Phoenix, AZ Industrial Market Report
Market Overview
The Phoenix industrial market has one of the country’s most ambitious construction pipelines. Developers have actively focused on the fast-growing western suburbs of Phoenix for constructing distribution centers and warehouses. This is mainly due to the availability of affordable land and the proximity to California. Industrial users have quickly occupied these spacious and modern properties as the demand originating from Los Angeles and Long Beach ports shifts towards Phoenix. So far, there has been strong demand for leasing across various industries, which has absorbed most of the new supply.
Highlights
- Currently, a staggering 57.8 million square feet of industrial space is being built, with around 70% of it being constructed without any confirmed tenants.
- Phoenix industrial rent gains have consistently exceeded the national average, which is expected to continue for the remainder of the year, making Phoenix one of the strongest markets in the U.S.
- Logistics tenants are rapidly expanding their footprints, with most focusing on the West Valley for operations. Leasing activity is brisk in submarkets such as Goodyear, Glendale, and Tolleson, where the construction of huge, contemporary industrial parks has freed up quality space for users.
- Investors continue to be drawn to Phoenix’s value proposition, resulting in solid buyer demand. Long-term prospects are bolstered by double-digit rent increases, an increasing population, and tailwinds associated with supply networks and innovative manufacturing.
Rents | Vacancy | Construction
During Q1 and Q2 2023, construction companies delivered approximately 6.6 million square feet of industrial space, while 7.5 million square feet of space was absorbed.
The Phoenix industrial market had a solid start to the year, with vigorous leasing leading to a decrease in the metro-wide vacancy rate from 4.7% at the end of 2022 to 4.4% in Q2 2023. Due to these historically low vacancy rates and the introduction of new, high-quality properties, industrial rents in Phoenix experienced a significant surge of 14.8% over the last 12 months, making it one of the strongest growth rates in the nation. However, signs indicate that rent growth has slowed as the market enters a normalization period. Additionally, the overall vacancy rate in the metropolitan area is expected to increase gradually in the next few quarters as the substantial influx of new supply outpaces the pace of leasing activity.
Developers in the Phoenix industrial market are expected to introduce the largest amount of new supply seen in years, with a projected completion of 32.4 million square feet in 2023. The region’s rapidly expanding consumer population and its significant role in national supply chains have fueled a surge in construction activity focused on developing large and modern industrial parks that facilitate efficient distribution for users.
Sales
Phoenix, By the Numbers in the Last 12 Months
- Deliveries SF: 19.3M
- Net Absorption SF: 18M
- Rent Growth: 14.8%
- Sales Volume: $3B
- Vacancy Change (YOY): 0.3%
The 12-month Sales Volume for the Phoenix industrial market is currently $3 billion.
Sales activity is slowing down compared to the record levels observed in 2021 and H1 2022. In Q2 2023, approximately $682 million worth of industrial assets were traded, marking one of the least active quarterly results since 2019. The impact of higher interest rates and stricter lending standards is undoubtedly affecting the market as participants navigate a period of determining appropriate pricing. The lack of agreement on the economic outlook and future direction of monetary policy has resulted in a disparity in pricing expectations between buyers and sellers, leading to a slowdown in transaction flow.
