Class A office space comes at a premium in the Phoenix metro.
In many office deals since the Covid-19 pandemic started nearly three years ago, companies are feeling the pressure to deliver a top-notch office experience — and they keep this in mind when looking at leasing new space to lure reluctant workers back to the office after the pandemic caused many to work from home.
Brokers and companies say employee wants have to be top of mind to recruit, retain and get the best out of their workforce in this post-Covid world. And despite rising rents, the costs of labor turnover often outweigh the price of companies' real estate, allowing firms some leeway to lease quality spaces in prime Valley submarkets.
Office developers task architects and interior designers to deliver that premium experience where tenants are willing to pay top dollar. Those dollars pay for amenities such as rooftop decks, meditation and wellness rooms, open ceilings, Peloton bikes, coffee bars, indoor waterfalls and more for tenants to show off to employees and clients at the office. The silver bullet, must-have amenity that will bring workers back full time is still unknown, but designers are brainstorming the possibilities.
Class A properties commanded asking rents of $34.82 per square foot across all submarkets in the Valley during the third quarter of 2022, according to a market report from Cushman & Wakefield. That is up nearly 13% from Q3 2021 when $30.86 was the going rate per square foot. Real estate experts such as Kidder Matthews' Tyler Smith have previously told the Business Journal that escalating rents are a byproduct of high-tenant improvement construction costs.
The Business Journal spoke to several leading architects and developers in the Valley to discuss how they determine a company's office needs in 2022 and the biggest trends they are seeing right now.
Understanding tenant motivations
For architecture firm Nelsen Partners, there was an expectation that The Grove in Phoenix was going to be that kind of special project. The firm was working on another prominent project — Sam Fox's Global Ambassador Hotel in Phoenix's Arcadia neighborhood — when developers got the approval for The Grove. Already working on a luxury hotel, Nelsen brought that hospitality feel to three class A office buildings on-site, starting with a rooftop amenity deck.
The Grove fully leased its 180,000 square feet of office space ahead of brokerage firm JLL moving into the building in October. Other tenants such as Sendoso, Clayco, Clear Sky Capital, Common Bond Development Group, JPMorgan Chase and Banner Health are also set to join The Grove.