Scottsdale and Central Phoenix Industrial Market Report
Market Overview
The Phoenix industrial market is experiencing dynamic growth, contributing to Arizona’s economy and attracting private investors. Although there has been a slight increase in vacancy rates due to developments in Deer Valley and Scottsdale Airpark, these areas, along with North Airport, have piqued the interest of investors because of ideal property sizes and potential for developable land.
Deer Valley by the Numbers
- Deliveries (SF): 1.9M
- Net absorption (SF): 851K
- Vacancy rate: 10.0%
- Rent growth: 7.4%
Last 12 Months | Source: CoStar Group
Submarket Performance
The Deer Valley submarket is where The Taiwan Semiconductor Manufacturing Company (TSMC) is constructing one of three planned microchip fabrication facilities, investing $65 billion in a 1,100-acre campus near the Loop 303 and I-17 freeways. This project is projected to generate 6,000 high-tech jobs, over 20,000 various construction jobs, and tens of thousands of indirect supplier jobs in the next 13 years, positioning it as one of the country’s most substantial foreign direct investments.
Over 850,000 square feet of net absorption was registered in the submarket over the last 12 months. Currently, 1.8 million square feet is under construction, which, once completed, will expand the industrial submarket by 8.1% compared to the Phoenix average of 6.9%. Due to recent developments, upward pressure on vacancy rates is expected in the upcoming quarters. Vacancies were at 1.9% in Q1 2021, but they have now risen to 10.0% today.
Deer Valley’s rapidly growing industrial submarket allows landlords to be more aggressive with asking rents. Tenants are eager to pay a premium to be located in this rapidly growing industrial market. The asking rent in Deer Valley is around $17.60/SF, a 30% premium over other Phoenix submarkets, which average $13.60/SF. In the coming years, rent increases are expected to cool as industrial demand normalizes.
Sales
Investors remain attracted to industrial assets in the Dear Valley submarket and continue to invest capital despite the slow investment volume seen in 2021. TSMC’s $65 billion chip fabrication plant has brought positive attention to investment activity for developable land or properties that can support the project. Over the last 12 months, about $155 million worth of trades took place, surpassing the 10-year average leading up to the pandemic of about $100 million annually. Due to high interest rates and economic uncertainty, institutional investors and private equity firms have decreased their buying activity, while private investors and owner-occupiers are now driving transactions.
Scottsdale Airpark by the Numbers
- Deliveries (SF): 8.8K
- Net absorption (SF): – 63.5K
- Vacancy rate: 4.3%
- Rent growth: 7.7%
Last 12 Months | Source: CoStar Group
Submarket Performance
Landlords are currently favored in the Scottsdale Airpark submarket, although there are recent indications of the market normalizing. Vacancy rates have risen from a recent all-time low of 2.6% in early 2022 to the current 4.3%, with a net absorption of -64,000 square feet over the last 12 months. Despite the absence of new construction, vacancy rates remain below the metro-wide level of 10.6%. One notable project is an 8,800-square-foot industrial building at the Acoma business center that was fully preleased and delivered in early 2024.
Due to the availability of flex space, Scottsdale Airpark’s average rent is one of the highest in the metro at $22.00/SF. With access to Scottsdale’s affluent consumer base, tenants are willing to pay a premium for the prime location, while landlords consistently achieve rent growth, which has surged by 36.6% over the past three years.
Sales
Industrial sales have declined since 2023, with approximately $60.6 million traded over the last 12 months. This figure is lower than the recent three-year average of $112 million. Reports show private buyers in the Scottsdale Airpark dominate the buyer pool, and smaller transactions to individual investors account for most sales. The typical size of an industrial property in this submarket is approximately half the market-wide average, making it an attractive option for buyers looking for lower-priced assets. As a result, private investors have made up about 80% of the sales volume over the last five years.
North Airport by the Numbers
- Deliveries (SF): 6.4K
- Net absorption (SF): -147K
- Vacancy rate: 5.0%
- Rent growth: 7.4%
Last 12 Months | Source: CoStar Group
Submarket Performance
The North Airport submarket is uniquely positioned due to its proximity to Phoenix Sky Harbor International Airport, one of the 15 busiest airports in North America. This strategic location significantly contributes to Arizona’s economy, supporting over 57,000 jobs and processing over 390,000 tons of freight annually. Over the past few years, many of the most extensive listings have been for distribution properties, headlined by Amazon’s 211,800-square-foot lease at Airport 40 in 2020.
Large-scale industrial growth is uncommon in the submarket as there is limited land available to build. The region is approaching a full build-out, leading to minimal construction activity. The last notable addition to the market was a 337,300-square-foot data center by QTS Realty Trust, a public data center REIT. Due to minimal new industrial projects, vacancies have remained relatively low. The current vacancy rate is 5.0%, an improvement from the previous five-year rate of 6.4%. Additionally, rent growth is beginning to slow down as the overall sector enters a stabilization period. Over the last 12 months, the asking rent has increased by 7.4%, down from 15.4% in late 2022.
Sales
In recent quarters, investment volume has decreased due to higher interest rates. Around $60.2 million worth of industrial property was traded over the last 12 months, a decrease from the recent three-year average of $157 million per year. The most common deals are for smaller properties and involve a private investor/owner.
