By Roland Murphy for Arizona Builders Exchange
The Industrial sector is firmly back and, “Firing on all cylinders,” according to the Q4 2016 Phoenix Industrial Insight report released earlier this week by JLL’s Phoenix office. Vacancy has dropped to an even 9 percent, a nine-year low.
Despite a decrease in leasing volume brought about by a jump in build-to-suit projects over the year, the size of the average industrial lease size grew year-over-year due to an increase in interest by corporate users. The area saw 2.2MSF of build-to-suit in 2016, and another 1MSF is currently under construction, the report said.
The report lists 55 industrial space requirements for more than 100KSF across the Phoenix market. While there are several locations in the market that can fit the bill, long-vacant space is beginning to tighten as demand remains high.
More than 61 percent of available space in the nearly 5MSF of 2016’s new industrial product has been preleased by large users. The still relatively low costs of land and construction indicate developers will continue to build and lessees will continue to take occupancy. “This is particularly true in submarkets like the Northwest and Grand Avenue, where speculative construction is emerging after years of limited activity,” said the report.
Northwest is the third-smallest submarket in the Phoenix area. Still, it showed more than 830KSF of positive net absorption last year, due in part to access to a skilled labor force and the Loop 303 freeway. JLL predicts the growth trend will continue and projects a 17.5 percent increase in the size of the submarket this year. Northwest saw 784KSF of inventory completed last year and currently boasts 1.6MSF under construction.
The Grand Avenue submarket, meanwhile, had a total net absorption rate of 264KSF. While no inventory was completed during 2016, nearly 368KSF is currently under construction.
“For the first time in the past seven years, the Phoenix market is open to speculative industrial projects in the West Valley,” said JLL Managing Director Anthony J. Lydon. “Developers and equity partners are recognizing the strong demand for more availability in the West Valley from scalable and regional users, and are developing industrial parks with build-to-suit and speculative options. Opus Goodyear Crossing, Riverside 43 and Southwest Industrial Center are all examples of this. We are excited about both the absorption of speculative space and the build-to-suit activity happening in our market right now.”
Even though rents calmed down after their largest post-recession spike in 2015, they maintained a generally above average growth rate, nudging up to an average triple net basis of $0.50/SF from 2015’s $0.48. The submarkets of Deer Valley at 4.8 percent and Tempe at 4.6 percent saw the biggest jumps. Even though they both added new speculative space, rents in Southwest and Airport, the two largest submarkets, were essentially unchanged year-over-year.
For 2016, the overall Phoenix Metro market saw a projected total absorption of 5.7MSF. Industrial completions for the year totaled nearly 5MSF. Going into 2017, nearly 3.9MSF are under construction, as is 99.3KSF of flex space.