Phoenix was named the No. 2 top growth market in North America for large-warehouse leasing activity, following Houston, with 10.5 percent of its inventory absorbed in 2021, according to a new report from CBRE.
Transactions nationwide for big-box warehouses – those of 200,000 sq. ft. or larger – hit new highs in 2021, as retailers added safety stock to limit supply chain disruptions and continued to meet online shopping demand. This category recorded 450 million sq. ft. of transactions in the top 23 North American markets last year, up significantly from 350 million sq. ft. in 2020. The study includes markets with more than 75 million square feet of big-box product.
READ ALSO: Phoenix industrial market sets all-time records in 2021
Phoenix was named a top-10 market for under construction activity, with 22 million sq. ft. in the pipeline – the fifth highest total among markets in this report. However, with surging demand, 38% of this product is already leased.
General retailers & wholesalers accounted for 62 percent of total leasing activity in the Phoenix metro last year, followed by 3PLs at 21 percent. Despite a significant amount of construction, oversupply concerns are minimal due to strong preleasing and the reduction in existing vacant space. The market’s growing population and available supply will increase investor interest and keep cap rates below 4 percent.
The region’s local warehouse labor force of 72,729 is expected to grow by 17.3 percent by 2030, according to CBRE Labor Analytics. The average wage for a non-supervisory warehouse employee is $15.53 per hour, 4.2 percent higher than the national average.
“We are tracking more than 30 million square feet of active tenants in the market today, with more than one-third looking to occupy 200,000 square-foot plus spaces,” said Phoenix-based CBRE Senior Vice President Jackie Orcutt. “E-commerce, wholesale, and 3PL demand has stayed very strong in our region, spurring speculative development and pre-leasing in markets like Buckeye and East Mesa. The demand to support the fast-growing population in Greater Phoenix, coupled with relatively easy access to the ports, has brought a lot of in-bound supply of products to the Valley.”
She added, “Plus, so far in 2022, CBRE is reporting nearly 50 percent of the current tenants in our market are tied to manufacturing uses. With the signing of the Federal Chips Bill, the semiconductor industry has been spurred into major action here. Arizona is top five in the nation for semiconductor component exports and employment. Furthermore, Arizona has positioned itself as a leading state for electric vehicle and battery manufacturing.”
National Trends
Chicago led all markets with 59.4 million sq. ft. in transactions, followed by Inland Empire (49.2) and Southern New Jersey – Eastern Pennsylvania (48.7).
General retailers and wholesalers led the way in transactions at 35.8 percent, followed by third-party logistics (32.2 percent) and last year’s leader, e-commerce-only users (10.7 percent). National vacancy rates in this category fell to a record-low 3.4 percent, down from 4.6 percent in 2020.
Construction completions were down slightly in 2021 at 186.7 million sq. ft., compared to 194.4 million sq. ft. the year prior. Some relief may be found in the construction pipeline, which is at a record 323.9 million sq. ft.
“Consistent construction completions will be essential for sustained transaction activity in 2022,” said James Breeze, Global Head of Industrial & Logistics Research for CBRE. “The demand is there, but supply is extremely tight. If projects are delayed due to lack of materials or slow delivery from supply chain challenges, occupiers will find it difficult to make big moves.”
To download the report, click here.
