glendale Arena, should mark the birth of a new office center in the West Valley,” says Black. “Several million square feet of office development should occur there in the next 5 years, boosted by the new arena and future football stadium, executive housing to the north, and new residential developments like Verrado to the west.”

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