14M SF of Industrial Space Started, Planned

PHOENIX-With low vacancy rates and falling absorption rates impacting the market, more industrial space is coming on line to meet demand. One brokerage firm says there is 14.5 million sf under way or on the drawing boards and another pegs it at 9.1 million sf.

According to CB Richard Ellis, absorption year to date is 2.9 million sf in the 234.1-million-sf inventory. Last year, 7.9 million sf was absorbed. According to CBRE market review, the construction pipeline is up to 11.5 million sf of started and proposed space.

Cushman & Wakefield of Arizona Inc.'s team says there is 5.4 million sf rising and 9.1 million sf planned to come out of the ground within 18 months. C&W pegs absorption at 4.05 million sf versus last year's 6.2 million sf, using 248.2 million sf for its inventory base.

Local brokers tell GlobeSt.com that more space can't come too soon to a market that's in overdrive and hungry for more. "Our absorption is lower this year than last year because there's no more blood in the turnip," CBRE senior vice president Mark S. Krison says. "You can't rent stuff you don't have."

Pat Harlan, a C&W director in the Phoenix office reports large blocks of available industrial space are almost non-existent. "We could have absorbed a lot more space had we had the space to absorb," he says.

The brokers say population growth underlies the lack of industrial space. Harlan says the market is in the middle of a positive growth cycle in terms of jobs and population, which has 2.5 to three years left on the cycle. Until the cycle slows down, demand will remain relatively high.

Also, entitlement processes are taking a little longer when it comes to building. "Once upon a time, you could go into Chandler or Gilbert and get a building up in eight months or less," Krison says, "but these days, it takes 12 to 18 months."

Both brokers are convinced the shortage won't last forever, especially with the square footage currently on the drawing boards. "We'll see more buildings coming out and see the vacancy increasing somewhat over the next 12 to 18 months," Krison says.

Overbuilding is always a nightmare for developers and building owners, but Harlan says that's the least of the industrial market's worries right now. "I think that the current level of demand in the marketplace will absorb that supply within a relatively short period of time," he adds.