It was another banner year for the Phoenix industrial real estate market, according a research from Kidder Mathews.

Market highlights

NEW DELIVERIES: Reached a historic high of 8.96M SF in 4Q

RENTAL RATES: Soared to a record high rate of $0.96 PSF NNN

AVERAGE SALE PRICES: Peaked in 4Q at $174/SF

READ ALSO: Here are the people to know in commercial real estate for 2023

READ ALSO: Here is the Phoenix commercial real estate outlook for 2023

Market Drivers

• An unprecedented all-time high of 26M SF delivered in 2022, expanding the market’s inventory by almost 10%. The Phoenix metro ranks among the top five markets in the nation for industrial construction activity, with a massive 45M SF currently underway.

• Taiwan Semiconductor Manufacturing Company (TSMC) invested $12B in North Phoenix when it committed to its first chip plant opening in 2024, and recently announced an additional $28B of investment in Arizona, increasing the total investment to $40B. This is the largest foreign direct investment in Arizona and one of the largest in the nation’s history.

• Investors and developers continue to be highly confident in the Phoenix market, as the competitive advantage and growth drivers are stronger than ever. Buyer competition has put an upward pressure on pricing, with sales prices averaging an all-time high of $171/SF, up more than 50% from pre-COVID levels but still affordable when compared to the nearby West Coast markets.  

Economic Review

• According to the Arizona Office of Economic Opportunity, Phoenix metro’s unemployment rate in November increased 20 basis points YOY to 3%. This is compared to the state’s adjusted rate of 4.1% and national rate of 3.7%.

• The affordability and diverse job prospects in the Valley have attracted many living in more dense and expensive cities in comparison. The labor market remains strong, although job growth is expected to decelerate in the coming year while population growth will continue to be one of the top in the nation.

Near Term Outlook

• The Phoenix Industrial market’s performance in 2022 reflected the strength and consistent demand this market has shown cycle after cycle. With the low cost of doing business, proximity to major regional markets, and favorable demographics, investors remain bullish and will continue to seek out the market for quality assets.

• Tenants have been expanding their footprints in Phoenix at a breakneck pace and the market has set records for demand over the last couple years. This is expected to cool, however, as the record new supply is projected to slightly overwhelm leasing in coming quarters. Upward pressure on vacancies and downward pressure on rent growth should materialize, especially if effects from the cooling economy linger.