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September 12, 2018

Industrial Demand Soaring in Phoenix: 4 Reasons Why

The laws of macroeconomics tell us that for every boom there is a bust; what goes up, must come down. Yet something is happening that is defying that conventional wisdom. E-commerce, still only around 12% of all retail sales but growing, has seen consistent growth for years now, cycle after cycle and in Phoenix, this year the numbers are continuing to soar.

No Slow Down In Sight

As of the end of last year, vacancy rates were at record lows nationally and it appears that the GDP and job growth for industrial is going to continue to grow by double digits for the next several years at least. Naturally experts are wary of a market performing at this high of a rate for so long.

But, could it be that GDP will no longer be a good measure of industrial? Could e-commerce be the thing that in the end upsets decades of precedent in how the market works? Walmart thinks so. They predict an upswing of 40% this year in e-commerce sales.

In Phoenix, the industrial real estate market ended the year with a record-breaking ten million square feet of net absorption, a notable drop in vacancy and rental rates that are continuing to climb. Furthermore, the market shows “no signs of slowing down.”

Here are 4 reasons why we think demand in Phoenix industrial will continue to soar:

#1: Record High Development Pipeline

At no time in the history of the City of Phoenix have there ever been so many new industrial projects going up. Already in the development pipeline for Phoenix is nearly 6.4 million square feet of industrial space under construction. The last time the numbers looked this good? Back in 2007; right before the housing collapse.

#2: Phoenix Submarkets Attracting Developers

Primary markets across the country that were attracting all of the development have begun to lose out to submarkets. Phoenix is no different. Particularly in the Airport Area submarket, vacancy rates are hovering around 8.4%. Pinal County’s industrial market is even tighter with a vacancy rate of 2.4%.

#3: All-Time High Rent Rates in the Northeast Submarket

One of the reasons why there is heavy activity to the Airport submarket is because asking rates have skyrocketed in the NE submarket because of newer developments. There, costs per square foot are at a ten year high. With many developers targeting this submarket with new flexible industrial product, SW Phoenix is seeing aggressive asking rates under $0.45 per square foot.

#4: Lots of Activity in Manufacturing and Warehousing

The same thing pushing industrial to new heights in Texas and Florida are the same ones driving activity in Phoenix – manufacturing and warehousing. Necessary assets for any e-commerce supply chain, warehouse and manufacturing space in Phoenix is garnering asking prices of over $100 per square foot ($11 per square foot higher than last year). Meanwhile flex space is seeing almost double the rental rates per square foot as traditional manufacturing and warehouse space.

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