January 18, 2018

AZRE

Phoenix industrial absorption hits all-time high

JLL Q4 Phoenix Industrial Report Highlights:

  • – 2017 recorded the largest annual net absorption gains in Phoenix history.
  • – This marks the fourth consecutive year of annual net absorption totaling 6-million square feet or more, not seen since 2004-2007.
  • – Total vacancy fell to 7.6 percent, the lowest rate in 10 years.
  • – Asking rates increased 4.2 percent year-over-year, with no signs of growth slowing in the near future.

JLL Industrial Insight Q4 2017 Report

In 2017, the Phoenix industrial market achieved its largest annual net absorption gain in market history, reaching 9.8 million square feet by year end and marking the fourth consecutive year of annual net absorption totaling 6.0 million square feet or more – a feat not reached since 2004 to 2007 – according to the Q4 2017 JLL Phoenix Industrial Market Insight report.

These benchmarks were accompanied by other highly positive market factors including annual rent growth of 4.2 percent and a drop to 7.6 percent in overall vacancy, the lowest in 10 years. And the industrial market shows no sign of slowing.

“This is an exciting time for industrial real estate in Phoenix,” said JLL Vice President Riley Gilbert. “We’re seeing well-rounded activity across the board, from smaller and mid-size industrial users to big box distribution. And all submarkets throughout the Valley are active with demand from a variety of industries.”

JLL Industrial Insight Q4 2017 Report

Unlike previous cycles, which relied heavily on the homebuilding industry, the JLL report notes that demand and risk in the current Phoenix industrial market is now spread across a diverse range of growing sectors. Some of the most active of these are e-commerce, food and beverage, logistics services and manufacturing, with growth being generated among companies with footprints already in Phoenix and from new users entering the market.

According to JLL, 2018 could exceed 10-million square feet of net absorption along with an increase in speculative development to meet unprecedented demand.

“In the Southeast Valley alone, we expect to see 500,000 to 700,000 square feet of new product break ground this year,” said JLL Senior Vice President Steve Larsen. “This space will provide modern amenities to meet the high demand from technology and advanced manufacturing users in this area. We’re also seeing a notable level of activity from pharmaceutical users.”

With developers more cautious and less willing to gamble on speculative projects, Phoenix has avoided the overbuilding that resulted in one of the highest vacancy rates in the country by 2010. Today, vacancy sits at its lowest rate since 2007, falling 140 basis points this year alone. Additionally, rates are still below the previous peak of $0.58 p.s.f. reached in 2008.

Outlook

Despite the many milestones that the Phoenix industrial market has reached during the current expansionary period, it’s hard not to fear a bust following the boom –especially for those who remember how the last cycle ended. However, everyone is bracing for an impact that doesn’t seem to be coming. With vacancy continuing to decline, absorption outpacing construction and rate growth holding steady, there haven’t been any signs of a slowdown.