Industrial Construction Pipeline Grows in Phoenix

The industrial construction pipeline is growing in Phoenix. In the first three months of the year the construction pipeline increased to 7.3 million square feet, a significant increase over the 6.8 million square feet under construction in 2018, according to a new report from Colliers International. In the first three months alone, an additional 1.4 million square feet delivered to the market in the first quarter. The industrial vacancy rate also decreased in quarter to a seven-year low of 7.2%.

Population and job growth are the primary drivers of the industrial growth and swelling construction pipeline. “Maricopa County again ranked as fastest growing county in the nation for the second year-in-a-row. Second is job growth, when you look at industrial using employment for the Phoenix Metro area it increased nearly 7% over-the-year and is the highest in nearly a decade,” Tom Brophy, research director at Colliers International, tells GlobeSt.com.

Since 2013, construction deliveries have averaged 5.8 million square feet, but in the last year, 7.7 million square feet of new industrial product came to the market. “More recently, you’ve seen an increase in the amount of spec development particularly in areas near build-to-suit,” says Brophy. “For example, Orbital ATK which is building a new 617,000SF campus in Price Corridor in Chandler has seen both new under construction projects and proposed projects spike in the areas within a few miles of the site, as potential vendor sites. Additionally there’s been quite a bit of activity along the Loop 202 extension near 59th Avenue.”

This year, an estimated 7.5 million square feet will deliver in the Phoenix market, and while demand is strong, the new supply and the increase in speculative development could put upward pressure on vacancy rates. “As more spec development comes on line over the next several quarters, vacancy is expected to increase to 8% by the end of the year,” says Brophy.

Before then, industrial should been in for a phenomenal year in 2019, with a decreasing vacancy rate and increasing rents. “Although first quarter saw reduced absorption, vacancy rate continued its march downward to 7.2% with tenant demand continuing to remain very healthy,” adds Brophy. “The Greater Phoenix area continues to attract industrial businesses, and the infrastructure investment of the Loop 202 extension to connect the Southeast Valley to the West Valley will make transporting goods into and through the Greater Phoenix area far less time consuming.”