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Phoenix Industrial Market Report

2nd Quarter 2021

Posted In — Market Research | Market Report

MARKET DRIVERS

THE PHOENIX INDUSTRIAL MARKET is firing on all cylinders, as record setting numbers were experienced across the board in the second quarter. Net absorption, rental rates and construction activity hit all-time highs and vacancies tightened to a historic low.

EVEN WITH THE RECORD SETTING 23.5M SF of construction underway, strong demand has maintained a vacancy rate well below the market’s historical average. The rapid acceleration of e-commerce trends in the past year from the COVID-19 pandemic has fueled demand for warehouse and distribution space in the Phoenix market.

AVERAGE ASKING RENTAL RATES SOARED to a new market high of $0.66/SF on a triple-net basis. Tight vacancies and increased demand have driven recent rent growth and Phoenix is currently among the top 15 markets for industrial rent growth. However, Phoenix still maintains its position as an affordable market when compared to the nearby major regions in California.

ECONOMIC OVERVIEW

A STRONG LOCAL ECONOMY has supported a thriving industrial market in Phoenix. The region lost fewer jobs (on a percentage basis) than any other large metropolitan area and maintains its place among the best-performing markets for job growth. The Phoenix economy has recovered at a relatively swift pace from the negative impacts of COVID-19, gaining back approximately 75% of the lost jobs from the previous year.

ACCORDING TO the Arizona Office of Economic Opportunity, Phoenix metro’s unemployment rate in May decreased 39 basis point year-over-year to 6.2%. This is compared to the state’s rate of 6.7%.

NEAR-TERM OUTLOOK

THE PHOENIX INDUSTRIAL MARKET is on track to outperform the previous year’s record level performance. A strong local economy, coupled with robust demand, sets the way for a thriving second half of the year.

OCCUPIERS CONTINUE TO EXPAND their distribution channels to meet the rising demand of e-commerce sales. Demand will stay strong for not only last-mile and e-commerce users, but also for data centers and manufacturing.

INVESTORS REMAIN CONFIDENT and will continue to seek out quality assets. Buyer competition among local buyers, as well as many out-of-state and institutional investors, has put an upward pressure on sales pricing and is expected to further increase into the next few quarters.

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