Tag Archives: industrial market

Architectural Photography by Michael Baxter, Baxter Imaging LLC

Phoenix industrial markets continue to break ground

Source: Lee & Associates Q1 Report

The Phoenix industrial market continued to improve in the first quarter of the year, posting its lowest percentage vacancy (11.8%) since Q1 2008. In that 7-year time period, the Valley’s industrial inventory gained over 32 million SF of warehouse/distribution, manufacturing and flex space. The most recent seven quarters have yielded the most productive net absorption gains during this period as well. This all coincides with a strong return to market fundamentals and an improving U.S. economy.

Leasing activity has remained steady throughout the past seven years, but the activity level signals that there is quality product for lease throughout the Phoenix area. With all the available space, rental rates have yet to return to pre-recession levels, but have been gaining ground slowly each quarter.

Using available and inexpensive funding resources, built-to-suit and spec. projects have gained momentum in the market in which nearly 2.4 million SF of product is under construction. Over 2.8 million SF was delivered to market inventory this past quarter alone.

The entire industrial market has its bright spots in different areas. The Southeast Valley’s demand remains strong for data and call centers and manufacturing facilities, while the Southwest Valley continues as the center for large distribution buildings. Multi-tenant distribution and warehouse projects are currently in high demand for medium-sized space. Chandler and the Sky Harbor Airport area remain the strongest areas for new multi-tenant building activity.

The Valley’s industrial market closed Q1 2015 with a vacancy rate of 11.8%, 20-basis points lower compared to last quarter. Net absorption landed at 1,337,703 SF. The Southwest and Southeast Valley combined for nearly 1 million SF of that total.

Overall asking rental rates saw a minor drop of -0.4% which does not seem to be an indicator of any specific trend. Leasing activity was generally lower but within historical norms and quarterly fluctuations.

In the largest lease transaction of the first quarter, Tuesday Morning leased 593,600 SF at Liberty Logistics Center, 563 S. 63rd Ave. in Phoenix. The company is expected to move into the vacant facility by September of this year. The facility will be used as a Western U.S. distribution center for the discount retailer.

The largest sale transaction for the quarter was the $10.2 million sale of 651 N. 101st Ave. in Avondale. The 73,050 SF general industrial building was bought by Cummins Rocky Mountain and sold by Granco Enterprises. Price per SF was calculated at $139.63.

Member-owned, member-directed ACBA members recap Phoenix's robust small- and mid-size 2014 industrial market activity.

ACBA: Will 2015 be a sticker shock year?

The Arizona Commercial Brokers Association (ACBA) has released its 2014 transaction recap, reporting more than 380 completed industrial sale/lease transactions totaling over 3 million square feet in Phoenix in the past 12 months. Made up of veteran brokers from independent to regional firms, ACBA provides on-the-ground insight about the group’s major client demographic: the mid-market industrial user.

“ACBA members represent the biggest driver of Phoenix’s industrial 2014 real estate year – the mid-market buyer and tenant,” said ACBA President and Voit Real Estate Services Vice President Mike Kasulaitis. “This year we observed an uptick in activity across the board. Taking into account that single-family home sales were negative and foreclosures still loom, we find this encouraging.”

“Among our most active clients, 2014 sales were dominated by end users and institutional money. On the leasing side, the smaller, incubator warehouse tenants occupying 20,000 square feet or less were on a roll,” added ACBA board member and Cutler Commercial broker Todd Hamilton. “Low interest rates, below-replacement pricing and strong local growth will make 2015 an exciting time to be an owner and seller, but it might ring in a ‘sticker-shock’ year for the tenant and buyer.”

Based on market data and trends among his clients, Hamilton expects metro Phoenix’s average 11 percent industrial vacancy rate to fall by 50 or more basis points, to the 10.5 percent range by mid-year 2015. He also anticipates 2015 to set the stage for rent growth, which has remained stagnant for the past five years but that Hamilton believes will increase by 3 to 5 percent in 2015.

For 2014, ACBA members experienced the strongest activity among small and mid-size users. The most active submarkets included Deer Valley, Southwest Phoenix and Central Phoenix.

“Although Arizona has continued to lag most other parts of the country, I do believe we are on the road to recovery, and that 2015 will be more active in all aspects of our economy,” said Carl Johnson, ACBA charter member and Vice President at DAUM Commercial Real Estate. “It’s a funny market now. Inventory is tight but demand is lukewarm. However, as populations grow, housing demand returns and 30 to 40-year-olds recover from recessionary setbacks, Maricopa, Pima and Pinal counties will most certainly pull out of that stagnant holding pattern.”

