Construction Leads Charge of Mid-Sized Users

Lydon says the metro’s business friendlier proposition provides a competitive alternative.

PHOENIX—Although Phoenix recovered all of the jobs lost during the recession, the construction employment sector is still more than 80,000 jobs away from its previous peak, according to JLL Phoenix . Construction-related companies represented a significant portion of mid-sized activity in the market, but unlike previous cycles, economic recovery is not dependent on the success of single-family construction. An impressive 7,200 construction jobs were added since the first quarter of 2015, and as multifamily and commercial construction continue to grow in the Phoenix metro area, new employment growth in the construction sector is expected to translate into healthy absorption gains, says JLL. During previous economic cycles in the Phoenix market, recoveries were marked by large, institutional users taking advantage of declining rental rates to lease large blocks of space. Now that the worst of the recession is in the rear-view mirror, the Southeast Valley has recorded a much more balanced recovery including large, mid-sized and small, local users, JLL points out. More than 1 square feet of leases were signed in the first quarter, and with only a few renewals of more than 100,000 square feet, leasing activity in the first quarter was largely comprised of small deals of less than 5,000 square feet. Anthony Lydon , JLL managing director, tells GlobeSt.com what keeps larger industrial users attracted to Phoenix: “Our demographics and job growth profile keep large industrial users coming to Phoenix. Corporate site visits and RFPs are up approximately 25% from one year ago. Compared to California, we offer the headcount- and energy-centric employer tremendous value. Our business friendlier proposition also provides a competitive alternative to the ‘thousand cuts’ of incremental expenses found in other markets.” In the Southwest Valley, the market is still going strong with large users. After averaging nearly 675,000 square feet of net absorption per quarter in 2015, the Southwest Valley saw a healthy bump in the first quarter of 2016, recording more than 830,000 square feet of net absorption. More than 13 million square feet of tenants are currently in the market evaluating, touring or negotiating for space in the Southwest Valley. Lydon continues to tell GlobeSt.com: “Larger industrial users remain focused on a number of Phoenix facilities for their immediate space solutions. All of the benefits noted above help with that, particularly when you consider that HR investments are sizable compared to the real estate investment.” A bulk of the absorption is also coming from design-build. The number of owner-user sales transactions is down 25.7% and sales volume is also down 28%, as large users with buying power are finding design-build options more attractive for specialized needs. Slightly less than 50% of the year-to-date absorption has been a direct result of design-build completions, concentrated in just four buildings. Looking forward, there are nearly 1.1 million square feet of design-builds expected to deliver throughout 2016.