Phoenix’s Industrial Market Won’t Fall into a Supply Crisis

Industrial activity is growing nationally, with major markets reaping the benefits of ecommerce demand, and the Phoenix market is no exception. In Southern California, however, that growth has meant an increasingly tight supply and little to no availability of land to build new supply. Phoenix, however, has ample land for new construction and—at least for now—a constrained construction pipeline. As a result, the supply-demand dynamics in Phoenix are in a healthy balance, and it could mean an extended runway for industrial activity.

Some markets, like Tempe, are already built out, but the ample land in the surrounding markets have buffered Phoenix from a supply problem. “Phoenix does not have the same supply problem as Southern California,” Steve McKendry, a broker and member of the board of directors at Daum Commercial, tells GlobeSt.com. “We have a lot of industrial land that is available going west. There is a significant amount of land available for large block distribution buildings, which are used for ecommerce. We also have land that can be divided and used for building small user buildings.”

Industrial construction activity has been almost nonexistent in Phoenix until the last few years, as demand for industrial supply increased. As a result, the market has seen a mostly value-add industrial development rather than new construction. “New construction was at a standstill until three or four years ago because lease rates did not justify it,” McKendry says. “Investors both in the market and outside of the market are now coming in and buying older construction that can be improved. There are a lot of buildings being repositioned. Buildings with a functional structure that is inadequate for today’s users are being purchased and put back on the market for a higher price or a higher rent.”