PHOENIX—The Greater Phoenix industrial market is poised to benefit from an accelerating pace of local economic growth in 2016, according to Colliers International of Greater Phoenix. Developers built spec space fairly early in the recovery cycle, which placed a supply overhang on the market at a time where tenant demand for space was uneven. Those conditions have been resolved during the past 12 to 24 months, as many of these spec spaces have secured tenants.

Don MacWilliam, executive vice president at Colliers International in Greater Phoenix, tells GlobeSt.com: "The Southwest Valley industrial market saw increased activity for 2015 specifically in the last three quarters. Six large transactions totaled almost 2 million square feet and we surpassed our annual net absorption average of 2.8 million square feet. Certain segments of the market exceeded expectations, however to proclaim a healthy overall market, we need to see more deal velocity. We expect that in 2016."

Other interesting factoids are that net absorption in Greater Phoenix industrial properties surged in the fourth quarter, topping 2.5 million square feet. This brought the total net absorption for all of 2015 to 6.6 million square feet. With absorption gaining momentum, vacancy is trending lower. Metro-wide vacancy ended the year at 11.2%, down from 11.8% at the end of 2014.

While net absorption is on the rise, new construction slowed at the end of 2015. Approximately 700,000 square feet of new space was delivered in the fourth quarter, the lowest quarterly total of completions in more than a year. For all of 2015, 5.4 million square feet became available.

Sales of industrial buildings ticked up 3% in the fourth quarter, but for the year, sales velocity was down 11% from 2014. While the number of buildings sold in 2015 ticked lower, prices actually rose a bit. The median price advanced 5% in 2015, reaching $71 per square foot.

Looking ahead to 2016, development activity will once again be outpaced by net absorption, driving vacancies lower and supporting continued rent growth. Employment growth will be fueled by population-serving sectors, including new home construction, which should gain momentum more rapidly than in earlier points in the recovery cycle. As homebuilders increase activity levels, construction businesses and retailers will require additional industrial space.

The improving operating conditions will likely continue to support the local investment climate. Sales activity slowed somewhat in 2015, but much of that decline was due to a lackluster start to the year. After the first few months of the year, sales velocity was healthy in the second half of 2015, and activity is expected to remain healthy in the coming quarters. While the prospect of an interest rate hike loomed over the market for nearly all of 2015, the impact on cap rates was negligible. Assuming interest rates rise at a gradual pace, the impact on property pricing should be modest.

Colliers has added more than 3 million square feet of user build-to-suits and more than 2 million square feet of speculative development product to the Southwest Valley distribution market in the last five years.

Instant Insights /

Industrial Absorption Spikes to Close 2015

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