Colliers International recently released its 2018 Big-Box Market Report and the Phoenix big-box industrial market had a great year in 2017, with the bulk of the tenant leasing activity, new development and building sales concentrated in the West Valley. Solid market dynamics, a good labor pool and new infrastructure development are contributing to the health of the Phoenix market. Freeway expansion of both the Loop 202 and the Loop 303 will improve access to a number of submarkets in the area and will continue to open up new industrial development opportunities. 

Key Findings 

• The Greater Phoenix big-box market continues to post exceptional growth because of its proximity to a growing population, a strong workforce base, an expanded and modernized highway system and more attractive rental rates compared to markets in Southern California. Nearly five million people live in the metro Phoenix area, the 12th-highest in the U.S., and this number is expected to grow to over 8 percent in the next five years, according the U.S. Census Bureau.

• The Greater Phoenix market was one of the hardest hit by the subprime mortgage collapse and subsequent recession with overall vacancy rates for big-box product topping out at 30 percent in 2009. Much of that vacancy was occupied as the economy improved dropping to 9.9 percent in 2012, then escalating as new development increased with the rise in demand for e-commerce fulfillment centers. The market finished 2017 with an overall vacancy rate of 15.4 percent, significantly lower than 2016’s 19.9 percent because of robust activity that led to record breaking net absorption.

• Nearly 5 million square feet were absorbed in 2017 thanks to a plethora of large transactions signed by, UPS and Amazon. These transactions showcase the growing demand from e-commerce retailers and transportation companies in the region. Despite a double-digit vacancy rate, new development is strong in the region with 3.4 million square feet completing construction, the most in over a decade. New development will not subside anytime soon as over 2.3 million square feet is currently under construction.

• All signs point to continued growth in the Greater Phoenix big-box market in 2018. The region is competing with Southern California for new big-box occupiers because of its economic rents, strong labor force and pro-business environment. Because of these factors, activity will remain strong and will keep upward pressure on taking rents and sale prices and keep cap rates low for the foreseeable future.

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