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Greater Phoenix breaks several records in industrial real estate sector

Third quarter marks historic highs for booming industrial market

PHOENIX – 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 grew 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 any point in its history, landing 7.2 million square feet of positive net absorption. This marks the tenth 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. Toy manufacturer Funko committed to 862,602 square feet at 10 West Commerce Park in Buckeye. Electric vehicle manufacturers are also 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 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 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 Greater Phoenix 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 Avenue. 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. 
 
About Colliers
Colliers (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 67 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to real estate occupiers, owners and investors. For more than 25 years, our experienced leadership with significant insider ownership has delivered compound annual investment returns of almost 20% for shareholders. With annualized revenues of $3.0 billion ($3.3 billion including affiliates) and $40 billion of assets under management, we maximize the potential of property and accelerate the success of our clients and our people. Learn more at corporate.colliers.com, Twitter @Colliers or LinkedIn.
 
Colliers in Arizona has served clients locally and globally for more than 40 years.
 

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Phillip Hernandez

Director, Research | Arizona

Phoenix

As research manager for Colliers in Arizona, Phillip Hernandez is responsible for proactively developing and implementing research objectives and directing all research activity for the Arizona offices.

He provides leading-edge, thought-provoking research and analysis of market data for use in producing quarterly statistical market reports for each property discipline, as well as other ad hoc reports, research projects and presentations. Phillip analyzes and interprets real estate trends and maintains a database of economic indicators to provide forecasts.

Regardless of the property type or sector, Phillip believes each has a story to tell and that data provides the opportunity to redefine the narrative. With a background in location analytics, he is highly experienced in interpreting complex data sets. Using the latest technology, Phillip developed a system to blend analytics with a visually attractive approach to bring data to life.

Focusing on business development, he leverages market intelligence and insights for thought leadership content strategy in support of client engagement. His goal is to strategically align research and business development efforts and present research in an easily digestible format that promotes Colliers’ market share and revenue growth.

Colleagues describe Phillip as a brilliant storyteller and a passionate, creative and experienced professional.

Prior to joining Colliers, he served as a business analyst at CBRE, where he specialized in creating tailored research reports, as well as unique and interactive applications and dashboards that elevated the market position of assets. Phillip delivered weekly research updates, with relevant lease and sale comps, custom competitive sets and current market activity.

He provided complex market and trend analyses, monitored an extensive database of proprietary market data, and delivered custom quarterly and annual reports that were strategically positioned towards targeted clients. He also led weekly department research meetings to develop initiatives surrounding market trends, produce innovative industry solutions and analyze client-centric objectives.

Previously, Phillip was a GIS analyst for the central region of CBRE. Working exclusively with top-performing markets, he created unique models that illustrated custom real estate datasets through location analytics. Phillip produced high-quality geographic and demographic maps, and investigated multiple approaches to storytelling through map and market analytics.

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