Strong Leasing Helps Keep Vacancy Low in Phoenix Industrial Market

QuarterlySnapShots_INDUSTRIAL_Q2 2016-1Tenant Demand is Keeping Pace with Construction of Nearly Six Million Square Feet of Space

Phoenix, AZ – Colliers International in Greater Phoenix released its mid-year 2016 Industrial Market Report for Greater Phoenix.  Report highlights are outlined below.  For more details, refer to the attached report or click here to view online.

  • Industrial space users picked up the pace with leasing during the second quarter of 2016, bringing twice as many leases exceeding 50,000 sq. ft. than were signed in the first quarter. These completed, large leases will result in an uptick of approximately 1.5 million square feet in net absorption for the remainder of the year.
  • The Valley-wide vacancy rate for industrial space completed the quarter at 10.8%, 100 basis points lower than a year ago. Vacancy has remained rather flat so far in 2016 as a result of an increase in inventory levels from construction deliveries.
  • The combination of strong tenant demand and healthy rental rate growth is supporting new development. Nearly six million square feet of new space will be added to the Phoenix inventory during 2016.
  • Rental rates continue to rise and have advanced 7.8% in the past year.
  • Investment sales of industrial buildings have increased, rising by more than 35% in the second quarter. Year-to-date, building sales are up nearly 20% from the same period in 2015.  A broad base of product types is being acquired, which is a testament to the overall appeal of the Phoenix market.

According to Colliers International of Greater Phoenix, the industrial market will remain in an expansion phase at least through the end of this year.  The industrial vacancy rate will drop to 10.6 percent by year-end, which marks a slight decline from the end of 2015.  Approximately 6.7 million square feet of net absorption is forecasted for 2016, but the vacancy rate will level off at this point because of new properties being added to the inventory. The balance of supply and demand at this point is near equilibrium.  Asking rental rates will rise approximately 7.7% during this calendar year and have already increased 4% in the first half.  This follows a similar 7% increase experienced in 2015.  Sales of industrial buildings are on pace to reach their highest point in nearly a decade.  Competitive yields, low interest rates and improving property fundamentals will continue supporting investor demand.