Logistics Drives Increase in Mid-Bay Construction in Phoenix

Logistics users aren’t only driving industrial construction in Phoenix, they are driving a niche industrial market. Mid-bay industrial product accounts for nearly half of the total construction pipeline in Phoenix. According to recent research from JLL, there are currently 23 mid-bay industrial facilities totaling 2.5 million square feet under construction in Phoenix. This is 42.1% of Phoenix’s total construction pipeline.

“This product type ranges in size from 50,000 to 200,000 square feet. “The product offers flexible space sizes, and with that, the product has great building functionality,” Kyle Westfall, VP at JLL, tells GlobeSt.com. “The functionality, like quality clear heights, truck maneuverability, dock-high loading and high parking ratios, of industrial product is becoming more important to occupiers. That allows for a multitude of different kinds of users to occupy the space.”

Logistics and ecommerce users are among the most active users in the space; however, Westfall says one of the reasons for the popularity of mid-bay product is its demand among a broad range of users. “For developers, this product allows a smaller land site to be put into production,” he says. “As the demand and leasing activity continues to remain strong, a developer doesn’t need to go into production on a 50-acre site. While they do, they can also find a 10-acre parcel to build an industrial building that can be really successful.”

The construction activity mirrors leasing demand as well. Mid-bay product has lead the leasing market, recording 5 million square feet of gross leasing activity in the last 18 months. The average deal size has been 100,000 square feet. “Recent demand and leasing activity has accelerated along with the metro Phoenix economy, which is growing rapidly and becoming more diverse,” adds Westfall. “While the product-type has been popular, the deal size for the users going into this product is starting to grow.”

With this combination of strong leasing activity and local economic growth, Westfall doesn’t have any concerns about over development. “The new product is all over metro Phoenix,” he says. “There is new product being developed in Southwest Phoenix, Tempe, East Mesa and North Phoenix. So, when you start segmenting it by different markets, you can see that the market is not going to be overbuilt or over saturated.”

In fact, many developments are being preleased before delivery—a common trend in more mature markets and a good sign for Phoenix. “Some of these development projects are experiencing preleasing,” says Westfall. “That is a new trend compare to past cycles.”