Downtown Tempe office space nearly full, more needed - East Valley Tribune: Business

Downtown Tempe office space nearly full, more needed

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Posted: Wednesday, March 14, 2012 8:15 am | Updated: 10:36 am, Wed Mar 14, 2012.

Downtown Tempe is rapidly climbing out of the depths of the commercial real estate crash, with so much demand for office space that at least one new office project is pending.

And the Mill Avenue scene has also rebounded with 48 new businesses, following a period when one-third of retail space was vacant.

The city is encouraging new office towers as vacancy rates at some prime buildings have fallen to 6 percent. Many remaining spaces are small, making it difficult to attract employers with a large employment base.

“The commercial towers that were constructed in the last development cycle are now nearly full,” Mayor Hugh Hallman said. “To continue to prosper as a city, we need to have office space available for the companies that want to make Tempe their home.”

Citywide, Tempe’s office vacancy rate is 16 percent. That compares with 16.6 percent in Chandler, also one of the Valley’s hottest office markets. The Valley’s vacancy rate is 20.6 percent, according to Costar Real Estate.

Along Tempe Town Lake, Hayden Ferry Lakeside’s two towers are 96 percent occupied. One tower was just 51 percent full when Parkway Properties Inc. bought the buildings seven months ago.

The interest in the area exceeded expectations, said Matt Mooney, a Parkway vice president.

Tempe’s office market is booming because of the lake, Mill Avenue attractions, airport access and the proximity to potential employees coming out of Arizona State University, Mooney said. It also helps to have high-profile firms downtown, including Microsoft, KPMG, Limelight Networks, Smith Barney and the announcement of Silicon Valley Bank.

“I don’t see any reason for it to stop,” Mooney said. “It seems there’s considerable momentum there that seems very sustained.”

Hayden Ferry Lakeside includes substantial undeveloped lots slated for office, hotel and condo projects. The raw land is owned by Sunbelt Holdings.

Tempe officials said that property will be the site of a development announcement on March 20, though no other details were released.

Only two of three office towers at Hayden Ferry were built before the commercial real estate crash caused the project’s former owner to delay the last phase. A 10-story building had been approved at the northeast corner of Mill Avenue and Rio Salado Parkway.

Several of the more visible downtown projects have improved vacancy rates:

• Tempe Gateway is 40 percent leased, with leads on much of the remaining space. The building sat vacant a year after its builder failed, but leasing began in mid-2010. It is owned by Vulcan Inc., which is controlled by Microsoft co-founder Paul Allen.

• Papago Center, whose signature tenant is First Solar, is 80 percent leased.

• Centerpoint on Mill converted second-floor retail space into offices to meet the demand.

• Along Mill Avenue, retail vacancy rates fell from 32.4 percent in April 2009 to 20.5 percent.

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