Phoenix Marks 3M-SF Industrial Gain

"This is the first time we've seen increased activity across the board in the last two years," Jim Wentworth, senior managing director in Phoenix for Cushman & Wakefield of Arizona Inc., says in a press release sounding the good news. He tells GlobeSt.com that the "big surprise" was high-tech and flex product marked a 407,000-sf gain. "It's not just warehouse as last year," he says, adding that even manufacturing, though still weak, showed activity. "This really shows that the market is coming back as a whole."

Vacancy was 9.1% versus 9.9% at the 2002 close, but still 2.7% above the region's "healthy point" for the 234.3-million-sf inventory. And, rents are holding relatively firm, says Stewart Park, C&W's research director in Phoenix. In the past two years, the average fell just two cents, with the latest median standing at 53 cents per sf. Deals are still being stair-stepped and concessions remain part of the deal-making.

The leasing surge, though, is due in part because "we've hit the bottom of the barrel and owners are making deals below where they're making money" to score the wins, according to Wentworth who says starting rents, particularly for new projects, are less than their costs. At last count, new projects added just 1.4 million sf or about half of what delivered in 2002. This year's drawing boards contain the norm, more than two million sf, but there's little pre-leasing to be found. Wentworth's best guess is that 5% of the 2.4 million planned will start this year due to lending constraints for spec construction.

Despite the positive signs that a recovery has taken root around town, Wentworth says he's still "reasonably, moderately optimistic" because the foundation block for job creation has yet to materialize. "If the numbers for job creation stays with us, we will solidly be one of the healthier markets," he says, but first they have to come to fruition. "During the next 12 months, the metro Phoenix industrial market will likely mimic the movement of the overall national economy."

A submarket review shows absorption slipped in Black Canyon, South Central Phoenix, Sky Harbor Airport and Mesa. South Central Phoenix lost a Fleming Foods distribution center and Sky Harbor lost ON Semiconductor. The absorption leader was the southwest submarket, where nearly 1.4 million sf in deals closed in fourth quarter 2003.

Six submarkets have vacancies above the metro average: South Central Phoenix, 13.7%; Sky Harbor Airport, 12.9%; Far Southwest Phoenix, 12.5%; South Tempe, 12.1%; South Mountain, 12%; and Deer Valley, 11.7%. The remaining 10 have vacancies ranging from 3.5% in the northwest to 8.6% in Scottsdale Airpark and Southwest Phoenix.