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GOVERNOR’S CELEBRATION
from Tech Connect
by ⌘ ⇧ ⌥
New York City Minneapolis Long Island (NY) S. Connecticut Boston Philadelphia Los Ang geles Seattle Washington San Francisco Houston Denver N. New Jersey Chicago Orange County S. Florida Dallas/Ft. Worth Atlanta Dt it Detroit Phoenix 8.2% 9.1% 9.6% 10.7% 11.0%
Vacancy Rates 20 Largest Markets
12.0% 12.4% 13.0% 13.1% 13.4% 134% 13.4% 13.7% 13.9% 15.2% 153% 15.3% 16.6% 17.0% 17.4% 18 % 8.7%
22.1%
Best of Times, Worst of Times
The state of office space depends on your perspective
WRITING BY :: JAMES ROBINSON
a
fter looking at the evidence, we believe it will become obvious that Phoenix and Tucson are very likely at or very near a bottom in terms of rates and concessions offered by landlords. Perhaps more important, we may also be in one of the best times for those considering new space, as there are currently multiple options available in most size ranges.
The first reason to believe the office markets may be at or near bottom is to consider the current facts from the supply perspective. One measure of supply in the office market is the vacancy rate: The higher it is, the greater the supply. If it is rising, you would expect to see a reduction in asking rents. If it is falling, there is likely to be a trend for rising rates.
The vacancy rates for the Phoenix market overall is 21.1 percent. That is broken down further to a vacancy rate of 24 percent for Class A and 21.7 percent for Class B space. In Tucson, the vacancy rates are 12.4 percent, comprised of 13.5 percent for Class A and 13.4 percent for Class B.
Of course, looking at a snapshot of vacancy rates does not give as clear a picture as looking at trends. The vacancy rates in Phoenix had leveled off for roughly the last six quarters, and for the first time since 2006, we are starting to see actual net absorption across all building classes. Although one quarter of net absorption does not make a trend, that, coupled with the extended period of basically flat vacancy rates, tends to imply we are through the worst in terms of climbing vacancy rates.
In Tucson, the picture is slightly different. To begin with, the vacancy rates are much healthier. Though they have been increasing from mid-2007, they also seem to have leveled out in the past two to three quarters.
We believe it is useful to consider office space as little more than a warehouse for white-collar jobs. The aggregate number of square feet per white-collar employee seems to be close to 250 square feet. So for every 1,000 square feet of office space, it is useful to assume we need four white-collar jobs. Assuming this is the case, we should get a sense for how the demand side of the office economy is faring by looking at the creation or destruction of such jobs. If that trend is moving forward, it seems likely we will have a need for more office space.
THE WORST IS OVER
At the current rates of growth, it will be years before we have a healthy office market. But what the statistics do seem to demonstrate is it is unlikely things will get much worse.
In looking at the data, we believe it is safe to assume we are either at or very near the bottom of this market. Vacancy rates have stabilized. There is no new construction of any scale in progress. It seems we may have a breakeven in whitecollar job growth and the trend is looking like we may actually begin to have small amounts of growth in this area. Buildings appear to be working through the issue related to financing, though there is still much to be done on that front.
None of this should be mistaken to imply that things are good. We are at the bottom of a very bad economy. Our vacancy rate is the worst in the United States, as can be seen in the figures. As you would expect in this kind of economy, rental rates are at their lowest point in years, and concessions are at their highest. We believe the market will continue in this vein for at least 12 to 18 months before there are significant signs of improvement.
So, is it the best of times or the worst of times? That depends on whether you are a landlord or a tenant.
James Robinson is founder and president of Phoenix Realty Advisors (www.phoenixrealtyadvisors.com), a commercial real estate brokerage that focuses on tenant representation and buyer brokerage of office properties.
+ GET CONNECTED Phoenix Realty Advisors: www.phoenixrealtyadvisors.com
SOLON
Consulates and advisors help international firms walk the line when considering Arizona for new tech sites
WRITING BY :: DON RODRIGUEZ
a
nd you thought our international visitors were just coming here to golf. Granted, these tourists do that. And they go to the Grand Canyon. And they get their ties cut off at steakhouses. And they swim outside in January.
But there are three things they do in particular that are as important: watch, ask and learn. “What’s it like to live here?” “What’s it like to work here?”
Eventually, some of the visitors return— along with their businesses. This is especially true when it comes to science and technology firms. For many, our state is the springboard for connecting with the entire United States.
This all goes beyond our long-time relationship with Mexico, not dismissing the partnerships that have been created. Instead, look to the north, east and west. That would include nations such as Canada, the United Kingdom and now China.
The draw for technology companies? “An open and collaborative business environment with access to Mexico and California markets,” says Dawn Nagle, trade commissioner with the Consulate of Canada in Phoenix.
