Industrial Users Are Migrating to Phoenix

Phoenix is attracting new industrial prospects. According to a new report from JLL, the Phoenix market is number one for attracting new and expanding industrial users. This includes 83 tenants in the market that are looking to lease a total of 30 million square feet. The local and state governments have made a tactical effort to attract industrial users and enhance the industrial labor force, and it has paid off. In particular, the state recently removed 1,200 regulations that is deemed unnecessary and created a licensing reciprocation program to honor licenses in other states.

“We have a very pro-business state government,” Anthony Lydon, managing director at JLL, tells GlobeSt.com. “This has enabled us to get qualified workforce into the labor pool sooner, quicker faster. That is one of the reasons why Phoenix has done so well because of the bandwidth that we have in runway as it relates to qualified workforce. Many of the tier one cities are starting to bump up against the wall in terms of qualified workforce, yet Phoenix continues to deliver there.”

Unsurprisingly, ecommerce is driving the majority of the demand and leasing activity for industrial space in the Phoenix market. “With online sales accounting for 13% of all retail sales, ecommerce is a big driver,” says Lydon. “The reality is that less than 50% of retail users have their omni-channel strategy figured out yet, and so we believe that ecommerce is going to continue to be a robust part of our market, including last-mile fulfillment. With the region’s sustained growth, last-mile fulfillment is a key service line in our market.”

Manufacturing and food-and-beverage has also been major drivers of industrial leasing activity, helping fuel market growth and create diversification for a more balanced market. For food and beverage, Lydon says, “The market is predicated on demographic growth and it requires a significant amount of energy. Arizona has a great, reasonably priced energy program. Many of the food companies are serving the metropolitan market but are also multi-state in nature.” As for manufacturing, Arizona has captured many companies re-shoring their facilities in the US, including major names like Nike and Red Bull. “Arizona is a big winner in the efforts to re-shore manufacturing,” says Lydon.

The demand into the Phoenix market has spurred both build-to-suits and speculative development. “Large-size projects tend to be more build-to-suit. The manufacturers have a unique footprint and process, and it can be hard to put them into a spec building, although it does happen,” says Lydon. “When you get into the mid-size market, which is the 50,000 square foot to 100,000 square foot user, it opens up into a speculative-type project. This market is the backbone of the industrial market in this size range. I would say 60% of the industrial deals done are done in this size range.”