There is now almost 49 million square feet of new industrial construction underway in metro Phoenix, created in part by 31 speculative groundbreakings that during the second quarter added an additional 6.6 million square feet of planned space to the Phoenix pipeline, according to the Q2 2023 JLL Phoenix Industrial Insight report.
During the second quarter, 17% of under-construction industrial space and 56% of completed industrial space was pre-committed. Pre-leases represented almost 43% of the more than 4.7 million square feet of new leasing activity completed during the second quarter. This included four leases representing more than 1.5 million square feet of space, committed by companies either relocating or expanding out of California.
“Phoenix remains an industrial frontrunner not only in the region but also in the nation,” said JLL Senior Managing Director Pat Harlan. “There is such a backlog of demand for new space that buildings are being leased long before they complete, by a population of tenants that is becoming increasingly diverse. This has kept vacancy rates notably low and rents rising – though stabilization may be in our not-too-distant future.”
Per the JLL report, Phoenix’s traditional industrial leasing drivers remain the logistics, e-commerce and advanced manufacturing industries, but there is also rising activity among food and beverage companies. Overall, the local industrial vacancy rate sits at just 3.1 percent, though that rate may increase as a massive pipeline of new construction works to catch up with – and maybe even exceed – demand.
According to JLL, the Phoenix industrial rental rate as of the end of Q2 2023 is $0.79 per-square-foot, representing a 20% year-over-year increase but still competitively low compared to competing markets in the region, which continues to provide Phoenix a strategic advantage.