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Greater Phoenix Breaks Several Records in Industrial Real Estate Sector

Third Quarter Marks Historic Highs for Booming Industrial Market

The Greater Phoenix industrial real estate market set several records during third quarter, according to a report released by Colliers in Arizona. The city’s booming industrial sector posted its highest net absorption, lowest vacancy and largest amount of space under construction at any one time.

Greater Phoenix is ranked 2nd nationally for job creation, just behind Dallas-Ft. Worth. The city has grown 11.2 percent from 2010-2020 and now surpassed Philadelphia to become the 5th largest city in the nation.

During third quarter the industrial market was more active than at any point in its history, landing 7.2 million square feet of positive net absorption. This marks the 10th consecutive quarter of absorption exceeding 1 million square feet. Year-to-date net absorption totals an impressive 18.2 million square feet. During the first three quarters of 2021, the market topped 2020 performance by 36 percent and is on a path to surpass 20 million square feet by year-end. Mattress manufacturer MLILY expanded its footprint in the West Valley by committing to 1.25 million square feet t G303. Toy manufacturer Funko committed to 862,602 square feet at 10 West Commerce Park in Buckeye. Electric vehicle manufacturers are entering the Greater Phoenix marketplace. Zero Electric Vehicles leased 103,275 square feet at Gilbert Crossings in July and KORE POWER, a battery company, announced plans to develop a manufacturing facility in Buckeye.

Vacancy of industrial space in Greater Phoenix decreased 70 basis points over the quarter and 270 basis points year-over-year to hit the city’s lowest ever level of 5.2 percent. Every submarket in the metropolitan area experienced a vacancy decrease year-over-year with the Southwest and Southeast areas posting the largest decreases. Supply is limited and tenants seeking 150,000

square feet have just 17 buildings available to them. Businesses seeking more than 300,000 have only 10 existing options in the Greater Phoenix market.

Rental rates continue to rise in an environment of unprecedented demand. Rates increased 1.54 percent over-the-quarter and 8.49 percent year-over-year to reach $0.66 per square foot. Rental rate have escalated a total of 12 percent since 2019. Because of recent increases, the market is beginning to witness annual escalation rates of 3.5 to 4 percent. The Airport Area submarket led the market in rental rate increases for the third consecutive quarter. This area had a year-over-year rise of 11 percent to $0.83 per square foot.

Southwest rates increased 9.4 percent year-over-year to $0.50 per square foot. The Southeast submarket posted a 3.2 percent over-the-quarter increase to $0.75 per square foot. Manufacturing space led the product types in rental rate increases, rising 14.4 percent year-over-year and 6.1 percent over-the-quarter. Manufacturing space in the Southwest submarket had the largest increase of any property type in any single submarket, increasing 24 percent year-over-year to $0.53 per square foot.

Approximately 5.9 million square feet of new product was added to inventory during third quarter with a vacancy of less than 30 percent. Year-to-date a total of 10.7 million new square feet have been added to inventory, Another 20.0 million square feet are currently underway, marking the most product under construction in the metro area in recorded history. The Northwest submarket delivered the most inventory for the third consecutive quarter, completing 4.0 million square feet. The submarket decreased its vacancy by 90 basis points over-the-quarter to 5.4 percent. Approximately 76 percent of the buildings currently under construction are located in the Northwest and Southwest submarkets.

The result of feverish demand and limited supply of industrial space in the Phoenix industrial market has been elevating prices in the investment sales arena. The median price paid for square foot increased by nearly 20 percent year-over-year to $135 during third quarter. Investment sales were very active during third quarter, totaling more than $1.1 billion and comprising more than 43 percent of total sales for 2021. The largest single property sale ever completed in Metro Phoenix history was completed during third quarter. Park 303, a 1.2 million-square-foot distribution facility sold for $186 million to BentallGreanOak. The property is fully leased to Walmart. The dynamic third quarter involved two transactions over $100 million. The second involved a property that has never been occupied at 575 N. 143rd Ave. American Realty Advisors purchased the property for $103 million.

The largest sale during third quarter involved a new-to-market buyer, which illustrates the broad, new-found appeal of the Phoenix marketplace. The area’s pre-business environment and expansion of workforce has attracted attention from companies throughout the nation. The city is attracting more high-tech manufacturing companies and Phoenix is at the top of multiple site selections for companies seeking relocation.