Demand remains strong as construction continues

Industrial Insight-JLL

•Total vacancy has fallen to a ten-year low of 8.3 percent
•Net absorption is outpacing construction, with nearly 60 percent of newly completed industrial properties pre-leased at delivery
•Rental rates continue to inch higher, driven by manufacturing users

 

Despite a slowdown compared to the first quarter of 2017, the Phoenix market
recorded 1.2 million square feet of positive net absorption in the second quarter. Significant
size lease commencements include:
• Greco & Sons – 130,757 square feet at 4450 N 45th Ave (Grand Ave)
• PureCare – 100,843 square feet at 1402 South 40th Avenue (Southwest)
• Amazon – 91,204 square feet at 550 East Elliot Road (Gilbert)
This year looks to be the fourth consecutive year of absorption gains outpacing new construction.
Even though most of the properties being developed are speculative, significant pre-leasing
activity reduces the impact of vacant space that is added to the market. Large users have
especially taken advantage of the new product in the development pipeline, as owners continue to
offer attractive space solutions to compete for requirements.
As a result, vacancy has fallen to its lowest point since 2007. The Northwest, Southwest, Gilbert
and Airport submarkets have the highest vacancy rates in the market, but are also home to a
majority of the market’s construction activity and absorption gains. While overall average asking
rental rates increased slightly to $0.51 p.s.f., manufacturing rates have surged to $0.59 p.s.f.,
an 18.6 percent jump in the last year. Manufacturing rate growth has been exceptional in the
Southeast Valley, especially in Tempe and Mesa.
Outlook
The Phoenix market is on pace for an above average year of net absorption. Pre-leased construction
will add another 1.8 million square feet of absorption gains this year alone. Development activity
is showing no signs of slowing down, keeping up with strong tenant demand. An abundance of
speculative properties continue to provide modern, more functional options for the many users still
in the market for space. However, there are still plenty of users looking into build-to-suit options, which are still readily available throughout
the market.

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