E-Commerce and Enhanced Grocery Sales Drive Demand for Warehouse/Distribution

Phoenix, Arizona –  The Greater Phoenix industrial market has surged during the COVID-19 pandemic, driven largely by the country’s increased use of e-commerce and elevated grocery shopping while restaurants were closed.  Completion of new industrial projects in 2020 has been the strongest year in more than a decade.

Arizona’s business-minded approach led to more companies remaining open during the pandemic.  The Trade, Transportation and Utility Super industries actually increased jobs year-over-year in the months of June through August.  Additionally, demand for warehouse and distribution buildings surged because of online purchasing of goods and groceries.

Net absorption of industrial space exceeded 2.5 million square feet during third quarter. This marked the sixth consecutive quarter of net absorption exceeding one million square feet. Manufacturing and distribution space dominated the quarter, particularly in the Northwest and Southwest submarkets. Large transactions for the quarter include MLILY, a mattress and foam manufacturer, leasing 643-798 square feet in Goodyear.  Additionally, Kehe Distributors closed on its 471,205-square-foot build-to-suit facility west of Loop 303 on Thomas and Cotton roads.  Amazon signed the most leases, totaling 746,296 square feet.  Leasing increased 56 percent over-the-quarter and 57 percent year-over-year by square footage.

The vacancy rate during third quarter remained low at 7.9 percent, having increased 10 basis points during the quarter and 80 basis points year-over-year.  This marked continuation of sub-10 percent vacancy that began in third quarter 2015.  Vacancy remained low despite delivery of 3.2 million square feet of new space during the quarter. Vacancy is expected to stay low as new tenants are migrating here at an increased rate.  Space is being absorbed at a faster pace than previous years.   Currently, the top 10 largest buildings under construction have a vacancy rate of just 58 percent.

Construction of new properties declined 2.4 million square feet from the second quarter to a total of 9.2 million square feet.  The Phoenix industrial market delivered more product in the first three quarters of 2020 than it has in more than a decade.  West Valley submarket contains more than 85 percent of the current construction activity.  However, the Southeast Valley delivered its first sizable big box project this past quarter. The 486,000-square-foot speculative building has been leased to Dexcom and has set up that submarket for more big box projects in the future. Infill development resulting from the South Mountain Freeway 202 expansion has captured a lot of attention from the Southeast Valley.  This transportation connection to the historically lower-priced Southwest Valley is driving up rents along that freeway expansion.

Rental rates increased 6.6 percent year-over-year and 0.15 percent over-the-quarter to an average of $0.61 per square foot.  Distribution buildings posted the largest gain in rental rates, increasing 11.5 percent year-over-year to $0.51 per square foot.   The Airport Area submarket cluster led rental rate increases with year-over-year improvement of 12.3 percent.  The Southwest submarket follows with an increase of 8.6 percent year-over-year.  Rental rates are expected to continue rising because of strong demand for space and limitations of space availability.  A high volume of product under construction will push rates up because of the expense of this new, quality space.

The USMCA officially became effective on July 1^st which will benefit manufacturing and distribution in Phoenix.  This is especially true at Phoenix-Mesa Airport, which is developing the nation’s first international air cargo hub to house both Mexican and United States customs designed to streamline transportation of goods between countries.

Investment sales volume of industrial properties outpaced second quarter by 77 percent.  However, 2020 has not been able to keep pace with immense bulk sale transactions experienced in the market during 2019.  Third quarter brought $512 million in volume, but the price per square foot decreased 3.2 percent over-the-quarter.  Price per square foot has increased 6.81 percent year-over-year to $114.  The largest transaction during third quarter was UPS spending $54,690,000 to purchase its 970,000-square-foot distribution building.  Additionally, Westcore Properties sold West 80 Industrial for $43,250,000.  The building sold for $113.82 per square foot and is 100 percent leased by ABB Electrification.

The Greater Phoenix industrial market is experiencing tremendous activity and is forecast to continue this trend.  Construction will continue moving forward and new speculative development is expected to increase in the fourth quarter.  This city has attracted national attention from investors and tenants alike.  The enthusiasm for Greater Phoenix will help our economy and, specifically the industrial market, thrive moving through 2021.

