Phoenix is known for its strength as a logistics and distribution market. This is particularly true in the Southwest Valley, which has become the poster child for all that makes Phoenix industrial space great: strong population growth, a deep and qualified workforce, an abundance of land and building opportunities, and a lower-cost, business-friendly regulatory environment.
Anthony Lydon, JLL
As of the second quarter, these benefits helped the Southwest Valley emerge as No. 1 in the nation for industrial prospects looking for space (based on interest from at least 83 tenants with a maximum requirement of more than 30 million square feet). These prospects include national and regional distribution centers, third-party distribution providers, major ecommerce users, and a robust food and beverage sector led by companies like Fairlife Dairy, UFI, Ferrara Candy and Red Bull. It also comes from the reshoring of manufacturing from organizations like Hutamaki, Ball Enclosure and Anderson Windows.
Data centers continue to flock to Phoenix as well, purchasing about 2,000 acres over the past 24 months and positioning the Valley among the nation’s top five U.S. data center markets. Data center interests like Microsoft, Vantage Data and Google have selected Phoenix for its low natural disaster risk, ample affordable land and reliable energy, which, in Maricopa County, is competitively priced at an average $0.064 per kilowatt hour (a $0.03 decrease in price since 2014).
These fundamentals have pushed the overall Phoenix industrial vacancy rate to a 10-year low of 6.7 percent and spurred 6.3 million square feet of new industrial construction, as of the second quarter of 2019. Much of this construction is speculative and designed to serve middle-market occupants requiring 50,000 to 200,000 square feet.
Industrial absorption continues to exceed new construction deliveries — as it has in Metro Phoenix for 5.5 consecutive years. The West Valley is also absorbing about 2.5 million square feet of middle-market space annually. This leads us to believe that any new space delivered will be absorbed quickly. Among this will be a significant percentage of middle-market users. These include major job creators like United Foods International, Integrated CBD, and Central Garden & Pet, which help make up the backbone of Phoenix’s industrial and supply chain marketplace.
Sustained in-migration (much of it from California) of both businesses and residents, as well as construction of a new Northern Parkway and Loop 202 extension, continue to drive Phoenix’s industrial growth. This has created new employment corridors and enhanced business efficacies via speed-to-market — all factors that continue to make Phoenix a smart industrial bet in 2019 and well beyond.
— By Anthony Lydon, managing director, JLL. This article first appeared in the August 2019 issue of Western Real Estate Business magazine.