Demand for Industrial Property Puts Valley on Path for a Record Year

PHOENIX-Record-breaking demand is prompting a rush on industrial building as a tight market leaves little product available for users in the Valley, shows a report by Cushman & Wakefield.

"2005 has been a huge year for industrial leasing," Rob Stephens, senior director with Cushman & Wakefield Inc. of Arizona, tells GlobeSt.com "Our net absorption year-to-date is six times what we had leased at the same time last year."

Fueled by an influx of California companies and a growing population that has added 100,000 new residents to the area for the last several years, the strong demand for industrial properties has kept vacancy rates low and absorption high, Stephens says.

Year-to-date net absorption in the Valley's industrial sector hit a record high of 6.2 million sf. One year earlier, that same figure was just 1.2 million sf., an industrial property report produced by Cushman & Wakefield shows.

"If we've absorbed six million sf already, our net absorption by the end of the year should be nine million sf," notes Stephens, adding that about 3.6 million of new build is currently in the pipeline. "At that rate, (the new product) is not going to last very long."

The fast pace of lease up has dried up concessions and driven up rental rates, he says. It also has sparked an insatiable demand for industrial condominiums, which are selling almost as quickly as they are constructed. "Some areas are experiencing a shortage of space and are unable to satisfy the needs of tenants," says Stephens, noting that landlords are often faced with picking between two or three tenants.

Demand is also spurring an industrial building boom in the Valley as developers rush to build new product even as increasing concrete and steel costs drive up the prices. So far this year, more than one million sf of new industrial space has been completed and another 1.2 million sf is under construction. "We anticipate a record-breaking year for net absorption and an overall vacancy in the five percent range at year-end," Stephens says. For now, at least, the Valley's industrial boom appears far from over.