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The Phoenix industrial market ended the second quarter of 2013 with vacancy rates at 12.4 percent, while net absorption totaled a positive 471,635 square feet. Asking rents are increasing and demand for larger facilities has been the catalyst in the recovery. Over the past 15 years, vacancy rates have averaged 10.3 percent, providing evidence that the current market is not far off from the average.
Phoenix has historically seen significant cyclical swings. This past recession has been no exception to this. However, the positive net absorption the area’s industrial sector has experienced over the past two-plus years signals that the Valley is well on its way to recovery. The Phoenix market has absorbed 20.7 million square feet, and has built more than 7 million square feet of new space. Year-over-year, the total number of transactions has increased 24 percent, bringing excitement to the Valley once again.
Big box industrial in Phoenix has absorbed about 15 million square feet of space on a net basis throughout 2011 and 2012. The vast majority of that net absorption has been big box product in the Southwest Valley. Rental rates also increased from the high $0.20 net range to a current low-mid $0.30 range during that same period. This is an impressive 25 percent increase. The recent sale of the 593,600-square-foot Estrella Logistics Center, a vacant spec building, to Liberty Property Trust for $27.8 million is just one example of this market heating up. The region has not seen a transaction like that since 2007. Clearly, the large institutional investors are showing signs of aggression as they chase yield.
The Deer Valley market has also caught the eye of developers once again. About 10.2 acres of A-1 zoned land was recently purchased by Canyon Falls Equity Corp. The company’s president, Andre Gardzella, said he invests in Arizona because he believes that, over the long term, the real estate has always risen in value. Gardzella plans to build two spec industrial distribution buildings consisting of 77,000 square feet and 66,000 square feet on the site. He is hoping it can be delivered to market by the third quarter of 2014. Distribution product in Deer Valley is currently leasing at around $0.65 to $0.70 per square foot, triple-net. This is increasing daily due to a lack of product.
For the first time in a while, tenants, landlords and brokers are all feeling a positive rebound. The Phoenix industrial market continues to see steady progress in firming up its market fundamentals as we move through the first half of 2013. We expect to see even more improvement by year-end.
— Bob Lundstedt, first vice president, and Chris Rogers, associate, with DAUM Commercial