Tag Archives: phoenix industrial sector

Coldwater Depot

Industrial Sector Suits Up

If Q1 reports are any indication, the Phoenix metro’s industrial sector is suiting up for an interesting year. Intel finished construction on its 2.2MSF manufacturing fab in Chandler, Ariz. It sits vacant with hopes for adaptations into a manufacturing facility for chips.

The 700KSF Buckeye Business Center is under construction without any tenants. Last year, Turner Spectrum Ridge broke group on eight industrial buildings that totaled 120KSF of space in Deer Valley. And WinCo Warehouse is expected to complete a 800KSF distribution facility in Q2 2014. While there are a handful of tenants looking for large industrial spaces, a majority of market demand lingers between 20KSF and 100KSF.

Still, Phoenix ranks No. 3 in the country for year-over-year construction completion increases, according to Cushman & Wakefield’s Q1 2014 report. In Q1 2013, 316KSF of industrial product was completed. In Q1 2014, that number jumped to 2.1MSF. Another 2.7MSF is being developed. Industrial vacancy in Phoenix is at 10.5 percent, still above the national average (7.4 percent), Cushman & Wakefield reports. Vacancy reached a two-year high, reports Colliers International, and vacancy in buildings larger than 100KSF has spiked to 16 percent, while vacancy in buildings of 200KSF and larger has more than doubled in the past year to 17.6 percent.

“But the glass is half full,” says Marc Hertzberg, managing director of industrial/supply chain and logistics solutions at JLL. “Phoenix remains a great place for labor, lower operating costs and quality of life. Economic conditions are improving and we expect to bounce back.”

“Phoenix typically absorbs somewhere between 3.5MSF and 4.5MSF of industrial space per year,” says Hertzberg. “We’ve been off this mark for about 12 months now, but we are not the only market in this position. Our large-scale industrial sector is a mirror image of a phenomenon taking place in southern California, and particularly the Inland Empire, which usually absorbs as much industrial space in one quarter, approximately 4MSF, as Phoenix does all year. At almost mid-year, that market has only absorbed 3.4MSF.”

The sweet spot, he says, are the small- and mid-size users who need between 75KSF and 200KSF. “The small- and mid-size users are typically made up of higher-wage specialized employers like medical and high-tech companies,” Hertzberg says. “They are looking for fully-air conditioned flex industrial space that is close to quality labor, vendors and transportation, and they are willing to pay prices of approximately 10 to 20 percent higher than the big-box users in the areas of west Phoenix to secure those factors.”
Build-to-suit construction is what companies need to factor into their projections, says Hertzberg.

“In the build-to-suit sector, vertical markets like e-commerce and food and beverage are providing us with some positive absorption, however this does nothing to fill existing space,” he says. “Rather, it is adding specialized building inventory to our market—product that is built specifically for its user versus the specs of an existing warehouse.”

“We are seeing an aggressive level of capital looking to be placed in Phoenix,” says Cassidy Turley’s Industrial Group Vice President Will Strong. Companies are looking toward build-to-suit options over taking existing buildings, he says.

“New industrial developments are pushing higher on clear height, bigger on truck courts, and are continuing to find better, more efficient and modern ways to meet the tenants’ changing facility needs,” he says. “We are seeing companies increase employment density for fulfillment centers, which in-turn pushes the parking requirements higher than a traditional warehouse user would have.”

Spec is also being leased up. Coldwater Depot in Avondale, Ariz., the Trammel Crow-Clarion project, entered the market with 600KSF in spec development and leased out to Conn Appliances and SanMar Corp.

“Capital markets are really looking at Phoenix hard right now because they can’t find anything to buy in other markets that pencils out,” Strong says. “This has pushed investors to look not only at traditional listings but also off-market opportunities. Whether current owners will sell is another question. Some are contemplating offers, but even if they were to sell they’d need to determine where to put their money next, and if that investment has the same kind of upside potential as Phoenix industrial space.”

Market Analysis

CB Richard Ellis 2Q 2011 Market Analysis

CB Richard Ellis released its 2Q 2011 market analysis of the Phoenix area office, industrial and retail sectors and report highlights include:


The office market vacancy rate decreased slightly in the second quarter, declining to 26.0 percent from 26.3 percent at the end of the first quarter. During the same time period, vacancy among class A buildings declined by one and a half percentage points to 22.8 percent.

The average asking lease rate for existing office space declined for the fifth consecutive quarter to $21.21 per square foot. However, market rents appear to have bottomed out and there is modest rental growth in class A space.

At the end of the second quarter, the Valley’s office market had 556,772 square feet of positive absorption. Class A and B assets accounted for 524,441 square feet and 127,082 square feet of occupied space, respectively, while class C properties had 94,751 square feet of negative absorption.

The office market will not be impacted by the addition of speculative product. The only reported construction are build-to-suits, consisting of two buildings totaling 439,070 square feet in Tempe and a 225,000-square-foot building in the Deer Valley submarket.


The industrial market had its fifth consecutive quarter of positive absorption, recording 848,042 million square feet. This compares to 1.1 million square feet of positive absorption for the same period last year.

The industrial vacancy rate has dropped by more than a full percentage point in the past two years, declining to 13.9 percent from 15.2 percent in the second quarter of 2009.

An increasing number of companies are looking at the metro Phoenix industrial market as an alternative to locating or expanding in California. In addition to solar-related companies, there has been an increase in distribution and logistics activity primarily in the Southwest Valley.

There has been considerable improvement in the metropolitan Phoenix distribution market, pushing its vacancy down to 15.9 percent from 21.1 percent one year ago.


In the second quarter, the metropolitan Phoenix retail market posted 450,151 square feet of negative absorption. A contributing factor was the closing of a number of Borders Books and Ultimate Electronics stores, which collectively vacated 448,938 square feet of occupied space.

In the past 12 months, the retail vacancy rate has risen 40 basis points to end the second quarter at 12.6 percent. However, vacancy has increased 510 basis points from year-end 2008, when the rate was 7.5 percent.

The average net asking lease rate for existing retail space throughout the Phoenix area increased in the second quarter of 2011, up to $15.86 per square foot from $15.71 at the end of the first quarter and $15.53 per square foot at the end of 2010. Yet, the rate is 2.7 percent lower than one year ago when it was $15.95 per square foot.

The availability of big box space remains a concern for property owners Valley-wide. There were 326 big box spaces greater than 10,000 square feet, totaling 8.9 million square feet of available space at the end of the second quarter. This compares to 99 big box spaces and 2.4 million square feet of available space at the same time in 2006.

For more information about CB Richard Ellis, visit cbre.com.