Phoenix had a first quarter surge in warehouse activity, undeterred by the onset of the coronavirus pandemic and subsequent shelter-in-doors restrictions. According to a report from Colliers International, Phoenix had its third strongest quarter performance in industrial sales volumes since 3Q10 with $833 million in sales volume. Price-per-square foot increased to $106 and cap rates compressed to the low 7%. Overall, it was a tremendous quarter of activity even after the virus caused national business closures and stay-at-home orders in the final two weeks of the quarter.
“The stay home stay safe call was not activated until mid-March. Greater Phoenix has continued to bring in new companies and expanding existing ones,” Phil Hernandez, research manager for Colliers International, tells GlobeSt.com. “Following a very strong and healthy 2019, the first quarter continued with the same momentum.”
Jobs has been the biggest driver of growth in the Phoenix market. In the first quarter, Maricopa County added 89,000 new jobs, the most of any county in the nation. That turned abruptly when shelter measures were set in place. During the week ending March 28, the county lost nearly 89,000 jobs, a 203% increase from the previous week. However, Hernandez doesn’t see job loss derailing the market’s growth. “Everyone will feel the effect of the pandemic one way or another; however, Phoenix is in a unique position to benefit not only geographically but also the business advocacy which has attracted so many companies to previously move here,” says Hernandez. “Phoenix is starting to get even more recognition from investors as a strong distribution market because of the access to California and the close proximity to the Mexico border.”
The first quarter performance could also be an indication that the warehousing market is well positioned to weather this economic storm. Hernandez expects any increases in demand gained during the pandemic to be a permanent gain for the industrial market. “Consumers were forced to learn to shop online. Many consumers that were either scared or nervous or simply did not have trust in themselves to do it correctly took the plunge to do all their shopping online,” he says. “Consumers have realized how simple and easy it is and will continue to do so when businesses open back up. We will also see not only delivery increased but also shop online and pick up in store.”
While it is still too early to tell—the second quarter will be the most telling period—Hernandez says that the short-term impact to the industrial sector will be nominal, and could even see gains. “The industrial market is still moving forward at a quick pace,” he says. “With the size of the population in Phoenix, Amazon and other large retailers will continue to look at Phoenix to expand, which is forced by the thriving e-commerce demand. Industrial construction hardly took a pause, there was a few weeks when no one knew how long this pandemic would last that paused a few deals, but the strong demand for industrial space quickly resumed.”