With the Valley’s housing market healthy again, developers and builders of industrial and office properties are hoping to ride the wave.
With the recession (hopefully) a distant memory, the industrial sector has sprinted out to the lead.
“Industrial projects have significantly outpaced office projects in our pipeline,” says Andrew Geier, executive vice president at Layton Construction. “Since finishing the Cigna Phoenix Central Multi-Specialty Center in late 2012 with Clarius Partners, most of our office portfolio has been comprised of tenant improvement projects.
In regard to industrial construction, Layton is 70% complete with its 1.5 MSF Marshalls Distribution Center. The Marshalls project has several unique features, Geier says. Other than its sheer size, it also boasts 52-foot clear heights and 6,500 kilowatt of generator back up power.
“We are also currently building out 80,000 SF of space for Maxwell Technologies,” Geier says. “The facility will produce carbon film used in capacitor production.”
In addition, Layton was recently awarded a 400,000 SF expansion to Macy’s Fulfillment Center in Goodyear. Also in Goodyear, Layton has been awarded the new 160,000 SF foot facility for The Cookson Company, Inc., an industrial door manufacturer.
“Our outlook for industrial projects remains very positive,” Geier says. “Obviously a strong backlog of projects helps shape that opinion, but we also think that the Valley offers several advantages for companies searching for a new location. Our positive outlook includes new speculative buildings, but we think the majority of the spec buildings will be industrial — with spec office lagging well behind.”
The West Valley appears the hot spot for industrial projects, says Tammy Carr, vice president business development for Howard S. Wright Construction, a Balfour Beatty company.
“Clearly it (the West Valley) has seen significant planning efforts in the speculative industrial sector and all of our industrial developer clients are seeking the appropriate timing to bring more product online,” Carr says. “Most seem to be continuing forward with design of facilities around the 400,000 SF range, but with a very watchful eye on the leasing results of those currently under construction.”
Balfour Beatty Construction just delivered to market a 185,834 SF refurbished cross dock distribution facility for Liberty Property Trust. The facility, Liberty Sky Harbor Center, is at 2626 S. 7th St. in Phoenix. This same client, Carr adds, is also partnered with the City of Tempe on a 100-acre, 10-year development plan for the construction of office, industrial and commercial flex space named Liberty Center at Rio Salado which will kick off later this year with a possible speculative office building.
“Additional new to market industrial projects for Balfour Beatty includes a process facility in the East Valley,” she says. “Whereas the West Valley seems to be the speculative king, the East Valley seems to have captured the hearts and commitments of the end users.”
From Sundt Construction’s perspective, speculative development is still not something it is seeing a lot of in the office sector.
“We have, however, seen good activity in the private office market, including projects related to tenant improvements, renovations, and build-to-suits,” says Ian McDowell, pre-construction manager Southwest District.
“We recently completed tenant improvements for Allstate Insurance and in the Fountainhead Corporate Park as well as a renovation at the Arizona Public Service Deer Valley campus,” McDowell says.
Sundt also has secured three additional office projects in the past three months: a renovation for a public utility company, a tenant improvement for a private company, and a new build on an existing campus for a private client. Total value of these projects approaches $90M, McDowell says. Jobs for Sundt’s office clients comprise nearly 40% of its new work this year and McDowell says the company expects that trend continuing into 2014.
“We have also seen a big uptick in developer activity in the office market,” McDowell says. “Many of the developers we are working with are seeking key anchor tenants which will be the catalyst to kick off some very attractive office projects in the next year. We believe private developers are among our best business prospects and plan to closely monitor that market for opportunities.”
When it comes to office projects in the Valley, DPR Construction is keeping busy. Tenant improvement clients include Willis North America, Digital Realty Trust, eBay, Morgan Stanley & Co., and Alliance Project Advisors.
“I feel we (the Valley) are returning from the recession a little better than other areas,” says Michael Rauschenberger, commercial office leader for DPR. “What’s happening now is office space is getting gobbled up by larger tenants. There are more and larger users coming to town. They are looking for 100,000 SF to 150,000 SF in a building, or in a couple of buildings.
“It may be 6 to 8 months before settling on a building and then it’s not what they want. Then it’s a TI, and they end up on two floors. Trying to find Class A office space on contiguous floors is getting harder and harder.”
What’s fueling the office trend? Phoenix is the third fastest growing city in the U.S. coming out of the recession. California is facing tax issues. Lease and rental rates are low. Deals are getting made. And has a pretty stable economy.
Rauschenberger predicts there will be more product on the market in the next year to year and a half. He also says there is an increased demand for renovated and repurposed buildings in Metro Phoenix. And DPR has perhaps the best example of this: its award-winning headquarters at 222 N. 44th St. in Phoenix.
According to industry experts, sustainable features are consistently and steadily being requested by businesses seeking space in existing renovated, repurposed and updated buildings. Tenants, apparently, are willing to pay for sustainable features. As a key player in corporate office renovations and repurposing, DPR is leading the charge with its LEED Platinum office which was recently certified as the world’s largest Net-Zero Energy Building (NZEB) by the International Living Future Institute (ILFI) through its Living Building Challenge (SM) program.
“Our office is a living, breathing lab, and a showcase for sustainability,” says Rauschenberger, who adds DPR conducts four to five HQ tours a week. “Whether it’s a TI or ground up, users are incorporating more and more sustainable features. Some of these companies have a sense of pride and care about the people that work there.
“People should like to come to work,” he says, “and we’re seeing that more and more. It’s amazing to see how these new projects are starting to embrace a change in office design.”