Published August 14, 2023
Why Phoenix is still a top industrial market, as rest of US cools off
Why Phoenix is still a top industrial market, as rest of US cools off
Although mega warehouse deals for e-commerce and logistics companies have slowed nationwide since the start of the Covid-19 pandemic, these sectors continue to drive the industrial market forward in Phoenix.
Factor in the current manufacturing boom and an exodus of companies leaving California, and the Phoenix metro has muscled its way to the top of the industrial ranks, according to a July report from CommercialEdge.
The Valley had an estimated 58 million square feet of industrial space under construction in June 2023, which is equal to approximately 16.6% of the region's existing inventory.UPGRADE MY MEMBERSHIP
This ranks as the No. 1 supply pipeline in the country ahead of Dallas-Forth Worth's 52 million square feet and the Inland Empire's 31 million square feet, CommercialEdge data shows.
CommercialEdge also attributed the construction growth to the area's manufacturing growth and the continued flow of companies moving out of Southern California. In the second quarter, the Inland Empire's absorption fell to -1.3 million square feet, which is the first time this market has seen negative absorption in the past two decades, according to Savills data.
The ongoing demand for space in the Valley has resulted in Phoenix seeing 9% in-place rent growth year-over-year in June, which is the highest increase across markets that don't have port access.
What's more, according to Transwestern data, the Phoenix metro had an additional 120 million square feet of industrial space proposed in the second quarter of 2023.
Still, some warning signs ahead
Experts say that a lower number of buildings delivered in the Valley in Q2 2023 combined with the high volume of new construction, however, is partially a result of the weather constraints Phoenix experienced this winter.
The Phoenix market also saw a slight cooling off in leasing in Q2 and has also seen its share in the decrease in mega warehouse deals such as 1 million-square-foot leases compared to the past two years.
This potentially could lead to an oversupply of buildings later in the year while at the same time, experts also say that a slowdown in construction starts because of capital market challenges could cause a shortage of space going into 2024.
The Phoenix area is one of the top markets for real estate growth in the country, ranking sixth out of 20 top markets analyzed by StorageCafe for real estate development over the past decade.
Residential, industrial and storage continue to be major drivers of growth in the Valley. From 2013-2022, Phoenix added nearly 30 million square feet of industrial space, the fourth-largest amount nationally, according to StorageCafe.
During the same time period, Phoenix saw 32,400 new single family home permits and nearly 50,000 apartment permits with 2021 being the best year for single family construction and 2022 the most active for apartment construction.
Out of the 20 markets analyzed, StorageCafe found that 15 of the top 20 cities that saw the highest volumes of real estate construction from 2013-2022 were in the southern or southwestern parts of the country.
