"No particular market is real strong right now," says Stewart Park, C&W's director of market research. "However, one of the better performing markets is the Scottsdale Airpark area with 9.7% vacancy and an asking rent of 90 cents per sf triple net per month."
Park believes, however, that the market is coming to the end of its down cycle. He forecasts there a comeback will become evident at the end of the second or third quarter of this year.
Much like the office market, there has been a flurry of activity in the past three weeks as prospective tenants actively look for new accommodations. However, unlike the market for office space, some deals are being signed on the industrial side, Park says.
In particular, Target's leasing of a 1.5-million sf distribution center during the quarter accounts for the lion's share of the 1.7 million sf of positive absorption. In another big deal, Ford Motor Co. took half of a 331,000-sf building to house a new distribution center that will employ 100 people. At the same time, however, vacancy has increased slightly from 9.7% at yearend 2001 to 10%.
"That is due mainly to the new construction delivered so far and still a lot of sublease space still coming on the market," Park explains. "There's been a little more activity in the flex space market and we're starting to see some tenants taking smaller space in high tech so that market is doing a little bit better. The slowest product type is office service center."
Heavily dependent on manufacturing, especially in the computer and aerospace industries, Park said the down economy has had a significant effect on that sector of the market. Still, the demand for high-tech manufacturing space has been strong in the market where Intel has 7.5 million sf under lease.
In particular, there is 518,000 sf of high tech-flex space under construction in the Deer Valley and North Tempe areas and 589,000 sf of office/service center space under construction, with a large chunk of it in South Mountain.
Park does not expect to see a lot of new construction starts for spec product for the remainder of this year. The area, he says, is a bit overbuilt at present. But, he's not discounting some build-to-suit projects that may come out of the pipeline.
"We're definitely not out of the woods yet, but things are looking up. I think that the industrial market will come back before the office market. That's what we're expecting and the activity we've seen lately makes it look like that is going to be true," Park says.
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