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MARANA, ARIZONA — QuikTrip Corporation purchased approximately 80,000-square-feet of land in Marana, at the northwest corner of Tangerine and I-10 from Tangerine/I-10, LLC, an affiliate of Cottonwood Properties  for $1,506,410 ($18.83 PSF). Quik Trip plans to build a fueling center/convenience store at this location in the near future. This will be QuikTrip’s 20th store in the metro Tucson area.

The property is part of Tangerine Commerce Park, being developed by Cottonwood Properties (David Mehl, President). Tangerine Commerce Park is Northwest Tucson’s next major commercial interchange.  Cottonwood owns approximately 100 acres that front on the four lane fully improved Tangerine Farms Road. Tangerine Commerce Park is zoned to accommodate a range of retail, office and industrial uses. Our first major tenant is Ventana Medical Systems, a subsidiary of Roche – the world’s largest biotech company. Tangerine Commerce Park has high visibility from the I-10 freeway and is only 25 minutes from Tucson International Airport and 75 minutes from Phoenix Sky Harbor Airport. It is located in the pro-business Town of Marana with direct access to Oro Valley via Tangerine Road and close proximity to Gladden Farms and Dove Mountain.

Businesses in Tangerine Commerce Park may qualify for the Town of Marana’s Job Creation Incentive Program (MJCIP). The program includes employee relocation allowances of up to $3,000 per employee as well as a training and internship allowance. Additional allowances are available for I-10 corridor “beautification” for landscape, building facades and signage. Allowances are made through construction tax reimbursements. Marana also offers Expedited Development Review Incentives.

QuikTrip Corporation is a privately held company headquartered in Tulsa, Oklahoma. Founded in 1958, QuikTrip has grown to a more than $11 billion company with 850 stores in eleven states. Those revenues place QuikTrip high on the Forbes listing of largest privately held companies. QuikTrip’s strategy is to be the dominant convenience/gasoline retailer in each market and to reach that level not through sheer numbers of stores, but through key, high-volume locations. With over 24,000 employees, Fortune has ranked QuikTrip on the list of Best Companies To Work For for fourteen years. QuikTrip also gives back to the communities it serves, donating 5% of net profits to charitable organizations.

The purchaser was represented by Randy Emerson of GRE Partners. For more information, Emerson should be reached at 520.777.4949.

To learn more, see RED Comp #8150.

PHOENIX, ARIZONA — 9.5 Acres of land were sold on September 24th, 2020 at 290 La Canada Boulevard in Avondale, Arizona for $1,300,000 or $136,842/acre. Larry Kush of ORION Investment Real Estate represented the Sellers, Robert Delacour and Dianna Costa, while Zack Mishkin of ORION Investment Real Estate represented the Buyer Joseph Risi of Risi Companies, LLC. The land parcel (#500-10-110) is located at the northeast corner of Central Avenue and La Canada Boulevard; it’s nearest major cross streets being Central Avenue and Van Buren Street.

On October 5th, 2020, Avondale City Council voted to approve Risi’s rezoning of the land from commercial to high density residential. Though multiple other developers have attempted to have the commercial land rezoned to residential with even lower density projects, Risi was the first to have a successful attempt. Risi Companies is responsible for a number of projects around the valley and beyond from infill development to luxury homes. They recently developed unique, contemporary, eco-friendly vertical homes in North Tempe known as “The Newport.”

Risi Companies will be developing the first residential project in Historic Avondale with this land site. Risi’s project, called Crystal Cove, is set to be the shining star of Avondale. It will be a 238-unit multi-family apartment project consisting of 1, 2 and 3 bedroom units. The gated apartment community will have a beautiful central clubhouse with a pool, 109 garages, and ample additional covered parking for Avondale’s residents.

ORION’s top-producing land expert, who represented the Seller, Larry Kush can be contacted at (480) 482-1944. ORION’s multi-family expert, who represented Risi Companies in the transaction, Zack Mishkin can be contacted at (480) 689-4151.