Phoenix Emerges as Leading Market for Logistics Investment

US gateway markets are no longer top targets for investment. According to a recent report from CBRE, there are plenty of industrial and logistics options outside of the gateway markets, and the report names the top 14, including Reno, Greenville-Spartanburg and Salt Lake City. Unsurprisingly, considering its recent run, Phoenix made the cut. Since 2013, the market has absorbed 54.4 million square feet of industrial space, outpacing the 43.3 million square feet of new product built in the same time period, making it a top emerging market for investment.

“Phoenix has more than 5 million people, but it is still really young,” Rusty Kennedy of CBRE in Phoenix tells GlobeSt.com. “We have a lot of great case studies over the past three or four years of major incorporations selecting Phoenix, and we are getting a lot more diverse. If you are an investor looking to go where the puck is headed, Phoenix is one of those markets.”

The industrial sector has become the top investment asset this cycle, but top-tier markets have quickly seen a run-up in pricing and competition. Now investors are looking for places to find yield. “The core markets have really become saturated, and cap rates have been chased down to historical lows,” explains Kennedy. “That has forced investors to look outside of the typical sand box, and when they do that, they look at where users are going and where there are up-and-coming markets. We looked at what factors investors watch to determine those emerging markets, and that is how we came up with this list.”

Phoenix has typically been a housing-centered market in terms of real estate investment, but the activity in the industrial sector has meant good things for the market. “We have seen a lot of folks that have been primarily focused on the multifamily investment side,” says Kennedy. “Industrial has become the focus of a lot of different investment groups across the country. Another aspect is that we have the population to provide a great and affordable workforce. Investors go to where the tenants are, and if we are attracting tenants because of our labor force and our business-friendly environment, then investors will follow.”

The industrial sector itself has also diversified. “Manufacturing has absolutely been a driver of our recent success in Phoenix, and we are attracting manufactures because of our affordability and the quality of life in Phoenix,” Kennedy says. “We are also seeing an increase in data center activity, ecommerce, third-party logistics and pharmaceutical. So, where we used to be focused on manufacturing, our economy has become a lot more diverse. We used to be a local player, but we have now proven ourselves as a regional player and a West Coast hub.”