LMS: Office & Industrial Opportunity & Demand

By Tasha Anderson for Arizona Builder’s Exchange

Metro Phoenix is seeing an influx of office and industrial space, and tenant demand for ready and available space is allowing for more opportunity in the market.

According to a recent study released by CBRE Group, Inc. and referenced by Phoenix Business Journal, Chandler and Tempe alone “compose 83 percent (2.5MSF) of the office space under construction throughout the Valley, with 3.1MSF being built in total throughout metro Phoenix.”

This was the topic of discussion on Thursday as a sold-out crowd gathered at the DoubleTree by Hilton for the latest AZBEX Leading Market Series to learn more about the future of the Phoenix Office and Industrial market.

The Present Market and Future Opportunity

AZBEX President Rebekah Morris gave a brief overview of both the Office and Industrial markets with analytics taken from the AZBEX Database.

“Our analysis pegged it at $825M of construction value in the office market sector per year,” said Morris, adding that 17 percent of the projects in the Database do not yet have a design firm selected, while 40 percent of projects have not selected a general contractor.

Morris’ analysis of the database also yielded $900M in construction value for the Industrial market, with 11 percent of the projects having yet to select a design firm and 25 percent of projects still needing a general contractor.

“As we look at Loop 202 opening up new development opportunities, it will have a massive impact on this [Industrial] market sector specifically,” stated Morris.

Morris then introduced the panelists: Brad Smidt, Senior VP, Business Development at Greater Phoenix Economic Council; Nicholaus Fischer, VP at Merit Partners; John Orsak, director of real estate at Lincoln Property Co. and moderator Andrew Cheney, principal at Lee & Associates, to discuss the growing office space market in more detail.

According to Cheney’s presentation, the current office vacancy rate is at 19.4 percent, down from 26.6 percent back in 2010.

“What this means for all of us, and anyone willing to get into this market, is opportunity… the take away is that we’ve got eight years of growth. So ever since 2010, we have been growing.”

Tenant Demand a Driving Factor in Both Markets

Tenant demand is one of the biggest influencers in how both the Office and Industrial markets are advancing within Metro Phoenix.

According to the report presented by Brad Smidt with GPEC, out of their 95 Office prospects year-to-date in fiscal year 2018, 86 are looking for existing space while four are looking for a build to suit development and five have no preference. Out of their 135 Industrial prospects year-to-date in fiscal year 2018, 75 are looking for existing space while 26 are looking for build to suit and 34 have no preference.

“Existing product is what these tenants are looking for,” added John Orsak with Lincoln Property Co. “It’s a testament to the market that you really need to have something ready and available.” He went on to give the example of The Grand at Papago Park and how the demand for ready and available space was so great that they were 100 percent leased before they received their certificate of occupancy.

Smidt’s report also talked about prospects they are working with that are from different markets wanting to relocate to Phoenix, which will drive up demand for more office and industrial space.

“This is data from our last report. We had 33 companies that we worked with that picked a new location for Metro Phoenix. Right now, we’re close to 40. I think by the end of our fiscal year, which ends at the end of this month, we’re going to be up over 45 companies and probably over 8,500 new jobs to the market,” explained Smidt. He furthered his point by talking about the recent announcement of Deloitte bringing a new technology delivery center to Gilbert and ultimately adding 2,500 new jobs to the market.

Toward the end of the presentation, Nicholaus Fischer with Merit Partners explained that the industrial market seems to be driven more by the demand for build to suit development as owners advance their businesses with the latest technology.

Owners require unique design specifications to their buildings to keep pace with technology. “Design driven by technology is changing the industrial envelope,” said Fischer as he used the REI Order Fulfillment Center and their Automated Order Picking Machine as an example, as it required special design.

The next Leading Market Series topic will be on the K-12 market, and tickets are expected to go fast. To check out dates and topics or to register for the next event, visit: http://lms.azbex.com/