New Industrial Deliveries Don’t Hamper Vacancy in Phoenix

New industrial deliveries in Phoenix have not hampered occupancy in the market. According to a report from Colliers International, more than 6.4 million square feet of industrial product came to the market in 2019, but the vacancy rate remained below 10%. Job and population growth has fueled the market activity and saved Phoenix from overbuilding, as it has in prior cycles.

“Phoenix has a very healthy economy, which is making the valley an attractive place to live and work,” Phil Hernandez, research manager at Colliers International, tells GlobeSt.com. “The cost of living and the diversity of the workforce is continuing to make Phoenix one of the top metro cities for population growth.”

The construction isn’t slowing down, which isn’t surprising considering that new deliveries continue to see strong absorption. Currently, there is an additional 10.5 million square feet of industrial product under construction. “The current supply of new construction will remain tight,” says Hernandez. “We will show a slight increase in vacancy during the middle quarters of the year, but anticipate the product to be quickly leased up.”

Hernandez expects the construction pipeline to continue to grow this year, and already has seen several new projects in the first quarter of the year. “Currently in the first quarter of 2020 the industrial sector has already witness three million square feet of new construction break ground, increasing the under construction inventory to 13.3 million square feet,” says Hernandez. “We will start to see a majority of the under construction product deliver between the second and third quarters of 2020. Numerous project that are currently under construction have multiple future phases planned.”

Despite the strong demand, industrial sales activity actually fell in the fourth quarter. However, it seemed like a fluke, rather than a market turn. “2019 as a whole saw impressive sales activity,” says Hernandez. “The driving factor for quarter 3 outpacing quarter 4 was the bulk sale of The Blackstone Group accruing 179 million square feet from Global Logistics Properties for $18.7 billion. The transaction was a multi-state deal, and Arizona’s portion of the portfolio consisted of 44 industrial properties totaling over 5.5 million square feet. Currently in 2020 the valley has witnessed over $407 million in sales volume, totaling 7.3 million square feet.