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.