Well-rounded activity could help market surpass absorption record set in 2005

PHOENIX, Arizona – The Phoenix industrial market is on pace to hit an all-time high absorption record, according to the new Q3 Phoenix Industrial Insight report just released by the Phoenix office of JLL. The last peak came in 2005, when the market absorbed 7.9 million square feet of industrial space during a single calendar year.

As of Q3, the Phoenix industrial market has recorded more than 6.1 million square feet of positive net absorption, making 2017 the fourth consecutive year of at least 6.0 million square feet of space absorbed. According to JLL, another 1.1 million square feet of pre-leased space is expected to deliver by the end of the year.

Combined with any new deals that emerge during Q4 2017, this brings the year-end forecast for total absorption very close to the market’s all-time high of 7.9 million square feet.

JLL Managing Director Pat Harlan credits the momentum to well-rounded market activity from sectors that include, but are not limited to, manufacturing, high-tech aerospace, e-commerce, food packaging, nutraceuticals and logistics and distribution.

“Never before have we seen activity from such a well-diversified tenant pool,” said Harlan. “The companies leasing space in Phoenix are extremely diverse and run the full spectrum – from smaller users of 30,000 square feet to large build-to-suit users of 150,000 square feet. We’re very excited about this time in the Phoenix industrial real estate market.”

Conair was the largest contributor to Q3 2017 absorption, taking down 1.0 million square feet in northwest Phoenix. Four other companies also ranked high on this list, all leasing space in the Southwest submarket:

• Updike Distribution Logistics – 226,436 square feet
• Staples – 150,000 square feet
• Performance Designed Products – 116,769 square feet
• Home Brands – 114,132 square feet

“The Southeast valley is seeing the largest deals it ever has, primarily from manufacturing, high-tech and aerospace companies,” said Harlan. “We are tracking 136 active requirements valleywide, with no signs of activity slowing down.”

With absorption continuing to outpace construction, there remains a steady demand for new space – a need that will be filled, in part, by 4.4 million square feet of new industrial space currently under development across the Valley.

To access the complete JLL Q3 2017 Phoenix Industrial Insight and Q3 2017 Phoenix Industrial Statistics reports, visit the JLL Phoenix research page at www.jll.com/phoenix.

PHOENIX, Arizona — Daum Commercial Real Estate Services has negotiated the $11.22 million sale of three industrial buildings located in Phoenix.

In the first transaction, Zouras Trust of Santa Fe Springs, Calif. purchased two single-story industrial office buildings in Southbank Business Center located at 3249 and 3259 E. Harbour Drive in Phoenix for $4.8 million. The 3249 E. Harbour Drive facility totals 15,000 square feet and 27,000 square feet comprises the 3259 E. Harbour Drive facility. Daum Phoenix Executive Vice President David Wilson and Associate Carter Wilson represented the buyer in the transaction, Zouras Trust. Ron Schooler of Commercial Properties Inc. represented the seller, Heritage Partners LLC of Costa Mesa, Calif.

In the second deal, Ewing Irrigation of Phoenix then purchased the 3249 E. Harbour Drive facility from Zouras Trust for $2.15 million. Ewing Irrigation will occupy the entire building in late spring. David Wilson and Carter Wilson of Daum represented both the buyer and the seller.

In the third transaction, Zouras Trust purchased a 42,000-square-foot industrial and manufacturing building located at 2362 W. Shangri-La Road in Phoenix for $4.27 million. The seller was Maxin LLC of Phoenix. David Wilson and Carter Wilson of Daum also represented both the buyer and the seller in this transaction.

The Phoenix industrial market remains strong, with a vacancy rate of just 9.6%, the lowest in 10 years, according to Daum’s recent market report. Net absorption has recently almost doubled, while industrial building sales activity continues to be on the rise.

