Metro Phoenix Industrial Vacancy Still Climbing

Mark Krison tells GlobeSt.com that opportunity will exist for buyers and sellers of new and used product. The catch is to get over the six-month hump. After midyear, the industrial sector on all fronts is sure to warm up, he says.

Krison's crystal ball call is that nine million sf of gross absorption will take place this year and seven million sf of new product will come on line. Both numbers are down from 2000 and 2001 totals, but that's not a bad thing in today's economic climate. Year-end 2001 brought 12.9 million sf of gross absorption and 2.7 million sf of net absorption. In 2000, gross absorption hit 15 million sf and net, 10 million sf. Krison doesn't discount the metro's ability to weather the ebbing tide: "We're in good shape."

Overall industrial vacancy is now 9.84% in comparison to 7.38% at the close of 2000. The good news is that no submarket in the 204.8 million-sf inventory posted negative absorption, according to Krison. "It's just not as strong as in years prior," he says of current conditions.

Vacancy, though, is sure to climb with the new product coming out of the ground–all development set in place in early to mid-2001 when times weren't as strapped. Krison says those projects are unfolding as planned, but it's unlikely that any new ones will start to rise, other than some build-to-suits. Opus West, Douglas Allred, Kitchell Development, EJM Development and Ryan Cos. all are hard at work in the metro region. Chicago-based First Industrial has the land, the plan for 258,000 sf and seems to be sitting tight on building for now.

The new product, rising vacancy and concessions will keep rent flat this year. Krison says rent historically climbed in the region, but those are days gone by. The hotspot submarkets of North Scottsdale is commanding $11 per sf annual triple net and Sky Harbor, $9 per sf.

The metro's low point is the West Side, a conventional big box market with rent averaging $3 per sf annual triple net and vacancy riding at 16%. Still, it escaped negative absorption, ending the year with about 3.4 million sf leasing up.