The Phoenix industrial market has surged during the pandemic, according to a new report from Colliers International. In the third quarter, industrial absorption was 2.5 million square feet in Phoenix. The activity is driven by increased ecommerce spending, which has fueled national growth in the sector. This is the sixth consecutive quarter that Phoenix has had more than 1 million square feet of industrial absorption.
"The growth of e-commerce has drastically increased warehouse and distribution space in the Valley. However, this quarter was also heavily led by manufacturing space, with the delivery of a facility for Mark Anthony Brewing, the makers of White Claw. Chinese mattress manufacturer, MLILY, leased 643,798 square feet at PV |303 to expand its global manufacturing footprint," Phil Hernandez, research manager at Colliers International, tells GlobeSt.com.
Industrial activity has been strong each quarter this year, including the second quarter when the pandemic hit. "Two of the top five biggest deals of this year were signed in Q3, equaling 1.1 million square feet, and neither tenant was Amazon," says Hernandez. "Phoenix metro is attracting diverse attention from multiple industries not just warehouse users."
In addition to strong leasing activity, Phoenix industrial is also seeing record new construction activity. In fact, this is the strongest year for new development in a decade. As a result, the vacancy rate ticked up nominally to 7.9%. "Product is being delivered at an extremely quick rate; the demand is still incredibly strong, but supply is becoming available at a faster pace. Construction in the industrial sector was minimally affected by the pandemic, unlike other sectors," says Hernandez.
Intuitional investors have been buying the new construction product, and with strong deliveries this year, it has helped fuel investment volume. "Product under construction has slightly decreased from the high of 11 million square feet in 2019, but the market is on pace to out deliver product from last year," says Hernandez. "The increase of land sales along the west loop 303 has brought out institutional developers who are eager to move quickly to break ground."
Hernandez expects equally strong performance in the fourth quarter. "At this pace, the industrial market will continue to be extremely healthy, expanding both in the east and west valley. Product that is currently under construction over 100,000 square feet is heavily favored in these two areas," says Hernandez. "The Phoenix market is particularly competitive because of the low cost of doing business and the size of our quality labor pool. That will be a primary driver when companies are in the site selection process."
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