Phx: Leading Emerging Industrial Mkt

Credit: Colliers International

By Roland Murphy for Arizona Builder’s Exchange

A recently released report form Colliers International – “Top 10 Emerging U.S. Industrial Markets to Watch in 2018” – named the Phoenix area as a national leader.

“The momentum that built in the Greater Phoenix industrial market the past few years is forecast to carry over into 2018, said Bob Mulhern, senior managing director for Colliers International in Greater Phoenix. “Demand is robust in the Valley because of the area’s many logistics advantages, a strong economy and a growing population. Net absorption has been quite strong for the past several years and hit an all-time record in 2017. This robust tenant demand is fueling new development. With vacancy at a 10-year low, spec and build-to-suit projects continue to work their way through the development pipeline.”

The area’s key strengths cited in the report are: population growth and a strong workforce base, a modernized highway and transportation systems and more affordable rental rates than nearby markets, such as Southern California.

The Numbers

Phoenix was one of the hardest hit areas across all real estate sectors in the Great Recession. In 2009 industrial vacancies hit 16.6 percent. By the end of last year, vacancies were down to 8 percent due to strong market activity, the lowest rate in more than 10 years, the report states.

Activity led to significant and ongoing improvement in absorption rates, ending 2017 with the best rates in more than a decade at 9.2MSF.

Vacancies are expected to continue to decline over 2018 due to a slowdown in new construction and continued high demand. While still considered an active pace, the report noted projects under construction at year end stood at 3.4MSF, the lowest since 2013.

All this has culminated in an increase in asking rents, making the area attractive to institutional investment. The report noted the average NNN lease rate was up 2 percent at the end of 2017 compared to 2016 and ended the year at $6.82 NNN.

The other markets around the U.S. Colliers International identified were (in alphabetical order): Cincinnati, Indianapolis, Kansas City, Las Vegas, Lehigh Valley, Memphis, South Florida, St. Louis and Stockton.

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