Phoenix has long enjoyed the benefits of land, labor and logistics. In today’s ecommerce-driven market, however, those benefits are propelling the Valley’s industrial activity, and opportunity, to new heights. The region has absorbed more than 5.8 million square feet of industrial space year-to-date. It has also welcomed almost 5 million square feet of new industrial construction, while industrial vacancy rates still sit below 7 percent — their lowest levels in 12 years.
Some of this activity can be credited to the price and availability of our land. This typically involves large parcels in the West Valley within close proximity to freeways that are often available at $5 per square foot to $6 per square foot. This is attracting tremendous big box interest, particularly in the Southwest Valley submarket where much of the metro’s more than 5.7 million square feet of new construction is occurring.
Dave Krumwiede, Lincoln Property Co.
Lincoln Property Company delivered one of the largest of these developments this past December: the $85 million, 901,700-square-foot Lincoln Logistics Center 40. Underscoring high confidence in the industrial sector, Lincoln Logistics 40 was developed fully speculative with amenities that target ecommerce and logistics-focused users. Among these are 40’ clear height ceilings, sophisticated cross-dock configuration, and extensive trailer storage and parking. The property is also a Foreign Trade Zone Magnet Site and sits minutes from multiple freeways.
On the leasing front, demand is coming largely from major retailers wanting to building out their national distribution platform or third-party logistics providers filling this function for their clients. Collectively, this resulted in the pre-lease of about 50 percent of all industrial space delivered in the third quarter. It has also had a positive trickle-down impact on smaller, more traditional infill buildings that are critical for last-mile fulfillment.
On the investment front, the Southwest submarket prevails again with top investment transactions like the $98.3 million ($97 per square foot) sale of the Amazon Fulfillment Center, the $83.02 million ($116 psf) sale of the Albertsons Distribution Center and the $48.50 million ($71 psf) sale of the Southwest Industrial Center.
Key to all of this is Phoenix’s well-qualified and abundant labor pool. This is a critical advantage for modern industrial operations that require hundreds of skilled employees to maintain peak efficiency. At Lincoln Logistics 40, for example, more than 69 percent of nearby workers currently commute out of area, giving prospective tenants a “work closer to home” allure that can provide a major boost to the hiring process.
As long as demand remains high and absorption remains in check with construction, Phoenix’s combination of land, labor and logistics will continue to be a winning hand. This will give legs to the local market and create a steady flow of sustainable new opportunities.
— By Dave Krumwiede. This article first appeared in the January 2019 issue of Western Real Estate Business magazine.