Phoenix industrial real estate market maintains strength

Above: Corridors Industrial Park. Real Estate | 16 Oct |

The Phoenix industrial real estate market remained steadfast and unwavering during the third quarter, producing strong activity yet again and reflecting the consistent demand this industrial market has shown cycle after cycle, according to Kidder Mathews’ latest market report for the Phoenix commercial real estate industrial market.

Leasing activity continues to be strong and the volume of sales transactions more than doubled compared to this time last year. Furthermore, the development pipeline has hit a post-recession record high with approximately 6.9 million square feet currently under construction, which the market hasn’t experienced since 2007. With relatively few barriers to development and positive economic and demographic trends, Phoenix has emerged as one of the fastest growing industrial markets in the nation and we expect the market to finish the year out strong.

Vacancy rates continued to hover at a record low 7.3%, a notable dip of almost 1% from third quarter of last year which posted at 8.2%. Vacancies have tightened substantially, fallen by a staggering 900 basis points since the Great Recession. The Southwest submarket cluster posted the highest vacancy rate at 8.4%, while Pinal County reflected the submarket cluster with the least amount of vacant space at a tight 3.1%. With over half of the 6.9 million square feet of industrial space under construction due to deliver by year end, it could temporarily ease the compressing vacancies of the tightened market.

Asking rental rates for all industrial properties ended at a high for the third quarter at an average price of $0.57 per square foot on a triple-net basis. The average annual rent growth has seen a bit of a slowdown the past couple years but is currently posting at a peak since the recession. Asking rates are highest in the Northeast submarket cluster at an average of $1.03 per square foot, an all-time high for this location in the past 10 years. This submarket cluster comprises the larger share of flex and R&D properties, as opposed to other industrial types, influencing the higher rental rates. By contrast, the lowest rates are found in the Southwest cluster, which reported an average asking rent of $0.42 per square foot on a triple-net basis. The average asking rental rates in all industrial products are at an all-time post-recession high across the Phoenix market, with asking rental rates for warehouse and manufacturing space averaging $0.56 per square foot, while flex spaces are on the market for an average $1.08 per square foot.

After coming off a strong second quarter with net absorption of approximately 2.4 million SF, the market still showed positive trends, posting 700,000 SF of positive net absorption for the third quarter and a healthy 4.7 million SF year to date. Manufacturing and warehouse properties amount to over half of the positive net absorption for the market, posting 2.7 million SF. Sales transactions climbed to over 7.5 million SF in volume, an astounding increase from 3.2 million SF that transacted in the third quarter of last year. Additionally, the average sales price per SF grew to $99/SF compared to $97/SF same time last year, portraying an upward trend in sales price year-over-year.

Notable Lease Transactions

• Albertsons, 400 S 99th Ave, Tolleson, 910,250 sf Leased

• Cascade Windows, 2225 S 75th Ave, Tolleson, 155,794 sf Leased

• Educational Furnishings of Arizona, 6913 W Buckeye Rd, Tolleson, 86,650 sf Leased

Notable Sale Transactions:

• CrossHarbor Capital Partners | 6835 W Buckeye Rd | Tolleson | 1,009,351 SF | $93.3M or $97.41/SF

• CBRE Global Investors Acquisitions | 7775 W Buckeye Rd | Tolleson | 684,420 SF | $48.5M or $70.86/SF

• AEW Capital Management | Corridors Industrial Park | Deer Vly/Pinnacle Pk | 220,259 SF | $29.6M or $134.16/SF

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