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Industrial Market Fundamentals Portend Similar Second Half Growth

PHOENIX—Continued local market business expansion, specialized job growth and an ongoing economic recovery helped to lower the Phoenix industrial vacancy to 10.4%, says a Q2 report by Daum Phoenix.

By Lisa Brown | lisabrown | | Updated on September 01, 2016
McKendry McKendry says demand from high tech and manufacturing will to spur industrial growth.
PHOENIX—Continued local market business expansion, specialized job growth and an ongoing economic recovery were key factors in the industrial real estate market during the second quarter. These positive indicators helped to lower the Phoenix industrial vacancy to 10.4% while average asking rents increased 4.2% year over year, according to Daum Commercial Real Estate Services ‘ 2016 second quarter market report. During the quarter, gross absorption registered 4.55 million square feet of activity while net absorption posted a gain of 1.35 million square feet of occupied space. Nine buildings totaling more than one million square feet were completed in the Phoenix market area while new construction activity increased with 2.9 million square feet currently underway. Among the new space under construction, 47% has been preleased or is committed. Activity in the investment and sale market continues to strengthen with median prices increasing through the second quarter of another 2% from year-end 2015. “The Phoenix industrial market continues to see market fundamentals improving and we expect to see similar growth as we move through the second half of 2016,” said Steve McKendry , executive vice president/principal of Daum Phoenix. “Demand including high-performing industries of high tech and manufacturing will continue to spur the industrial growth.” A notable second quarter 2016 industrial building delivery included IRIS USA ‘s regional headquarters, a 384,377-square-foot facility that delivered in second quarter 2016 and is now 100% occupied. The largest projects under construction at the end of second quarter include Medline Distribution Center encompassing 650,000 square feet in southwest Phoenix with 100% of its space pre-leased and Opus Airport Industrial , a 393,292-square-foot facility underway in mid-Phoenix. The capital markets remain solid with plenty of liquidity and qualified borrowers and cap rates have been slightly lower in 2016, averaging around 7%, compared to early 2015 when rates averaged 7.18%, McKendry said. McKendry tells GlobeSt.com: “Pent-up demand for properties to purchase, combined with the lack of existing product continues to drive sales prices. With capital availability continuing to improve and sources broadening, commercial real estate investments are expected to continue their upward trend.”  

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