Vacancy Remains Flat, Working Against Strong Absorption

Park Skyway is an industrial building that JLL is currently leasing.

PHOENIX—Metro Phoenix recorded 811,173 square feet of positive net absorption in the second quarter of 2016, bringing the year-to-date total to nearly 2.5 million square feet. Total vacancy remained flat at 9.7%, with vacant speculative deliveries working against strong absorption gains, according to JLL ‘s second quarter industrial report. “We are on the cusp of seeing speculative development occur in the Northwest submarket. Thus far, the development we have seen has been corporate design-build but as the submarket continues to grow, we expect to see spec developments that will attract midsize industrial users. Right behind that will be the development of space solutions for smaller operators. This is definitely an emerging market and it is exciting to see it grow,” says JLL managing director Anthony Lydon . More than 2.8 million square feet of new industrial space was added to the market in the first half of the year, helping push rental rates up across the market. An additional 2.7 million square feet is currently under construction. JLL says average asking rates reached $0.49 in the second quarter of 2016, a 8.8% year-over-year increase from second quarter 2015. The Northwest is Phoenix’s third-smallest industrial submarket behind 51 Corridor and Scottsdale, but it is posting big activity, attracting two of the largest owner-built facilities of the year: REI ‘s 400,000-square-foot fulfillment warehouse in Goodyear, AZ and IRIS USA ‘s 384,373-square-foot western regional headquarters in Surprise, AZ. Lydon tells Globest.com: “The Northwest is not a big-box market like the Southwest submarket. The superior labor force and proximity of Loop 303 is extremely attractive for specialty industrial users, which are typically midsize users. There are currently a number of users looking at locating in the Northwest and as they do, the submarket will become more validated, leading to more development.” Compared to the Southwest Valley, the Northwest provides a highly skilled labor force for companies focused on food and beverage, value-add assembly and manufacturing operations–all users that are common in the Northwest Valley and much different than the traditional warehouse and distribution companies found in the Southwest market, according to JLL’s report. A comparison of two newly completed facilities ( McLane Foods in the Southwest and IRIS USA in the Northwest) reveals the differences between the neighboring submarkets. The median household income within five miles of the McLane Foods facility is $39,295, with 15.1% of the population having an associate’s degree or higher. The IRIS USA facility, in comparison, has a median household income of $48,054 within five miles (a 22% increase from the Southwest) and 31.1% of the population has an associate’s degree or higher (nearly double that of the Southwest), says JLL.