Nagle is in a unique position to help Canadian companies considering the move to Arizona, whether they are entering the state for the first time or expanding operations. Similar assistance is provided for U.K. companies by Matthew Whiteley, vice consul, Tech City Investment Organisation at the British Consulate-General Los Angeles. And for China, the person to know in Arizona is Jon J. Wang, managing director for China Direct Group in Scottsdale.
While Nagle and Whiteley are official representatives of their respective
governments, Wang runs an independent firm. Still all have the resources and contacts that enable businesses in their respective regions of the world to set up shop in Arizona. “One of the key services we provide to Canadian companies in Arizona is connecting to resources within the state,” Nagle says. Whiteley notes,” We’re very keen to highlight and ‘sell’ the benefits of doing business in Arizona.” And Wang says, “We bridge the gap between Arizona and China for companies that are doing or interested in doing business across the Pacific in China or the U.S.”
TECH TALK
While they are not limited to working exclusively with technology firms, this is the sector that has generated quite a lot of buzz, especially as the economy gets back on its feet. All three work behind the scenes so the businesses that do make the Arizona connection stay in the forefront.
For Canadians, Nagle can provide up-todate market intelligence, including potential barriers and regulations associated with entering a specific region as well as share knowledge about upcoming opportunities. “We are able to provide you with an inside look at what’s going on in your area of business,” she says. The consulate can advise and resolve problems such as customs clearance and shipping, and unfair business treatment.
Also, “whether you’re looking to export, invest abroad or seek technology and R&D partnerships, we can help you make the most of your market strategy,” Nagle says, even if that means referrals to local firms for additional market research. And talk about connections. The list includes potential buyers and partners, professionals in financial and legal institutions, technology sources, and even foreign investment promotion agencies.
The road goes both ways. Besides getting U.K. companies to understand how to compete here, Whiteley says, “much of our work in Arizona involves helping Arizona-based companies exploit business opportunities in the U.K., so ultimately we’re trying to connect Britain with Arizona no matter in which direction inward investment takes place.”
COMPANY NAME SOURCE COUNTRY ARIZONA LOCATION SECTOR BUSINESS ACTIVITY
Electro Optic Systems EnviroMission Australia Australia
Bombardier Western Wind Energy Linamar AirTest Technologies Suntech Power Holdings Suntech Power Holdings Saint-Gobain Canada Canada Canada Canada China China France
Solon Schletter Solon Degerenergie Lufthansa Miele Automatic Netware (Bookassist) NTR Germany Germany Germany Germany Germany Germany Ireland Ireland
Mitsubishi Corporation
Japan NanoTechology - Modular Devices & Tools Russia Tucson Phoenix Space & Defense Alternative / Renewable Energy Manufacturing Headquarters
Tucson
Aerospace Not Specified Alternative / Renewable Energy Glendale Electronic Components Not Specified Electronic Components Goodyear Goodyear Goodyear Electronic Components Electronic Components Ceramics & Glass
Kingman Alternative / Renewable Energy Maintenance & Servicing Electricity Manufacturing Sales, Marketing & Support Manufacturing Manufacturing Manufacturing Electricity
Tucson Industrial Machinery, Equipment & Tools Manufacturing
Phoenix
Electronic Components Not Specified Communications Sales, Marketing & Support Manufacturing
Scottsdale Aerospace Customer Contact Center
Scottsdale Consumer Electronics Retail
Phoenix Software & IT Services
Maricopa
Alternative / Renewable Energy Not Specified Chemicals Tempe Electronic Components Sales, Marketing & Support Electricity Manufacturing Research & Development
Iberdrola Albiasa Gestion Industrial SA Roche Group Pan Jit (Panjit) Spain Spain Not Specified Alternative / Renewable Energy Kingman Alternative / Renewable Energy
Switzerland Oro Valley Medical Devices
Taiwan Tempe Electronic Components Electricity Electricity Manufacturing Headquarters
BOMBARDIER ENVIROMISSION LUFTHANSA
SOURCE: THE FINANCIAL TIMES LTD 2011
—MATTHEW WHITELEY, VICE CONSUL
That’s very similar to what Wang does as his firm connects U.S. companies with Chinese governments and potential partners in China in addition to mediating and facilitating business negotiations in what can be a new culture for those involved. “We help set up operations in China as well as assist companies implement a right strategy in China,” he says. When it comes to setting up operations in Arizona, it’s more than just putting up a building here. “For many business owners and top managers, to move their families to the U.S. for a better life and for their children to receive high quality education” are drivers for making the move, Wang adds.
ALL IN THE NUMBERS
Something must be working. There are more than 130 Canadian companies in Arizona representing more than 13,500 jobs in the state, Nagle says. Noteworthy in the tech sectors, Bombardier won the $255 million contract for the people mover project at Phoenix Sky Harbor International Airport. And recently, Canada-based Linamar Corp announced plans to establish a manufacturing facility in Glendale to supply power conversion units to the new Stirling Energy’s SunCatcher concentrated solar power installation.
