Small to Mid-Size Users Leading Industrial Recovery

"It's a stealth-like recovery," Tony Lydon, senior vice president of Grubb & Ellis/BRE Commercial's Industrial Group, tells GlobeSt.com of the uptick in the Valley's industrial trend during 2003. "The small to mid-size users are back ... and over the last 12 months have demonstrated a sustained level of activity with lease commitments and closings."

Improved economic factors and an influx of California buyers helped fuel the momentum, keeping the Valley's 233.3-million-sf inventory at a overall industrial vacancy rate of 11% after years of lackluster showings, Lydon says. The relocation of more than two dozen companies from Southern California to Phoenix in the last 18 months played a major role in the industrial market's resurgence as the firms took advantage of the Valley's cheaper labor, taxes, real estate and operating costs to fill industrial space, a report compiled by Grubb & Ellis/BRE Commercial shows. A strengthening economy, buoyed by an increase in jobs, population and retail spending, also helped, the report notes.

But while the year-end absorption of more than 2.3 million sf remained at a three-year high, the Valley's overall industrial vacancy rates of 11% remained unchanged from 2002. By the end of 2003, 26 million sf of industrial space still remained unfilled--almost all of which was distributed in 50 buildings to suggest that the vacancies were created by a small number of large users, according to the research team. Lydon suggests that could all change as the economy picks up steam in 2004. "Quite frankly, what we're looking for is the return of the Fortune 1000 companies," he says, adding big business will once again move to sign on to fill the Valley's vacant industrial space as the economy improves.

Developers have already renewed their interest in the Valley's industrial market with more than 1.7 million sf under construction at year's end, an incredible increase from the 224,000 sf that was under construction at the end of 2002. That interest by developers should continue as the economy warms up to larger industrial users, Lydon says.