E-Commerce Bolsters Phoenix’s Industrial Market

Isy Sonabend, NAI Horizon

Isy Sonabend, NAI Horizon

Before raising the curtain on 2015, it is important to understand how the stage has been set. The Phoenix industrial sector continues to build for changes in the market. Local and national developers delivered 6.3 million square feet of speculative industrial warehousing in the market last year, primarily due to big box projects. While most of these projects were in the Southwest Phoenix submarket, we have seen construction in the Sky Harbor and Southeast Valley submarkets as well.

The national economy continues to improve slowly, and while activity levels during the numerous projects have been steady, closed deals for large blocks of space continue to be elusive. Although net absorption was positive by the end of last year, lease transaction volumes were mostly in the 50,000 to 200,000 square feet range. This prompted developers to modify their efforts by offering to divide their big boxes to accommodate partial building tenants, where prior expectations were geared toward single-tenant, full-building occupancy. There were still several big box projects under construction by the end of last year. This includes projects by Wentworth Properties, Trammel Crow/Clarion Partners, Conor Commercial, Hillwood and several other projects in shovel-ready position. Those ready to break ground include Prologis, Liberty Property Trust, Tratt Properties and Duke Realty, to name a few. The analogy could be expressed as a “Frankenstein Economy,” where all the body parts have been stitched into place while we search the horizon for the lightning strike that will generate the pulse, allowing us all to finally say, “It’s alive!”

All this preparation work in place begs the question, what’s the next big thing? U.S. e-commerce sales totaled $78.1 billion in the third quarter of 2014 alone, according to the Department of Commerce. This is a 4 percent increase from the second quarter of 2014. For comparison, e-commerce is estimated to have increased 16.2 percent from the third quarter of 2013 to the same quarter in 2014, while total retail sales increased just 4.2 percent in the same period.

With this burgeoning industry as a backdrop, developers surmise that warehousing needs will call for increasing warehouse ceiling heights to accommodate e-retailers. Local developer Wentworth Property Company has tilted the walls on a 36-foot warehouse project known as 10 West Logistics Center, a phased development of 1.3 million square feet, with the first structure of 659,000 square feet set to be delivered to market by the second quarter of this year. Liberty Property Trust also has plans to construct a three-building project called Liberty Logistics Center, which will include 1.5 million square feet of 36’ high warehouses, ostensibly to attract e-commerce tenants. Phoenix Logistics Center is a new 150-acre corporate business park owned by a joint venture between McShane Development Company and MetLife Real Estate Investors. It can accommodate industrial users of up to 2.5 million square feet. These projects, along with others in the market, are positioning the valley for a prosperous e-commerce future.

By Isy Sonabend, senior vice president of NAI Horizon. This article originally appeared in the February 2015 edition of Western Real Estate Business magazine.

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