British businesses account for 12,500 jobs in Arizona—16% of the 76,000 jobs created by foreign-owned affiliates in the state, Whiteley says. He adds that total puts the U.K. ahead of Germany and France, and just behind Canada when it comes to international firms operating in Arizona. In technology sectors, the photonics expertise in Tucson as well as the technology cluster in Scottsdale are attractive to U.K. companies, Whiteley says. Also, SkySong in Scottsdale hosts Alaris, the U.S. licensee of Rolls-Royce’s Sign Hear signature verification technology, which is a joint venture between Rolls-Royce and Arizona State University, he says.
As for China’s presence in Arizona, it really is just starting. Wang cites the major player now is SunTech, the world’s largest manufacturer of solar panels, which opened its only U.S. facility in Goodyear. Following a trade mission to China led by Gov. Jan Brewer, who was accompanied by representatives from the Arizona Technology Council and the Arizona Commerce Authority, some major announcements are expected that could boost that nation’s presence.
All of this activity does more than just help the companies prosper. The trickle-down effect is the state benefits because of the new money that enters the Arizona economy. Not a bad way to be rewarded for cutting off someone’s tie.
+ GET CONNECTED China Direct Group: jwang@chinadirectgroup.com Consulate of Canada in Phoenix: www.phoenix.gc.ca UK Trade & Investment: www.techworld.uk.com
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ARIZONA COMMERCE AUTHORITY
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ith the creation of the Arizona Commerce Authority, Arizona’s resolve to engage in global competition is no longer an objective or hope, but a reality. The newly formed Arizona Commerce Authority (ACA) became officially operational on July 1 with an entirely new outlook on economic development. First, establish and couple the most business friendly environment in the nation with Arizona’s superior quality of life. Second, change how Arizona competes by relying less on traditional approaches and focusing more on vision, entrepreneurial solutions, and an absolute passion to turn our objectives into realities.
The ACA has hit the ground running. With Gov. Jan Brewer’s visionary leadership, and support from the Legislature, the ACA inspired the most significant economic advancement policies in the state’s history: the Arizona Competitiveness Package. The creation of the ACA facilitated the transfer of the state’s economic vision from a bureaucratic agency to private sector governance. This helped instill the confidence of business to commit more than $10 billion dollars in capital investment, resulting in the creation of more than ten thousand jobs. In addition, the ACA continues to aggressively pursue opportunities to secure funding to help local businesses already established in the state grow.
The ACA is using a three-pronged approach to bring new, high-quality jobs to Arizona. The ACA has assembled a talented business development and attraction team aimed at growing and maintaining businesses already established in Arizona, attracting new businesses to relocate or expand to the area, and reaching out internationally to further diversify the Arizona market.
A key area of focus is developing Arizona’s innovation ecosysem, which thrives on talent and capital. From pre-venture to start-up, to corporate expansion, the ACA is helping start and grow companies in globally recognized industries like aerospace and defense and semiconductors, and nascent industries like life sciences, software and clean-tech. Entrepreneurs need mentoring, management talent and risk capital to commercialize their ideas. Established businesses need a high-quality workforce and investment capital to expand and capitalize on market opportunities. The ACA collaborates on training and finance programs across the state to address this continuum of needs for technology, manufacturing and export companies that are the organic growth engine for Arizona job creation.
In the end, this is about Arizonans coming together. No gimmicks, no hype. Just the resolve to seriously engage in global competition with focus, resources and passion. This is the ACA.
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$18.2 Million for Loan Participation Program
Arizona Innovation Accelerator Fund to help state’s small businesses and manufacturers
t
he Arizona Innovation Accelerator Fund (AIAF) Program is a new $18.2 million loan participation program managed by the Arizona Commerce Authority (ACA) with the goal of spurring financing to small businesses. Loans will be made in collaboration with private finance partners to foster business expansion, capital investment and job creation in Arizona. The funding originated from a Federal program called the State Small Business Credit Initiative.
The AIAF is a five-year program, ending December 2016, and provides financing for up to 50 percent of a new credit facility. The program’s loan participation may range from $50,000 to $2 million on any one facility and may not be used to support loans greater than $20 million. Loan proceeds are to be used for business purposes such as working capital, inventory, equipment purchase, and real property improvements but cannot be used for refinancing of existing debt or outstanding debt payments.
The debt offered will be in the form of lowinterest loans with favorable payback terms. These loans may be subordinated to existing or new debt and should aid borrowers in raising debt capital from private sources for the majority (>50%) of their loan.
Eligible companies will typically have commercialized their technology/products, are generating revenue and can show job creation as a result of the AIAF loan participation. The ACA is currently developing program guidelines for its Arizona Innovation Accelerator Fund Program with the goal of implementation in late Q4 2011 to early Q1 2012. Applications will be received at that time.
+ GET CONNECTED www.azcommerce.com and click on “Incentives”
