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Phoenix Industrial Market Report

4th Quarter 2020

Posted In — Market Research | Market Report

MARKET DRIVERS

NET ABSORPTION reached an all-time historic high in 2020 posting over 15M square feet at year end. The COVID-19 pandemic has accelerated e-commerce trends that have fueled demand for warehouse and distribution space in the Phoenix market.

THE MARKET hit a record level of new supply in 2020 with almost 18M square feet of completed construction and over 8M square feet still underway. Developers are highly attracted to the Phoenix industrial market because of relatively few development barriers, strong demand, and a thriving local economy.

AVERAGE ASKING RENTAL RATES soared to a record high of $0.64/SF on a triple net basis. Rent growth in Phoenix has recently outpaced the national average but despite the steady increase, the market maintains its position as an affordable market when compared to the nearby major regions in California.

INVESTOR CONFIDENCE held strong in the Phoenix market with sales volume reaching $2.5B, a number only beat last year in 2019, which posted approximately $2.9B in volume. Buyer competition has put an upward pressure on pricing as well, with sales prices averaging an all-time high of $112/SF.

ECONOMIC REVIEW

According to the Arizona Labor of Statistics Office of Economic Opportunity, Phoenix metro’s unemployment rate in November dropped 2 basis points month-over-month to 7.2%. Phoenix lost about 200,000 jobs in the start of the pandemic due to strict statewide stay at-home orders, but the sharp job losses were temporary with about 80% of those job losses recovered.

Phoenix bounced back quicker than many other metro areas and has maintained its place among the best-performing markets for job growth. A recent study by EMSI placed the Phoenix Metro as the top ranked county in the nation based on the ability to attract and retain quality workers and other economic development factors.

NEAR-TERM OUTLOOK

The Phoenix Industrial market’s performance in 2020 reflected the strength and consistent demand this market has shown cycle after cycle, even amid the pandemic. With the low cost of doing business, proximity to major regional markets, and favorable demographics, investors remain bullish and will continue to seek out the market for quality assets.

A rising demand for last-mile operators, due to the closures of brick-and-mortar retailers and social distancing guidelines, will most likely continue to increase space needs for this segment going forward. We expect that the increased patterns of online shopping and e-commerce may become the “new normal”, which will maintain the demand for industrial space in the Phoenix market.

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