Login

Phoenix Industrial Market Report

4th Quarter 2023

Posted In — Market Research | Market Report

MARKET DRIVERS

AFTER A RECORD LEVEL 14M SF of new deliveries came online in 3Q, another overwhelming 8.9M SF of space was delivered in 4Q. With the constant wave of new supply in the past few years, the Phoenix industrial market has added approximately 20% to the existing inventory since 2020, making it one of the most aggressive construction pipelines in the country.

WITH THE RECORD LEVEL VOLUME of new deliveries in the last two quarters, vacancy and availability rates have increased 67% YOY and 27% YOY respectively. The market may experience a temporary shift in conditions, as demand has shown some signs of moderating especially in the mega warehouse spaces in larger properties.

ALTHOUGH DEALS ARE STILL BEING MADE throughout The Valley, the impact of higher interest rates and stricter lending standards are starting to reshape investor strategies. There is strong demand from investors in newly constructed vacant properties that have lease-up opportunities, as well as demand for value-add deals for leased buildings where rents can be increased for higher returns.

ECONOMIC REVIEW

ACCORDING TO THE ARIZONA OFFICE OF ECONOMIC OPPORTUNITY, Phoenix metro’s unemployment rate in November increased 40 basis points YOY to 3.5% but decreased 40 basis points month-over-month from 3.9% in October. This is compared to the state’s unadjusted rate of 4.0%.

THE NUMBER OF COMPANIES MOVING to metro Phoenix is noteworthy, but the diversity of industries has helped sustain the region’s long-term stability. The businesses that Phoenix is attracting have evolved, and the market has emerged as a hub for advanced manufacturing, aerospace, logistics, and technology.

NEAR-TERM OUTLOOK

AFTER THE SURGE IN ACTIVITY experienced in recent years following the onset of the pandemic, the Phoenix Industrial market is beginning to shift towards a more normalized trajectory. Demand is expected to level out and vacancy availability rates will continue to hike up due to the sheer volume of new projects being delivered in the coming year.

ALTHOUGH HIGHER INTEREST RATES coupled with a potential economic cooldown are forecast to weigh on demand in the new year, the strong, structural underlying demand drivers in Phoenix are anticipated to help the industrial market stay at the top of the industrial ranks among the nation.

Click here to subscribe to Kidder Mathews market research.

Share This Report