Phoenix Industrial Construction Hits Peak Levels
New industrial development, both speculative and built-to-suit product, is at its highest levels since 2007.
“A number of factors are contributing to the high level of industrial construction in Phoenix,” Cooper Fratt, an industrial VP at CBRE, tells GlobeSt.com. “There continues to be pent up demand in certain submarkets throughout Metro Phoenix, which are still undersupplied with new, modern industrial space. Relative to other major markets throughout the West Coast, Phoenix experienced a delayed and slow recovery from the last recession, so while other markets are peaking, Phoenix is still has plenty of room to grow.”
The population growth and net migration is a major factor in the industrial activity as well. Phoenix has the second highest population growth in the country, creating more logistics and ecommerce warehouse demand. “Healthy in-migration has led to a very strong housing market and new construction throughout both single and multifamily projects. Several industries are growing due to the new residential construction—many of which store their product in warehouse spaces throughout the Valley,” says Fratt.
Phoenix is also the main beneficiary of exodus from California, both in terms of population growth as well as corporate migration. “Our proximity to California continues to contribute to the high level of construction, as well as the continued need for more space,” says Fratt. “Companies either relocating from California to Phoenix for a more business-friendly climate and/or selecting Phoenix as a regional distribution center location due to our proximity to the Port of Long Beach have also contributed to the demand of industrial space.”
While industrial development is reaching peak levels for all of these factors, the dynamics are different compared to 2007. The mix of development is 60.2% speculative and 39.8% build-to-suit, healthier than the 2007 market, where there was only 21% built to suit development. Geographically, projects are still predominately in the Southwest Valley, but the activity is also fueling the emerging of new industrial markets. “The majority of industrial development continues to occur in the West Valley, where the labor supply is deep and diverse,” says Fratt. “And although it is tightening quickly, the largest supply of land remains in the West Valley as well. Goodyear is “on the map” for national logistics and supply chain real estate executives.”