Phoenix Is a Key Industrial Buy Market

Phoenix is among the top buy markets for industrial investment, according to new research from Real Capital Markets. The market is outpacing national activity and has a long runway a head as it was late out of the recession. Phoenix has also boasted a dynamic industrial user base, with both ecommerce and manufacturing activity. This all bodes well for industrial investors looking to place capital.

“One of the great attributes of the Phoenix marketplace is the accessibility to the southwest region,” Tina Lichens, COO of Real Capital Markets, tells GlobeSt.com. “Approximately 40 million people are within a day’s drive, making it ideal for distribution purposes. For that reason, along with the overall strength of the local and state economy, many of our contacts believe, the runway could have as much as 24 to 30 months of time left.”

Interest rates, of course, are among the biggest concerns for investors, especially in a secondary market like Phoenix; however, if interest rates continue to rise nominally, it won’t be enough to impact investment activity. “While we’ve seen a gradual increase in interest rates, the majority of that increase has been absorbed by the lenders. So, there is some wiggle room before it has a significant impact and becomes a greater concern,” adds Lichens. “Moreover, the increases haven’t been a surprise, which allows buyers to appropriately underwrite acquisitions. In the near term, interest rates are not likely to be a great concern for many buyers. However, as JLL’s Tony Lydon, who is a resource for our report, said, ‘it could be disconcerting if interest rates have increased 100-125 basis points over the next year.’”

Phoenix is one of several markets that have seen significant industrial growth. While ecommerce is credited as the driver of this activity, Lichens says that the market is more dynamic than that. “One of the great characteristics of the economy right now is that there isn’t one sector alone that stands out,” she says. “Across the country we see that e-commerce as well as transportation and logistics firms are doing well and leasing great amounts of space. In addition, many regions of the country are seeing an upward tick in manufacturing. In the Phoenix market, for example, Ball Enclosures completed a significant land transaction and is building a new facility after contemplating a move to Mexico. The project will create 120 jobs.”

It is no surprise to hear that the report also shows industrial pricing increasing as a result of the strong demand. In Phoenix as well as major markets across the country are seeing decreasing vacancy rates and a shortage of industrial product. “Whether in Phoenix, Chicago, Eastern Pennsylvania or Miami, vacancy rates continue to fall, even in the face of healthy levels of speculative development; that continues to push rental rates and values higher,” says Lichens. “Additionally, because of the volume of investment activity that already has taken place, there is both a perception and a reality of diminished supply of quality assets for acquisition. Given the demand that exists, and the amount of capital waiting to be placed, the natural outcome is upward pressure on pricing.”