Is This a Return to Normal for Phoenix’s Industrial Market?

by Jeff Shaw

— By Rob Martensen, Senior Executive Vice President, Colliers International —

There are a lot of questions being asked about the Phoenix industrial market as we turn the calendar to 2023. Having been an industrial broker in this market for 25 years, I have seen many ups and downs, which are historically driven by the residential construction market. Phoenix used to be a one-industry town…and that industry was growth. Sure, we’ve had large companies like Motorola, Avnet and Intel, but the industrial market has been mostly driven by people moving to Arizona and buying houses and household goods.

Rob Martensen, Senior Executive Vice President, Colliers International

 

Phoenix has transformed in the past five years into a thriving city that now supports many industries. The largest is advanced manufacturing. This includes semiconductors, battery manufacturing, electric vehicle manufacturing and all supporting businesses. Intel is in the process of a $20 billion expansion to their existing facility, while Taiwan Semiconductor Manufacturing Company (TSMC) is under construction on a $12 billion chip making factory. TSMC recently announced it’s going to immediately start on Phase II of this factory, which will be another $28 billion spent in Phoenix. It is estimated that 160 new companies have moved to Phoenix to support these two new projects. 

Other thriving industries include food and beverage, traditional manufacturing and ecommerce. Nestle is investing $500 million for a new Coffee Mate manufacturing facility, Puma has leased more than 1 million square feet and manufacturing companies like Apel Extrusions are opening new factories in the Phoenix area.

So, what does this mean for the industrial market? 

Developers have been on a buying spree trying to find land to put up more boxes. We now have nearly 40 million square feet under construction, with 12 million of that pre-leased. 

Developers have been looking at developing in all parts of the Valley. The big box market is reaching into the outskirts of Buckeye, while Mesa Gateway is thriving with activity. Infill projects everywhere are still in demand. ViaWest, in partnership with Prospect Ridge, is developing two industrial parks on parcels along Interstate 10 in the southeast valley. Sight Logistics is rising out of the ashes of the former Insight Enterprises corporate headquarters in South Tempe. The former office building has been demolished and two new industrial buildings are under construction in their place

All that said, should we be worried? 

The vacancy rate in the Phoenix industrial market has ranged from 7 percent to 13 percent over the past 20 years. The vacancy rate has seen record lows in the most recent quarters, with the latest report showing an all-time low of 2.4 percent.  Even with 40 million square feet under construction, we still have a long way to go to “return to normal” historical vacancy rates.  

We have all been successful with higher interest rates and higher vacancy rates in the past. There’s no reason to think the future of the Phoenix industrial market should be any different. Let’s make the necessary adjustments and move forward!

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