Phoenix is celebrating a banner year for the industrial market. In 2020, the market posted 13.9 million square feet of industrial absorption, the highest on record, according to research from Colliers International. Out-of-state companies and ecommerce growth fueled the market activity. Amazon alone accounted for 23% of all lease transactions in the market over 100,000 square feet, absorbing a total of 2.7 million square feet in the market.
"While warehouse activity has drastically increased from COVID, we are starting to see more traction of manufacturing companies relocating to Phoenix because of the lower cost of doing business here," Phil Hernandez, a research analyst at Colliers International, tells GlobeSt.com. "Amazon was by far the largest occupier in Phoenix. Not only in Phoenix but nationally as well, they committed to more space nationally in 2020 that 2016-2019 combined."
In addition to new entry into the market, existing tenants also expanded. "Multiple tenants that recently signed a new deal are already looking for more space and have yet to occupy the original space," says Hernandez. "Tenants businesses are growing at a faster rate than originally anticipated."
All other metrics were also positive. The vacancy rate dropped 50 basis points to 7.4%, despite record new construction deliveries. Rents also increased, up nearly 7% for the year. Despite the leasing demand, investment activity declined compared to 2019; however, the price per square foot increased 9.7% and cap rates compressed to 6.2%. "The growth of Metro Phoenix is making this market so attractive to investors. Rental rates continue to increase, leading to investment sales to increase. All investor types are noticing the attractiveness of Phoenix," says Hernandez.
The entry of major retailers will have an impact on smaller tenants, particularly those that have been in the market for sometime. "When they renew their lease there is a big uptick in rental rates because of the increase we are witnessing," says Hernandez.
Still, this momentum isn't slowing down. Hernandez expects a similar trajectory through 2021, with ecommerce activity continuing to drive new demand in the market. "We will see an increase in manufacturing companies looking at Phoenix as the best location for their business," says Hernandez. "Construction and land sales for new development hasn't missed a beat in 2021, within a month into the new year 1 million square of new construction has already broke ground."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.