Cushman & Wakefield Research Shows Continued Progress for U.S. Industrial Market

Construction Pipeline Ramps Up to Meet Strengthening Demand

Robust absorption, declining vacancies and rising rental rates reflect continued progress for the U.S. industrial real estate market through the first quarter of 2014, according to commercial real estate services firm Cushman & Wakefield’s latest research findings, released this week. And while tightening supply may have contributed to a slowdown in leasing velocity through January, February and March, the nation’s industrial construction pipeline has ramped up to meet strengthening demand.

 Cushman & Wakefield’s John Morris, leader of Industrial Services for the Americas

Cushman & Wakefield’s John Morris, leader of Industrial Services for the Americas

“First quarter performance continued the notable progress industrial real estate experienced in 2013,” noted Cushman & Wakefield’s John Morris, leader of Industrial Services for the Americas. “Domestic manufacturing continues to gain traction, driving increased production and shipments, and electronic fulfillment continued to expand. As a result, the economic environment for our sector is the best we have seen in many years.”

In fact, industrial space occupancy gains rose 31 percent year over year, with 30.5 million square feet of absorption, compared to 23.2 square feet in the first quarter of 2013. Atlanta led the nation, with 5.1 million square feet of absorption, followed by the Inland Empire, with 4.6 million square feet. The U.S. overall industrial vacancy rate continued to trend down, ending the quarter at 7.4 percent, 80 basis points lower than one year ago.

“Availabilities are dwindling, especially in the highly competitive big-box market,” Morris noted. “This is holding industrial leasing in check. Only 11 out of the 38 markets tracked by Cushman & Wakefield posted increased activity year-over-year.”

Greater Los Angeles continued to lead the nation in leasing volume, with 7.7 million square feet in activity through March (down 16 percent year over year), followed by Dallas/Fort Worth, with 6.8 million square feet (up 13 percent year over year). Seven markets posted double-digit gains during the first quarter, with Northern New Jersey up 43 percent year over year, and Philadelphia recording a 74 percent increase.

A shortage of top-tier industrial space has placed continued upward pressure on rents. Average asking rates grew in most major markets tracked by Cushman & Wakefield, with the national direct average climbing from $5.73 per square foot to $6.03 per square foot during the past 12 months. Houston led the way with a 10.3 percent year-over-year average rent increase.

“The supply/demand imbalance also continues to fuel construction activity, including both build-to-suit and speculative product,” Morris noted. “Virtually all of the top markets are seeing construction pipelines return to near pre-recession levels.”

Dallas/Fort Worth and California’s Inland Empire are leading the nation in construction, with 16.5 million square feet and 14.8 million square feet of total volume, respectively. In Dallas/Fort Worth, 14.4 million square feet of that total is being built on spec. Of the 85.8 million square feet of total development expected to be completed nationwide by year-end 2014, 51.7 million square feet is speculative.

“Moving forward, we are watching a number of private sector developments that will likely add near-term momentum to the industrial real estate market’s positive trending,” Morris said. “Among them, we anticipate a continuing revival of the housing sector, the activation of pent-up consumer demand and rising export volume. Most importantly, we are beginning to see a shift in business attitudes and a greater willingness to take risk, which will lead to stronger employment growth and increased investments in people and equipment.”

* Indicates change in “percentage points” from prior year (not percent).


Mostly Positive Indicators Show Strong Phoenix Industrial Market


The Phoenix industrial market continues its convincing march toward recovery by reaching several important milestones.

As a more resilient sector during the recession, the industrial market was not plagued with as much bad debt and CMBS loan defaults as others sectors. Industry experts concluded that the industrial sector would recover faster as favorable economic conditions such as durable goods orders and manufacturing output favored the industrial market early.

The sector has posted 10 straight quarters of positive absorption going back to 2010. Vacancy rates have returned to levels not seen since 3Q 2008. This positive direction reflects a rebound in U.S. exports, consumer spending and online purchasing, which has led to a high demand for large distribution space in which there are few options in the Phoenix market.

Confidence in the industrial market and Phoenix in particular, has brought renewed interest in developing new projects. Most new construction is a combination of build-to- suit manufacturing space and several new speculative projects to meet the demand for 100,000+ SF distribution space.

Industrial investment sales transaction velocity remains quite strong despite being down from last quarter’s significant level. However, price per square foot has increased again this period as it has quarter after quarter since 3Q 2009. Industrial land sales transactions were also strong this quarter, posting its best month in a year and second best quarter since 3Q 2008.

But not all is well in the industrial sector. Rental rates, despite slight improvements in several areas, continue to struggle to gain momentum overall. Leasing activity remains sluggish and has slowed by 28% compared with last quarter and is the lowest third quarter total since 3Q 2008.

