Phoenix Metro's Industrial Market Going Full Steam

PHOENIX-Relatively low land costs, proximity to major Southern California ports and increasing job growth have ensured that the metro industrial market boomed during 2005, with more of the same anticipated for this year.

Reports released by Grubb & Ellis/BRE Commercial LLC and Cushman & Wakefield of Arizona Inc. office reveal the Phoenix metro last year absorbed seven million to nine million of industrial space or triple the amount since year-end 2004. The result is a drop in vacancy to 5% at the 2005 close, down a full three points from the year before in the 241-million-sf inventory.

One of the major forces driving the hot industrial market are jobs, jobs and more jobs, says Anthony Lydon, senior vice president with locally based Grubb & Ellis/BRE. "I think Phoenix was number one in the country in terms of jobs created during the past year and many of those were industrial-related jobs," Lydon tells GlobeSt.com.

Grubb & Ellis/BRE vice president Andy Markham agrees with Lydon, but adds the booming industrial trend goes back a couple years beginning with interest rate reductions. "They're still relatively low as to where they've been historically," Markham says.

Infrastructure and environment also play a huge role in Phoenix's popularity, Markham continues. "We have a great freeway system," he points out. "We're relatively disaster-free. We don't have hurricanes, tornadoes, earthquakes or much else that could be a problem. Phoenix is starting to be on a lot of different companies' radar screens."

As a result of these factors, and also its proximity to California, Lydon says Phoenix has become a so-called "inland port" for the ports of Los Angeles and Long Beach. Phoenix is about five hours away from both locations, a region with a 2% to 3% industrial vacancy and land prices of $10 per sf to $14 per sf. "Phoenix has become a solution to those heavy market demands in Southern California," Markham says.

While most of Phoenix is strong for industrial, the brokers say Gilbert and Chandler are particularly active areas, especially around the airport. Metro-wide, though, it's becoming increasingly challenging to meet demand. "Given increase in both land values and construction costs, that could create some short-term lag of supply," Lydon explains.

Lydon says it's also taking longer for developments to garner approvals in certain municipalities. "They're backlogged," he says. "There's a host of residential, retail and hospitality product activity going on in the area so it takes more time to develop some of these properties than it did in the old days."

However, Markham adds, the industrial arena will continue thriving locally in comparison to many other areas. "The cost of land is still relatively cheap here as is the cost of living," he concludes.