The Metro Phoenix industrial market saw new deliveries soar to a record high in the third quarter, according to a new report from Kidder Mathews.

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Market highlights:

  • NEW DELIVERIES soared a record high of 13M SF.
  • RENTAL RATES jumped to a record $1.04 PSF NNN.
  • SALES VOLUME fell QOQ and YOY to 4.8M SF.

Market Drivers

  • After the surge in activity experienced in recent years following the onset of the pandemic, the Phoenix industrial market is beginning to shift towards a more normalized trajectory. With the substantial volume of new deliveries in 3Q, vacancy and availability rates have increased 40% YOY and 31% YOY respectively. 
  • The unprecedented volume of the industrial construction pipeline puts Phoenix on the map for ranking among the top in the nation for not just construction activity but as a frontrunner for demand and growth. An insurmountable record high of 13.1M SF of space was delivered in 3Q alone, with another 30.7M SF projected to complete by year end. 
  • Despite the impact of higher interest rates and stricter lending standards, deals are still being made throughout The Valley. Although sales volume is waning from the record high numbers experienced in the past couple years, there is significant interest from investors in newly constructed, strategically located assets.

Economic Overview

  • The Phoenix market continues to excel as one of the nation’s top performing markets for employment growth. Thanks to a diversified employment base across multiple industries, the labor market now has over 150,000 more jobs than pre-pandemic, the fourth-largest gain in the nation. 
  • According to the Arizona Office of Economic Opportunity, Phoenix metro’s unemployment rate in August increased 10 basis points YOY to 4% but decreased 20 basis points month-over-month from 4.2% in July. This is compared to the state’s unadjusted rate of 4.6% and national rate of 3.9%.

Near Term Outlook

  • While many other major industrial markets are experiencing a cool down, Phoenix remains in high demand for logistics, e-commerce and manufacturing users looking for mega warehouse space. This is especially apparent with the migration of companies leaving nearby markets in CA, such as Inland Empire, seeking discounted rates. This trend will continue into the coming years, helping Phoenix to stay at the top of the industrial ranks among the nation. 
  • Due to the overwhelming construction pipeline, it is expected that vacancy rates may experience a temporary spike in the market and demand being outpaced, due to the sheer volume of projects being delivered by year end, most without a tenant in place. 

The information in this report was composed by the Kidder Mathews Research Group.

Data source: CoStar, AZ Office of Economic Opportunity, AZ Central, AZ Big Media