Strong demand continued into Q4 2019 as market fundamentals put downward pressure on the vacancy rate. Vacancy declined for the seventh consecutive quarter to 14.1%.
Office product under construction picked up during the end of Q4 2019 with 2.0 million sq. ft. under construction across the market. The Tempe submarket represents 39%, or 775,000 sq. ft., while Scottsdale Airpark represents 35%, or 700,000 sq. ft., of all space under construction.
The demand for office space in the Valley is strong, creating competitive market rates across all classes. The average Full Service Gross (FSG) asking lease rate increased to $27.00 per sq. ft. from $26.76 per sq. ft. in Q3 2019.
The Class A asking rate continues to increase in price, up to $35.52 per sq. ft. FSG, $0.20 higher than a year ago in Q4 2018. Comparatively, Class B office rates saw an increase year-over-year, settling at $26.28 per sq. ft. FSG which is $0.60 higher than it was in Q4 2018.
Overall vacancy fell 30 bps to 14.1% from last quarter when it was 14.4%. The Q4 2019 vacancy rate is at its lowest point since Q4 2007 when the vacancy rate was 13.9%.
The Class A vacancy rate declined 50 bps to 10.3% year-over-year. Despite substantial deliveries in 2019, Class B vacancy decreased 80 bps to 15.0% year- over-year.
Phoenix had positive net absorption for the 38th straight quarter with 830,401 sq. ft. in Q4 2019. This brings the 2019 total to 3,210,676 sq. ft. of net absorption, the highest in any calendar year since 2016 posted 3,219,853 sq. ft.