Jim Fijan, Exec. VP CB Richard Ellis
January 14, 2014


Strong Absorption Lifts Phoenix Industrial Sector Off Mid-Year Slide

Lee & Associates reported the following:

The Phoenix industrial market has rebounded well from its mid-year doldrums and has regained much of what was lost to round out 2013. The sector has yet to hit its full stride and there is growing optimism as to where it might be headed. Most all indications from economic forecasters and commercial real estate experts show an improving economic engine is
providing a safer foundation for further growth throughout 2014. Much of the renewed enthusiasm that grew this quarter was largely due to Washington politicians finally reaching a budget compromise along with rising job numbers and stronger-than-expected GDP forecasts. Speculative industrial projects are underway in Phoenix and across the U.S. due to rising confidence in the economy, easier lending opportunities and the return of a more stable market.
The overall vacancy rate ended the year at 12.6%; a 30-basis point improvement from last quarter. The vacancy rate would be even lower if it were based on strong absorption alone; however, the delivery of over 1.2M SF this quarter and 5.2M SF of space for the year, offsets the decline somewhat.
Absorption finished strong in the fourth quarter posting a 2.78M SF net gain and 3.7M SF for the entire year. The Southwest Valley posted the largest net absorption gain this quarter at 1.9M SF and the Northwest Valley submarket showed the most gains over the year at nearly 1.6M SF. Construction activity declined this quarter to 4.6M SF, down from 5.2M last quarter. Fourth-quarter building completions rose to nearly 1.3M SF and included four distribution buildings; the largest being the 394,775 SF, 43rd Avenue Logistic Center at 1635 S. 43rd Ave., Phoenix. Asking rental rates have remained unchanged from last quarter at $0.52 per SF, per month and have been essentially fl at for some time.
Leasing activity has decreased each quarter since Q2. There were 472 transactions totaling 3,074,379 SF in Q4. A 418,200 SF lease by First Solar was the largest lease transaction of the quarter. It is located at SW Logistics Center, 2950 S. Litchfield Rd. in Goodyear.
Sales activity was up this quarter to $257.4M from only $167.9M last quarter. The Q4 total is the most of any quarter in 2013. The largest sales transaction for the quarter was the headline-grabbing purchase by Apple Corp. for First Solar’s former Mesa manufacturing facility at 3740 S. Signal Butte Rd. Apple paid $107.6M or $81.02 PSF for the 1.3M SF building. It plans to assemble glass touch-screen components for the iPhone and iPad in Apple’s effort to bring some of its manufacturing back to the U.S.
The Valley economy seems poised for growth in areas such as housing, employment and net-migration to the region. All of those areas in turn stimulate commercial sectors. As the economy began to improve, the Phoenix industrial market had momentum only to see it falter and restart again. It seems that the right factors are finally in place to influence steady, sustained growth with minimal interference from past issues that, over time, have become less significant.