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From the Phoenix Business Journal: https://www.bizjournals.com/phoenix/news/2020/10/11/downtown-phoenix- towers-capital-investment.html

Economic Development Forecast: Downtown Phoenix Special report: Sky-defining projects, capital investment crafting denser downtown Phoenix

Oct 11, 2020, 1:00pm MST

The skyline of downtown Phoenix is undergoing dramatic change.

Eighteen construction cranes have risen in the submarket, and even more sky-defining developments are still in the pipeline.

“If you go back and look in the history of Phoenix, never in the history of Phoenix did you SOLOMON CORDWELL BUENZ have 18 cranes in the air all at one time — just An artist's rendering shows the planned Astra didn't happen," said Christine Mackay, Phoenix development downtown, which would be the tallest tower built in the state, eclipsing the economic development director for the city of . Phoenix. "And so I think we're on a path to create that dense urban downtown that everybody has often longed for. And it'll come over decades, not just in a very short period of time, but we are definitely on the right path to creating the dense part of downtown Phoenix that we've all been talking about for so long.”

Phoenix Mayor Kate Gallego said 32 projects are in various stages of development in downtown Phoenix, including three that will break ground in the fourth quarter of this year.

Of projects under construction in downtown, nine are apartments, said Mackay, one of four panelists in a virtual real estate event hosted Sept. 22 by the Phoenix Business Journal. Other major downtown projects include the Thunderbird School of Global Management at State University, a residence hall at ASU and the Wexford Science + Technology building on the Phoenix Biomedical Campus.

Downtown has matured more slowly than some other Valley submarkets, but public investment, such as the growth and continued expansion of ASU's downtown campus and the light rail, along with an influx of restaurants, breweries and other attractions in Roosevelt Row have fueled demand for both office and apartment space in the area.

More capital

The activity in downtown Phoenix and the demand for more development has led capital markets to see Phoenix as a safe harbor for investment, according to Nick Wood, partner at Snell & Wilmer.

“Phoenix has become a mainstream name when it comes to high-rise development,” he said. “With all of the investment that has been made by the city and state in downtown, it has drawn high demand.”

Wood worked with developer Geoffrey Jacobs, principal of Empire Group, who is planning to build what would become the state’s tallest tower in downtown near Second Avenue and Van Buren Street. The project, called Astra Phoenix, would include both residential and hotel uses and would reach 535 feet tall at its highest point, with a second tower reaching 380 feet. The Chase Tower on Central Avenue downtown — currently Arizona’s tallest building — is 483 feet tall.

“And that is, I think, evidence that is clear and unequivocal that the equity markets are here, even for hotels, because downtown is headed in the right direction,” Wood said.

The continued growth in activity, and a focus on renovating some of the biggest existing office projects, has also driven a steady flow of office leasing interest to downtown, Andrew Cheney, principal at Lee & Associates, said.

“It’s been more of a steady flow than a snowball, but I think the snowball is going to happen,” he said. Companies are realizing downtown has all the demographics of other popular submarkets, like Tempe and Scottsdale, including an educated workforce, a walkable streetscape and activities after work, and is less expensive than Tempe, Cheney said.

Cheney oversees leasing for Renaissance Square, the largest office development in downtown, which is in the process of a $50 million renovation. Leasing has slowed down due to the coronavirus, but he said the buildings near First Avenue and Adams Street are competing well after adding collaborative spaces, updating restaurants and upgrading air systems in the wake of the pandemic to install hospital grade filters.

New office buildings downtown such as Block 23 on First and streets have also seen success with absorption, Jeff Moloznik, vice president of development for Red Development, said. WeWork and Ernst & Young have already occupied office space in the building, and transportation technology CVO Holding Co. will open its new office at Block 23 in spring 2021.

“We were fortunate enough to come across a tenant that has a long-term growth plan that our new building, Block 23, fit perfectly with,” he said.

Light rail impact

The continued public investment in downtown, including the extension of the light rail south on Central Avenue, also inspires developer confidence in the area, Moloznik said.

“It just sends a strong message to the financial market about what the citizens of this city are interested in from a long-term perspective,” he said.

Moloznik said when his company was seeking capital for the development of CityScape at Central Avenue and Washington Street in downtown, the first phase of light rail, as well as ASU’s downtown campus, was cited as an example to the capital markets of the investments the city and state were already making in the area.

Mackay said the city will not see the influx of high-rise development along the south-central extension of the light rail that was seen in the downtown core with the first phase. Any new development along the new route will be focused on what is of interest to the community, she said.

However, infill sites in the southern portion of downtown have become popular for developers.

“I've seen an absolute renewed interest over the last 45 days in the vacant sites and in some of the vacant buildings that are in the warehouse district,” she said. “Now they're starting to envision that coming much like you drop that amenity into the core of downtown and midtown.”

Despite the coronavirus pandemic, the Business Journal panel members said they expect people to be interested in returning to higher density areas of the Valley such downtown when it is safe.

“This is where all the fun is, all the sports, all the culture, the entertainment,” Cheney said. “So everyone wants to come back. Our leasing activity inquiries were much better than expected over this entire pandemic so far. So, I'm really positive.”

Grocery store elevates downtown Phoenix livability

Downtown Phoenix's first full-service supermarket has been a game changer.

The Fry's Food & Drug store at 100 E. Jefferson St. in Block 23 has helped attract new residents to the downtown area since opening a year ago in October 2019, economic development experts said.

“If you know where you're going to get your groceries, you know where you're going to get your dry cleaning done and where you're going to take your kids to daycare, you can see yourself living in that market,” Christine Mackay, economic development director for the city of Phoenix, said.

Jeff Moloznik, vice president of development for Red Development, the developer of Block 23, said the Fry’s also served as one of very few places people could get prepared food in the earliest stages of closures from the coronavirus pandemic.

“Without them the population that's down there would not have had an essential service that the rest of us took for granted because we knew it was open and it was in our neighborhood,” he said. “But the timing was there opening and the timing with this virus is something that is remarkable to me considering what life would have been like down here without them.”

Andrew Cheney, principal at Lee & Associates who brokers office space in downtown, said he lists the store as one of the biggest amenities in downtown when trying to market the area to potential office tenants.

“It’s been fantastic for everyone,” he said.

BY THE NUMBERS: DOWNTOWN PHOENIX

14,917 — People live in the 85003 and 85004 zip codes, which includes downtown Phoenix but also extends farther north and south of the boundaries of downtown.

22,995,189 — Total square footage of office space in downtown Phoenix

$30.03 — Average overall asking office rent per square foot

$31.74 — Average class A office asking rent per square foot

227,113 — Total square footage of office space under construction at the end of Q2

Source: U.S. Census Bureau American Communities Survey and Colliers International research

ECONOMIC DEVELOPMENT VIRTUAL PANEL SERIES

Join the Business Journal for the next in a series of real estate-focused virtual events set for 2020-2021 that will highlight key cities and submarkets in the Valley, bringing together a panel of real estate executives, market experts and city planners to look at present and future developments. Next up on Oct. 27: Goodyear, featuring four high-profile panelists and special introductory remarks by Goodyear Mayor Lord. Get tickets online here.

Corina Vanek Reporter Phoenix Business Journal