The land cost in the fast-growing suburb of Chandler has risen so dramatically in the past few years that it would be difficult, if not impossible, to develop a multi-tenant industrial project and still offer rents anywhere near the going rate, Pat Feeney, a broker in the Phoenix office of CB Richard Ellis, tells GlobeSt.com. "Land values have gone up," he says. "To buy land and build from the ground up, the lease rates would be off the charts. The rental rates to justify the development of that would be probably 25% to 30% higher than existing rates."
As long as the occupancy rate remains in the 90% range in the Chandler area, expect that rents will continue to rise, says Feeney. "It's a good value," he adds.
At the second quarter end, the industrial vacancy rate was 5.8%, 1.4% below the Valley's average. Chandler is also one of the few submarkets that had positive net absorption during the second quarter. More than 60,000 sf of industrial space was taken off the Chandler market during the quarter while the overall market experienced more than 1.8 million sf of negative net absorption.
Since March, the market has slowed for leasing and sales, Feeney says, but values remain solid. "The market is a little softer than it was, there is no question about it," he says. "Everyone is acting with a sense of caution in their business making decisions and that slows things down. But you can't lose sight of the fact that last year we were moving at 100 miles per hour and now we are doing 45. We are not in park."
Some product types, such as multi-tenant industrial space, are weathering the downturn better than others in the Valley. Despite a glut of distribution space, that product type is selling for good prices, Feeney says. Conversely, back-office space has lost some value since the tenants who generally occupy those buildings have less stability and tend to sign leases for shorter periods than other industrial users.
Demand in Chandler is being driven by the completion and continued construction of the Price Freeway section of Loop 101, which has made it convenient for the first time for residents to commute. The development of the 1.2 million-sf Chandler Fashion Square, at the southwest corner of Price Freeway and Chandler Boulevard, also has increased interest in the area and created amenities in short supply in that area of the Valley.
The Phoenix office of CB Richard Ellis, with brokers Feeney, Joe Porter and Dan Calihan, represented the seller in the transaction. Buyer International Capital Partners handled negotiations in-house.
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