The Phoenix industrial market reflected strong growth and a healthy local economy during the second quarter, according to CBRE research.
Net absorption increased from 1,673,016 square feet (sq. ft.) during the first quarter of 2017 to 3,118,456 sq. ft. during the second quarter of the year. Meanwhile, overall vacancy decreased from 8.2% to 7.7% during Q2 2017 (its lowest level since 2006). The market’s average asking lease rate remained steady during the quarter at $0.64 NNN per sq. ft. (monthly). In terms of new supply, there was an increase in development from 4,273,891 sq. ft. at the end of Q1 2017 to 4,638,632 sq. ft. at the end of Q2 2017.
The Phoenix industrial market’s performance during the second quarter of 2017 outpaced the same period in 2016. To give some perspective, vacancy, average asking lease rates, and construction activity all improved when compared to the second quarter of 2016. Consistent with trends over the last several quarters, demand for large blocks of space remained strong. Multiple deals over 100,000 square feet were executed which helped bolster quarter-end net absorption. The most active users in the market consisted of housing-related users (building materials and construction manufacturing), manufacturers, food & beverage processors, technology, and e-commerce. In addition, aerospace & defense contract users seeking manufacturing and distribution space in the Southeast Valley have been particularly robust.
Major Phoenix industrial market trends that remained intact during the second quarter of 2017 included demand for fenced truck courts, elevated clear heights, and truck queuing lanes. It is also worth noting that there has been an increase in demand for higher parking ratios among e-commerce tenants and general industrial users. Additionally, the rising number of advanced manufacturing users across the market fueled demand for heavy power. Overall, the manufacturing and distribution sectors remain very active in the Phoenix metropolitan area.
In summary, Phoenix continues to grow as a regional distribution hub with a rising profile among markets. Large tenants, 100,000 sq. ft. or greater, have remained active in the market and are anticipated to stay active throughout 2017. The Phoenix industrial market’s outlook for the remainder of the year is positive.