“Larger leases tend to make up a stronger percentage of leasing activity while currently leases less than 100K SF are proving to be less robust,” says Matt DePinto, Senior Research Analyst with Lee & Associates.

The Valley’s industrial vacancy settled at 13.2%, a 20-basis point drop from last quarter and the lowest overall vacancy rate since 3Q 2008. Absorption settled at a positive 758,573 SF, a far cry from last quarter’s nearly 2.6 MSF of space; however, it completes 10 straight quarters of positive absorption. Year-to-date absorption is at 3.5 MSF.

Eleven projects totaling 3.857 MSF are under construction this quarter. Coldwater Depot, a 56-acre project in Avondale, was the first spec project to announce plans to build a 603,863 SF distribution building since the recession began. There were no deliveries of industrial product this quarter.

Rental rates were flat this quarter at $0.51 PSF (monthly). The Northwest and the Southeast submarkets experienced the most rental growth compared to other submarkets. The Airport Area rates showed the greatest decline. In the largest lease transaction for the quarter, States Logistics Services, Inc. renewed their lease for 276,336 SF at 10397 W. Van Buren St., Tolleson.

There were 96 sales transactions totaling $223.6M, which is down from last quarter’s $350M+ quarter, however, it is the second strongest of any quarter since 4Q 2008. Average PSF was posted at $63.38 and is the highest price per square foot in three years. Actual cap rates have fallen to 6.0% from 6.7% last quarter.

The largest sales transaction of the quarter totaled $90,290,000 for 1,267,110 SF of Class A distribution space at 800 N. 75th Ave. in Phoenix. The buyer was a private REIT, Industrial Income Trust, Inc. of Denver. Price per square foot was calculated at $71.26.

The industrial market outlook remains positive as the Arizona and the U.S. economies continue to improve. Expected population increases here and better than average employment figures have helped bring renewed optimism. Greater speculative development in the Valley has taken hold to fill gaps in inventory.

“This boosts not only optimism in this sector but creates more investment opportunities for the community as well,” DePinto adds.

Lower unemployment figures, higher consumer spending, available inventory at low interest rates, all add up to a sector that is moving confidently in the right direction.


Phoenix Industrial Market Absorption Strongest Since 3Q 2006

The Phoenix industrial market continues to move forward by posting impressive figures in the second quarter. After last quarter’s slower-than- expected results that mirrored other commercial sector slowdowns, the industrial sector proved again its remarkable ability to rebound.

Vacancy, absorption, lease activity, sales activity and rental rates were all in positive territory. With so much product absorbed, demand is building for large distribution space, forcing spec building interest to the forefront. In fact, the first spec building in the post-recession economy has officially broken ground in the West Valley. Net absorption was the highest this quarter since 3Q 2006.

The industrial sector has been able to ride out the economic turmoil better than other sectors for a variety of reasons — changing patterns in online and brick- and-mortar shopping have forced retailers to lease or build regional distribution centers throughout the U.S.; a relatively small amount of outstanding CMBS debt; and lower-cost markets such as Phoenix, have benefitted from this. The amount of construction, while increasing, is still low historically and should push occupancy and rental rates up over the next year.

“Many variables in the Phoenix industrial market have turned positive over the past year and that is expected to continue. We’ll begin to see more build-to-suit activity as well as a return to spec construction as confidence in this sector grows,” said Matt DePinto, senior research analyst with Lee & Associates.

The Phoenix industrial vacancy has fallen to 13.4% from adjusted 14.2% last quarter. This 80-basis point decline brought the rate to its lowest level since 3Q 2008. This translates to a significantly increased absorption rate of 2,575,275 SF. This total is nearly ten times the absorption increase in the first quarter of 2012. Each building type in each submarket cluster showed positive absorption with the exception of the Southwest Valley Flex building sector with a modest decrease of 24,968 SF.

Construction starts are up more 500,000 SF compared with last quarter. Most of the remainder of the 3.14 MSF are large, build-to-suit buildings including Intel Corp., First Solar and Dick’s Sporting Goods. More speculative building will begin to take hold with the upturn in absorption and low cost to build. Completions this quarter totaled 326,674 SF. The largest building, MiTek’s manufacturing facility delivered 259,200 SF this quarter.

Rental rates were up only slightly from last quarter at $0.51 PSF, monthly (or $6.12 on a yearly basis PSF), but are moving in the right direction for the past

With increasing activity and the relatively low percentage of completions, rental rates should continue to rise. The Northeast Valley showed the largest increase from last quarter rising by $0.3 PSF, per month.

