How Are Developer’s Handling Phoenix’s Industrial Boom?

Phoenix’s industrial market is experiencing the ecommerce-effect. That has meant increasing rental rates, rising demand for warehouse and distribution facilities and, of course, new construction. According to a recent report from JLL, there is more than 5 million square feet of industrial space in the construction pipeline in the West Valley alone—and the number is growing. Industrial developer Trammell Crow Co. recently purchased a 38.5-acre site to build 554,000 square feet of industrial space. The massive development is one example of the fervency for industrial construction in the market.

“The past 12 months have seen a continued decrease in the overall industrial vacancy rate in metro phoenix based on steady tenant demand,” Cathy Thuringer, a principal at TCC, tells GlobeSt.com. “Net absorption continues to outpace supply validating that overall development in this cycle is more disciplined than past cycles. The balance between supply and demand is contributing to a strengthening in rental rates, particularly for class a industrial product. Investor/capital appetite for quality, well-leased industrial product in phoenix has surged over the last 12-18 months given the more attractive value proposition to investors in phoenix versus other gateway markets.”

An amalgamation of factors has led to the industrial boom in Phoenix, but a growing population and a healthy job market are the primary drivers. Thuringer also commends the business-friendly atmosphere in Phoenix as a cause of the growing industrial demand in the market. The economic fundamentals and business-friendly atmosphere are long-standing trends, and Thuringer expects that they will continue to drive ecommerce demand well into the future.

Construction on TCC’s project will launch in the third quarter of this year, and will deliver in late 2019. “West 202 logistics center is a class-a, single-building industrial development designed with state-of-the-art features that will appeal to variety of users from e-commerce to manufacturing,” explains Thuringer.  “The efficiency and functionality of the building/site design provide a tremendous amount of flexibility and the site’s adjacency to the extended loop 202 in the west valley will provide exceptional access to all parts of the metro phoenix area and beyond.”

Phoenix is an emerging market in general, and, unlike more mature markets on the West Coast, it has ample land for new industrial development. As a result, it will likely continue to be a top market for industrial development and investment. “Increasing land and construction prices are a concern for developers—particularly speculative developers—but these factors will also likely serve to keep new product in check and aid in maintaining a healthy balance between supply and demand in the market,” says Thuringer.