Valley Industrial Market Shows Positive Signs of Growth

"Users are slowly returning to the marketplace," Tony Lydon, senior vice president with Grubb & Ellis/BRE Commercial, tells GlobeSt.com. "Over the last 2 1/2 to three years, it's been a long haul, but we're now starting to see tangible signs of recovery with the small to mid-size community."

The Grubb & Ellis-commissioned study found industrial vacancies in the Valley dropped to 11.1% from the 11.6% posted in the first quarter, reflecting a decline in vacancies in seven of 10 Phoenix submarkets. Glendale remained the healthiest submarket with a vacancy rate of 4.6% while West Central Phoenix saw the greatest decline with a 1.8% drop in vacancies. Southwest Phoenix, which has historically had the highest vacancy rate in the Valley, continued to retain that position with a vacancy rate of 16.8%.

Throughout the Valley, net absorption continued its climb upward with a positive net absorption of 2.3 million sf, bringing year-to-date absorption levels into the positive range, with the West Central submarket absorbing the most at 579,000 sf.

The strengthening industrial market is due largely to the activity at the small to mid-size users and California firms that are moving out of the Golden State looking for tax breaks, cheaper labor costs and low priced land. "There's been a stealth-like absorption of industrial space by small to mid-sized users. We're climbing out of the recession on their back," Lydon says.

Lydon points out California has been feeding the local industrial market as companies move into business-friendly Arizona. But even though developers have shown increased interest in speculative industrial projects to meet an expected demand, rental rates continue to remain stagnant. Heavy competition saw the average rental rate drop by 3 cents to 54 cents per sf in the Valley, leaving tenants the big winners and landlords offering concessions to fill vacant spaces.