Leasing activity has improved over last quarter posting 3.7 MSF leased compared with 3.3M last quarter. However, the number of transactions has dropped. Overall activity remains steady, but below historic levels. Current activity has a direct effect on future quarters as move-in dates impact data as it is applied to the respective quarterly totals. The largest lease of the quarter was for a 358,830 SF renewal for Total Warehousing Inc. at 435 S. 59th Ave. in Phoenix.

Sales transaction activity was strong in the second quarter totalling $270M, over four times the total dollar amount in the previous quarter. Average price PSF was $62.19 which is the highest level in the past five quarters. The largest sales transaction was for two Class A distribution buildings at 4747 and 4750 W. Mohave St. in Phoenix for $131.6M. Price per square foot was $83.13. The buildings have a total of 1,583,781 SF. Cap rates lowered substantially to 6.7% compared with 8.6% last quarter. Lower risk has brought more investors to the market while prices are still relatively reasonable.

The Phoenix industrial market has weathered the economic conditions of the past few years very well compared with other CRE sectors. This is not to say that it has been a walk in the park, but the resiliency of this market sector and its ability to rebound has been extraordinary.

There is clearly momentum building as an eventual recovery will bring greater opportunities for those with the vision to see the possibilities. Those waiting on the sidelines could have missed some early benefits, but can still reap rewards as the market continues to recover.

Metro Phoenix 1Q Market Analysis

CBRE Releases 1Q 2012 Analysis Of Metro Phoenix Office, Industrial And Retail Markets

CBRE has released its 1Q 2012 market analysis of the metro Phoenix area office, industrial and retail sectors.  Report highlights include:


  • The overall office market vacancy rate increased modestly in the first quarter of the year, rising from 25.5% at year-end 2011 to 26.1%. While vacancy remains high, the Phoenix area ranked fifth among major U.S. metropolitan markets in terms of absorption in 2011.
  • The average asking lease rate for existing office space continued to decline, ending the first quarter at $20.72 per SF. This marks the eighth consecutive quarter in which rates have decreased.
  • Just 959 SF of positive absorption was recorded throughout Metro Phoenix in the first quarter of the year. This was due, in part, to favorable market conditions causing tenants to renew early or trade up in terms of building class. Class A buildings had 266,875 SF of positive absorption, while Class B assets had 320,297 SF of negative absorption. Class C buildings reported positive absorption of 54,381 SF.
  • Speculative construction has returned, with a 92,109 SF office building breaking ground in the Chandler submarket. However, new product is not predicted to significantly impact the Valley’s vacancy rate in the near term.



  • The industrial market recorded 1.5 MSF of positive net absorption in the first quarter. Leading the way was the Southeast submarket, reporting 795,912 SF of positive absorption. Conversely, the Northeast area reported negative absorption of 42,903 SF.
  • The overall industrial vacancy rate has dropped by slightly more than two full percentage points year-over-year to end the first quarter at 12.1%. Distribution product experienced the greatest improvement, declining from 16% to 11.4% during the same period. However, general industrial space has increased in vacancy, climbing to 17.2% from 15% one year ago.
  • The average asking industrial lease rate for existing product has remained flat since the end of 2009, hovering fairly consistently between $0.55 and $0.54 per SF. The average rate at the end of the first quarter stayed at $0.55 per SF.
  • Build-to-suits continue to dominate the market, representing 97.6% of all current construction activity or 3.25 MSF. Yet, it is expected that speculative construction on the first large-scale distribution building will occur this year, due to continued demand for space and a lack of product greater than 500,000 SF.



  • The Phoenix area retail market recorded 663,337 SF of positive absorption in the first quarter, which is the largest quarterly gain of occupied space in the past three years. Of its 12 submarkets, only Scottsdale recorded negative absorption in the first quarter, with a loss of 23,319 SF.
  • The overall retail vacancy rate in Metro Phoenix declined half a percentage point in the first quarter to 11.7%. The Mesa/Chandler/Gilbert submarket, which has the largest rentable area, reported the highest vacancy, 14.7%, while Apache Junction had the lowest vacancy rate, 6.4%.
  • The average net asking lease rate for existing retail space throughout the Phoenix area continued to decline in the first quarter of the year, dropping from $15.90 per SF at year-end 2011 to $15.71 per SF. By comparison, the current rate is identical to the average net asking lease rate one year ago.
  • While the total amount of available big box space decreased in the first quarter, leaving the market with 295 spaces and 8.1 MSF, it remains a concern for property owners. Much of this space, 71.5%, is classified as class C or D, which remains the most challenging product to backfill.