PHOENIX, ARIZONA – JLL is reporting vacancy in the Phoenix industrial market fell to 7.3 percent, now just 100 basis points above its lowest point. With only 817,712-square-feet of new deliveries and 1.3 million square feet of net absorption, vacancy inched down a mere 10 basis points. Despite a seemingly lackluster quarter, demand remains healthy.

Phoenix manufacturers have benefited from recent increases in government spending, resulting in mergers and consolidations that have increased the average user requirement size in the Airport and Southeast Valley submarkets. Aerospace and defense occupiers have been especially active as government contracts are awarded to local companies. With a $160 billion boost in defense spending provided through the newly-passed federal spending bill, we can expect more activity from the sector throughout 2018.

As the volume and average size of user requirements ramps up, speculative developments are becoming more functional in order to attract large, single users, while still maintaining the potential to become a multi-tenant building. Increased clear heights, wider column spacing, and additional dock doors make these new developments attractive for institutional users with more sophisticated operations.

Although 1.3 million s.f. of absorption is considered light compared to the incredible gains of last year, there is still plenty of tenant demand across all sizes –including over 100 tenants currently in the market for at least 100,000 s.f. of space throughout the Valley. There are only enough existing contiguous blocks available to accommodate less than 50% of those users, and even with the high volume of construction underway, developers can’t seem to deliver space quickly enough. Speculative developments will contribute to a spike in vacancy in the near-term, but will provide much-needed options as the market continues to tighten.

Read the full report here IND Insight_Q1 2018_Phoenix