Office Landlords in Phoenix Area Feel the Pain

July 23 2008 - Soaring home-foreclosure rates, abandoned suburban development tracts and slumping home prices have made Phoenix a symbol of the nation’s housing crisis. Now, the Valley of the Sun also can claim a commercial real-estate market that is one of the most badly burned by the residential flameout.

This year, the Phoenix metropolitan area’s average annual office rents are expected to fall 5.6% from 2007 while retail rents will drop 6%, the steepest percentage declines of the 54 markets surveyed by Property & Portfolio Research Inc., a Boston-based real-estate research firm. The warehouse and apartment sectors are expected to log the second-worst rent declines. All sectors will have to absorb a slew of newly completed buildings before the supply begins to taper off significantly next year.

Much of the commercial real-estate woes can be traced to the fallout in the housing market as its effects wend their way through the area’s economy. “You can look at Phoenix as the epicenter of the housing implosion,” says Mark Hickey, a real-estate economist at Property & Portfolio Research. “It’s going to live and die by population growth and construction.”

COMMERCIAL REAL ESTATE: Office Landlords in Phoenix Area Feel the Pain
by MAURA WEBBER SADOVI | Wall Street Journal