Commercial real estate services firm Lee & Associates published its Q1 2022 North American Market Reports collection last week, and Phoenix performed well across all sectors tracked.
Industrial
Summarizing the Industrial sector, the report said: “Strong demand for industrial space throughout North America continued in the first quarter as vacancies fell to record lows and rent growth hit double digits. First quarter net absorption in the U.S. totaled 92.8MSF, which was up 25% year over year but down 35% from the 143MSF average of the last three quarters of 2021. Annualized rents rose 10.1% in the U.S. and the average vacancy rate fell to 4.1%.
“Part of that was due to a pause in new construction starts early in the pandemic. However, once developers saw orders for consumer goods begin to skyrocket shortly after the lockdown, many made up for lost time. Currently, there are 816MSF of new space underway in the U.S. with about 605MSF landing on the market in the next four quarters. That’s a sharp increase from the total 342MSF in completions since Q2 of last year. Nevertheless, even as new construction has ramped up to all-time highs, the availability of quality logistics space will remain tight.”
Using CoStar market data, Lee & Associates reports Phoenix is in second place behind Dallas-Fort Worth in terms of Most SF Under Construction with 38.87MSF. DFW has 74.67MSF under construction as of Q1.
Phoenix’s Industrial stats are as follows:
- Vacancy: 4.3%
- Rent/SF: $10.27
- Sale Price/SF: $150
- MSF Under Construction: 38.87
- MSF in Inventory: 394.15
- Cap Rate: 5.8%
Office
The U.S. Office market had a modest downturn in Q1. According to the report: “After posting two straight quarters of modest growth and showing early signs of a recovery, the United States office market slipped into neutral in the first quarter and the national vacancy rate ticked up slightly to 12.3%, the highest since 2011. Tenants shed 468.6KSF in Q1 following net absorption gains of nearly 27MSF in the second half of 2021, which ended the year 42.4MSF in the red.
“Even though leasing activity has improved, it remains below the quarterly average of about 115MSF prior to the lockdown. Rent growth has been nil. Gains will have to wait until positive net absorption returns along with reductions of sublease space, which totals nearly 200MSF. Although the supply pipeline has slowed somewhat, there still is plenty of spec product under construction with 40% of the 142MSF pipeline listed as unleased.”
Phoenix did not place in the Top Five markets for any of the six considerations examined in the report. The local numbers were:
- Vacancy: 14.3%
- Rent/SF: $27.06
- Sale Price/SF: $224
- MSF Under Construction: 1.60
- MSF in Inventory: 193.42
- Cap Rate: 7.2%
Retail
The national Retail market continued to perform well. Lee & Associates’ overview says: “The North American retail market put on another strong performance in the first quarter as the sector continues its pronounced rebound that began last year. There were 23.4MSF of net absorption in the first quarter in the 11.8BSF U.S. market. That’s a fivefold jump from Q1 of last year and slightly more than the average of the last three quarters of 2021, which saw 73.4MSF of tenant growth for the year. The national average vacancy rate is 4.5%.”
As in Office, Phoenix did not place in the Top Five in any area. The Phoenix data shows:
- Vacancy: 6.3%
- Rent/SF: $21.02
- Sale Price/SF: $218
- MSF Under Construction: 0.95
- MSF in Inventory: 237.23
- Cap Rate: 6.8%
Multifamily
It’s too early to call a trend, but a new coronavirus variant and exceptionally high rent growth contributed to a modest slowing in national Q1 Multifamily performance. The market remains exceptionally hot, however. Per the report: “Following successive quarters of healthy and often unprecedented demand for apartments, tenant growth in the first quarter slowed with the onset of the Omicron variant of the coronavirus and as annual rent growth has soared into the teens. Meanwhile, apartment values have skyrocketed with the national average sale price hitting $244,343 per unit in Q1, an 18.4% year-over-year increase.
“First quarter net absorption totaled 54,170 units, down 39% year over year. In 2021 tenant growth totaled 697,963 apartments, an 83% jump over the previous record of 381,288 units in 2020. Average effective rents in Q1 were $1,572, up 13.7% year over year and 16.4% since the lockdown. Some Sun Belt markets, such as Tampa, Phoenix and Austin, saw annual rent hikes of more than 20%.”
Phoenix ranked #5, nationally, in terms of Units Under Construction with 27,896. New York City led the country at 57,006. The Phoenix totals across the measured areas were:
- Vacancy: 6.1%%
- Rent/Unit: $1,581
- Sale Price/Unit: $272,445
- Units Under Construction: 27,896
- Units in Inventory: 347,297
- Cap Rate: 4.1%