WESTERN SNAPSHOT, MAY 2005

Scottsdale, Arizona Office Market

Klinkamer

It’s not surprising then that the Scottsdale Airpark had the highest net absorption of any metro Phoenix submarket in 2004, with 555,219 square feet — accounting for more than a quarter of all absorption in Phoenix for the year. Demand remained high in first quarter 2005, with 134,284 square feet of net absorption in Scottsdale, dropping availability more than 1 percentage point during the quarter to 14.7 percent. The prestige of a Scottsdale address, proximity to Loop 101 and executive housing, and a retail amenity base unrivaled in Phoenix will continue to drive demand in this area.

As the Scottsdale Airpark approaches build-out, development is moving north and east of Loop 101 into North Scottsdale and the Salt River Pima-Maricopa Indian Community. Already under construction is MainSpring Capital Group’s Pima Center, a 209-acre, 3.5 million-square-foot mixed-use development at Via de Ventura and Loop 101. Directly across the freeway, The Alter Group has started work on the 164,000-square-foot Phase I of the office/retail development called Riverwalk Arizona, which has eventual plans for 1.5 million square feet of office space in the 2 million-square-foot project. Also, Opus West is developing at Calendar Stick, with the first phase consisting of three buildings and 176,925 square feet, also at Via de Ventura and Loop 101.

While a number of projects have already broken ground, even more developers have been moving to tie up land in these two areas. Infrastructure improvements are underway at DMB Associates’ 160-acre master-planned development on Scottsdale Road north of Loop 101, nicknamed the Stacked 40s. Scottsdale Road will be widened to six lanes to handle the new high density development, which has plans for 2.8 million square feet of office, 1 million square feet of retail and 1,200 residential units.

Redevelopment around the Scottsdale Airpark is also beginning to take place, and the trend is toward higher densities. Cornwell Corporate Center, a 68,897-square-foot office development at 14822 Scottsdale Road, replaced 39,288 square feet of industrial space built in the 1970s. Additionally, the Dial Company’s 11-acre site on the northeast corner of Scottsdale Road and Butherus Drive, also built in the 1970s, is being considered for redevelopment.

Economically driven tenants are attracted to the new development along Loop 101, where rental rates average about $2 less per square foot than the $24 to $25 per-square-foot rates that existing properties are going for in the Scottsdale Airpark. Significant deals recently signed include Pulte Homes’ 146,000-square-foot lease at Raintree Corporate Center at 15111 N. Pima Freeway in the Airpark and The Capital Group’s 106,000-square-foot lease at The Pinnacle in Kierland at 14636 N. Scottsdale Road. At Opus West’s Calendar Stick, two of the three buildings under construction have been pre-leased to Cold Stone Creamery and Rural/Metro Corporation.

With the improving economy, steady development along Loop 101 and high demand, the Scottsdale office market is poised for growth during the next few years. With the volume of land transactions and groundbreakings that have occurred in the last year, investors and developers tend to agree. What will be critical to the health of the market will be the pace of development. There is a risk that too much product may enter the market too soon, flooding the market with space, depressing rates and increasing availability. Yet with balanced development, the Scottsdale office market should remain healthy into the foreseeable future.

Trevor Klinkhamer is a senior vice president for Trammell Crow Company in Phoenix.

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