The Metro Phoenix economy continued to improve adding 55,500 jobs over the past 12 months through March, marking an annualized job growth rate of 3.0%. The unemployment rate declined to 4.8%, the lowest rate since
2008, down 160 basis points (bps) from a year ago and 70 bps lower than the national rate. The educational and health services sector added 11,800 jobs over the past year, the most of any sector. The trade, transportation and utilities sector gained 10,900 jobs, while manufacturing lost 1,200 jobs, down 1.0% from a year ago. Through March, the area’s total nonfarm employment tallied 1,904,600 jobs.
The industrial market finished first quarter with an overall vacancy rate of 12.5%, up 160 bps from a year ago, largely due to 6.2 million square feet (msf) of new construction the past four quarters. The uptick in inventory caused triple net (NNN) asking rents to decline to $0.56 per square foot per month (psf/mo), down 3.3% year over year. With 2.msf transacted, leasing activity remained solid, up 27.2% from the same time a year ago. Demand for mid-sized space has increased as supply diminishes in select submarkets.
Construction activity picked up with nearly 3.0 msf under construction, of which 2.2 msf is speculative. Increased demand and heightened pre-leasing activity spurred developers to break ground in most submarkets across the metro area.
Sales activity tallied more than 2.1 msf in first quarter, with investment sales accounting for 1.6 msf of the total. Most sales activity occurred in the North Tempe and Chandler submarkets, which have some of the lowest vacancies for specialized tenants in the market. The largest transaction for the quarter was the future distribution facility for FedEx in Chandler. The 316,034-sf facility was purchased by Rood Investments for $50,179,000 ($159 psf). The building is currently under construction and is expected to be completed in June. Real Capital Analytics reports, for properties that sold for $2.5 million or more, the average price/psf is up 13.0% from a year ago to $90 psf and the average cap rate increased 2.0 bps to 7.3%.
Strong employment growth, the recovering housing market and improved market fundamentals have Phoenix well-positioned for sustained growth in the coming year. Healthy leasing activity is expected to continue, creating positive absorption this year. Vacancies levels will remain steady as much of the large vacancy remains in larger properties, which will take time to lease.