Pat Feeney, CBRE Phoenix | Industrial Brokerage Services
The Phoenix industrial market is definitely following national trends in terms of recovery. Since 2010, U.S. industrial markets have seen rising demand trends with supply additions that have not kept pace. Demand for newer, Class A industrial space, as well as for use-specific space, is outpacing supply and encouraging more build-to-suit and speculative development activity across markets. Developers have shown discipline so far, however, as the amount of new supply added to the market since 2010 is well below the levels seen during previous expansionary periods.
These trends are manifesting themselves in a variety of ways in Metro Phoenix. First, it’s clear that demand is definitely up. The industrial market has seen significant activity over the past several quarters. Leases for spaces between 20,000 and 200,000 square feet have totaled more than 10.5 million square feet since January 2013. Deals of this size have totaled more than 1.4 million square feet of absorption this year alone. This is important to note because the overall health of the Metro Phoenix industrial market has historically been supported by midsized users. This size range shows no signs of slowing as we round out 2014 and head into 2015. In fact, we know of 18 active prospects in the 50,000- to 200,000-square-foot range currently looking for space in this market.
User interest for larger product is increasing as well. Companies with sophisticated distribution needs are suddenly becoming very aware of all Phoenix has going for it. Phoenix is the sixth largest metropolitan area in the county. It’s also well-located in relation to other major markets out West like Southern California, Texas, Colorado and Nevada. This puts potential users near a significant number of consumers. What’s more, there is a readily available supply of quality, existing space in the Valley’s various submarkets. Arizona also offers companies a business-friendly environment with much less red tape when compared to markets like California. Phoenix also boasts a growing, educated workforce and excellent infrastructure to fulfill the operational needs of major logistics facilities. Amazon is one major user that has taken advantage of these benefits. The e-commerce giant has four facilities of about 1.2 million square feet in the metro area.
Industrial property fundamentals are strong and should continue for the foreseeable future. The metro area has recorded positive net absorption for the 18th consecutive quarter, while vacancies continue to decrease across the Valley. The vacancy rate was 11 percent at the end of the third quarter, with the airport and northwest submarkets posting rates as low as 9.7 and 9.8 percent, respectively. Compare this with an overall vacancy of 12 percent a year ago, and one can see that Arizona’s efforts to continue diversifying its economy and attracting major users to the state are paying off. We expect this momentum to continue. Look for Metro Phoenix’s industrial market to continue offering investors, owner/operators and users a strong return on investment heading into 2015. The future of the Valley of the Sun is bright – and you should be excited to be along for the ride.
By Pat Feeney and Daniel Calihan, senior vice presidents, and Rusty Kennedy, senior associate at CBRE Phoenix | Industrial Brokerage Services. This article originally appeared in the November 2014 issue of Western Real Estate Business magazine.