Colliers: Industrial Property Sales Volume Rises in Phoenix for Q3 2024

Sales Volume Up 82% Year-Over-Year While Vacancy Pushes Above 10%, 18th consecutive quarter of net absorption, surpassing a million square feet

PHOENIX, (November 5, 2024)—Colliers reports that the sales volume of Greater Phoenix industrial properties rose significantly during the third quarter, reaching $1.08 billion and marking an 82-percent increase year-over-year, according to a report released by Colliers. This improvement in investment sales occurred as 6.7 million square feet of new buildings were completed, pushing industrial vacancy to 10.1 percent.

The sales volume of Greater Phoenix industrial space reached its highest level since the third quarter of 2022. The market has posted a sales volume of $2.39 billion, marking a 43.7 percent increase over the first three quarters of 2023. The average price per square foot rose to $203 during the third quarter, an increase of 6.9 percent quarter-over-quarter and 13.1 percent increase year-over-year. The Southeast submarket cluster led the market in sales volume during the third quarter with $446.1 million, representing 41.2 percent of the total market sales volume. The single largest acquisition of the quarter was BlackRock purchasing The Cubes at Glendale building B for $128.1 million. The 1.2-million-square-foot building is 100 percent leased by Amazon. EQT Exeter paid $151.7 million for a 15-property, multi-state portfolio sold by Artis REIT that included 12 properties in Arizona, all located in the Southeast submarket area.

Third quarter brought the delivery of 6.7 million square feet of new inventory, creating a year-to-date total of new space to 26.8 million square feet. Approximately 20.5 percent of the 6.7 million delivered in the past three months was pre-leased. An estimated 17.2 million square feet of this year’s 26.8 million delivered remains available for lease, equating to nearly 39.5 percent of the vacancy in the entire market. The new buildings delivered in 2024 account for 6.19 percent of our industrial inventory. The Northwest cluster led the market in completions during third quarter, adding 3.1 million square feet. This includes Sub-Zero’s build-to-suit expansion of nearly 600,000 square feet. The largest speculative project completed was IndiCap’s phase I of Virgin Industrial Park, totaling more than a million square feet in three buildings that are all vacant.

Currently, 25.5 million square feet of industrial space is under construction, with approximately 81.5 percent concentrated in the Northwest and Southwest submarket clusters. Build-to-suit projects make up more than 30 percent of the development underway.

The third quarter posted the 18th consecutive quarter of net absorption, surpassing a million square feet. During the past three months, the industrial sector posted 1.9 million square feet of net absorption, bringing the year-to-date total to 11.7 million square feet. Nearly 85 percent of the 2024 net absorption occurred in the Northwest and Southwest submarket clusters. Three large completions during the third quarter comprised more than 50 percent of our net absorption. These include Sub-Zero, Tricolor Auto, and Kroger facilities. The largest lease signed during the third quarter was GTI Fabrication, committing to 530,000 square feet at Lakin Park in Goodyear.

Large volumes of new product completion have put upward pressure on the city’s industrial vacancy. The rate of deliveries has outpaced net absorption, increasing vacancy by 450 basis points year-over-year to 10.1 percent. Sublease activity remains relatively low but rose 41.0 percent during the third quarter. This was primarily attributable to Home Depot adding 1.3 million square feet of sublease space at Elwood Logistic Center. Currently, there are 16 existing buildings available that can accommodate a tenant seeking 500,000 square feet or more. These available buildings total 11.2 million square feet, making up nearly 25.7 percent of the direct market vacancy. The highest vacancy is found in the Southeast submarket cluster, with 13.7 percent. Of the 26.8 million square feet of new deliveries 2024, the Southeast cluster holds 44.5 percent of the market’s vacant space.

Following a period of rapid increases in rental rates, the pace of price increases is beginning to normalize, with rental rates rising during the third quarter just 1.05 percent quarter-over-quarter. Overall, industrial rental rates have increased 63.7 percent over the past three years and 28.4 percent during the past two years. Rates have softened the most in the Southeast cluster due to heavy deliveries of vacant space. That submarket posted the only rate decrease quarter-over-

quarter, dropping 0.52 percent to end at $1.30 per square foot. The Northwest submarket ended the quarter with the highest year-over-year rate increase, rising 15.3 percent and ending at $0..95 per square foot. The Southwest cluster ended a six consecutive quarter run as the submarket with the most significant rate increases, now falling second to Northwest and posting an 11.8 percent increase to finish the quarter at an average rental rate of $0.98 per square foot.

Greater Phoenix still leads the country in constructing industrial space, which will maintain the pressure on our vacancy rates. However, Colliers anticipates continued growth in tenant interest here in Arizona. A recently signed bill in California piles more regulatory measures on that state’s industrial sector, including how large warehouses are developed and operated. Expanded infrastructure and equipment requirements will result in increased costs and will, therefore, fuel future industrial growth here in neighboring Arizona.

The full report is here.