"Phoenix, with 73 office condo projects recently completed, 20 under construction and 33 planned, is, without question, the office condo capital of the nation."
That's the message in a November report from Grubb & Ellis and PNC Real Estate Finance.
Phoenix is king because it has "a ton of entrepreneurs -- exactly the type of businesspeople to fill office condos," said Brad Logan, a principal and designated broker at Cavan Commercial.
One of the recent office condo developments at Shea Commercial is Ironwood Village, a 350,000-square-foot project at 96th Street and Mountain View in Scottsdale.
Sales Manager Dave Illsley said it is the largest office condo project in the nation. The first three phases already have sold out, he said.
Another of the company's notable projects, according to Illsley, is Chauncey Ranch, near the Loop 101 and Scottsdale Road. It has yet to break ground, but is 30 percent pre-sold.
The Chauncey office condos are selling for $275 per square foot -- one of the highest asking prices in the Valley, Illsley said.
Colleen McPherson, an office condo broker with CB Richard Ellis, said one of the most interesting projects she's seen recently is Hayden Park, a 115,000-square-foot condo conversion at Hayden Road and Shea Boulevard in Scottsdale.
Because the project is not new, the units already include many tenant improvements compared to the typical unimproved shell. Units are selling for $280-$300 a square foot.
Office condos sell well in markets such as Phoenix where office lease rates are high, said Illsley.
Many owners say the mortgage payments on their office condos are the same as -- or even less -- than what they would pay in monthly rent.
Typically, office condo owners are younger entrepreneurs who live near their offices.
Most common, said Logan, are medical professionals, including doctors and dentists, as well as attorneys, accountants, mortgage brokers, and other service professionals. Most want to be close to their customer base as well as to their own homes, he said.
"The benefits of office condos include owning a prime piece of real estate in a master-planned building that the owner can improve on according to his own unique needs and desires," Illsley said.
Those are benefits leased space can't offer, he added.
In addition, said McPherson, there often are tax advantages associated with owning an office space.
"I encourage prospective buyers to consider an office condo purchase as part of an overall accounting strategy, to form an LLC and lease the condo back to themselves for the tax advantage," she said.
The investment side of property ownership -- using the property as part of a retirement portfolio, for example -- also interests many prospective buyers, said McPherson.
"When I talk about the investment component of an office condo purchase, that's usually where the interest comes in," she said.
Investors seem to agree that the office condo market in Phoenix is a good bet.
Logan said 10 percent to 15 percent of the office condo space his company develops is bought by investors, with the balance purchased by owners/users.
According to McPherson, investors from California and even Australia have bought into what she calls a "very, very hot market."
The introduction of office condos to the Phoenix area has revolutionized the office-space market, said Logan.
"Currently, I'd say 85 percent of business owners would consider purchasing an office condo over leasing. Eight years ago, no business owner would even hear of the concept," he said.
Illsley suggests that if lease rates decrease and interest rates increase, the pace at which business owners are buying office condos could slow.
"But even if the cost to own were higher than the cost to lease, people still might buy office condos," he said.