PHOENIX, AZ – Lee & Associates is reporting the Phoenix Industrial sector started 2016 with a solid market performance, fueled by a robust finish to 2015. Net absorption is historically modest at the start of a new year and could indicate a strong year ahead. The construction pipeline remains steady with a mix of spec and built-to-suit projects even with nearly 2 million SF delivered in this quarter alone. Vacancy rates have not been this low since Q1 2008, right when the economy was beginning to cool and nearly a year before the great recession began. Rental rates, however, remained flat overall this past quarter with modest increases primarily in the Sky Harbor Airport and Southeast Valley submarkets.
Leasing activity remains steady across most submarket clusters. “The most important trend in market activity over the past year is in smaller, multi-tenant properties, said Matt DePinto, Senior Research Analyst with Lee & Associates. “Tenants in the market are mostly looking in the 5,000-15,000 SF range. With such strong demand, many spec development projects under construction Valleywide are these types of buildings, he added.” As an example, the home-building industry is gearing up again and many home-related businesses are leasing space in that size demographic. Conversely, activity remains much slower for medium and large tenants seeking 100,000 SF or more. There is a glut of available space, mostly distribution, with even more under construction. The Southwest Valley distribution market bears most of the brunt of this market trend with stubborn rental rates. Owners are looking for new ways to position these buildings by dividing spaces and creating other leasing incentives to draw foot traffic.
The Phoenix Industrial sector finished the quarter with an eight-year low vacancy rate of 10.7%. The Northwest and Northeast submarket clusters enjoyed the lowest vacancies in the Valley at 7.1% and 7.8%, respectively. The Southwest Valley has the highest vacancy with 13.2%. Net absorption for the quarter was solid and settled at 1,633,655 SF.
Construction activity remains strong at 2,821,652 SF. There were many projects delivered to inventory in the first quarter totaling 1,929,733 SF. Overall rental rates remained flat at $0.54 per SF, per year. The Southeast Valley, however, saw a 4.6% increase while the Southwest Valley saw a (-2.5%) decrease.
The largest lease transaction in the first quarter was for Sherwood Bedding who leased 142,146 SF at 9310 W. Buckeye Rd., Tolleson. In the largest sales transaction, Kootenay Holdings, Ltd. purchased three flex buildings totaling 108,067 SF at 15475 N. Greenway-Hayden Loop, Scottsdale for $19,804,000 or $183.26 per SF.
Tot read the full report click here: Q1 2016 Industrial Market