DAUM Commercial Real Estate Services provides a full array of services including brokerage, consulting, leasing, sales, corporate services and asset, construction, project and property management. Founded in 1904, DAUM is California’s longest standing and most experienced commercial real estate brokerage company. DAUM has 10 offices throughout Southern California and Arizona.

PHOENIX, Arizona — JLL’s Q4 2016 Phoenix Industrial reports were released this week.

Vacancy falls significantly with impressive year-end absorption gains
Overall vacancy in the Phoenix industrial market has finally fallen after hovering around 9.6 percent for four consecutive quarters, marking the lowest vacancy rate since the fourth quarter of 2007. After recording over 2.0 million square feet of positive net absorption in the fourth quarter of 2016, the largest single-quarter gain of the year, vacancy fell 60 basis points to 9.0 percent. Unlike the first nine months of 2016, this 2.0 million square feet of positive absorption was enough to overcome the nearly 600,000-square-feet of vacant space added to the market in the fourth quarter as a result of new speculative development.

Strong leasing activity signaling continued growth in 2017
With ample land available for development and relatively low construction costs, users in the Phoenix industrial market often decide to build their own facility instead of leasing space in existing properties. Even with 2.2 million square feet of build-to-suit completions in 2016 and another 1.0 million square feet of build-to-suit under construction, leasing activity in existing properties still surpassed 13.6 million square feet. Although the volume of leases signed in existing properties declined from previous years due to increased build-to-suit activity, the average lease size continues to increase year-over-year, a sign of renewed interest in the Phoenix market from large, corporate users.

Northwest submarket poised for record expansion
The Northwest submarket is the third-smallest industrial submarket in the Phoenix market, and the smallest in the West Valley. Even so, the submarket recorded over 830,000 square feet of positive net absorption in 2016, including two of the five largest owner-built facilities delivered to date. Skilled labor, access to the Loop 303 highway, and available land in the submarket has encouraged development, with new groundbreakings expected to increase the size of the submarket a full 17.5 percent in 2017 alone. In addition to a 1.0 million-square-foot owner-user facility, the largest speculative development since 1994 is expected to add over 600,000 square feet to the limited supply of big-box space.

Tempe and Gilbert attract large and small users alike
Within the Southeast Valley, large tenants usually gravitate toward the Airport submarket, while smaller tenants take advantage of smaller availabilities in Tempe, Mesa, Gilbert and Chandler. Tempe and Gilbert significantly outperformed the rest of the Southeast Valley in 2016, recording a combined 1.0 million square feet of absorption and 1.1 million square feet of construction completions. Interestingly, these gains originated from a combination of both large and small user activity, with Tempe and Gilbert landing several of the Southeast Valley leases over 100,000 square feet that would normally sign in the Airport submarket.

Large tenants in the market expect to lease big boxes
As the Phoenix industrial market continues to expand, developers have moved quickly to meet the increased demand from large tenants in the market. There are currently 55 requirements of at least 100,000 square feet throughout the Valley, and large spaces that can accommodate these tenants are beginning to dwindle after sitting vacant during the economic downturn. Large industrial users who need modern, functional space have pre-leased 61.1 percent of new product delivered in 2016. Submarkets like the Northwest and Grand Avenue, where speculative construction has been limited over the past few years, are finally seeing their first speculative projects.

Above average asking rental rate growth closes out 2016
After recording the largest year-over-year increase in 2015 since the recession, asking rental rate growth in the Phoenix industrial market returned to more modest, albeit above-average growth in 2016. Average asking rates in the Phoenix industrial market have reached $0.50 per square foot on a triple net basis, marking a 4.5 percent increase from the fourth quarter of 2015. The Deer Valley and Tempe submarkets saw the largest rate increases at 4.8 percent and 4.6 percent, respectively. The two largest submarkets in the Valley, Southwest and Airport, saw almost no change in rates despite adding new speculative space to the market.

To read the full reports click here US-Phoenix-Industrial-Insight-Q4 2016-JLL and here US-Phoenix-Industrial-statistics-Q4-2016-JLL