Phoenix industrial market surges in Q3 2020 reports Colliers International

E-commerce & grocery sales drive warehouse/distribution demand

Phoenix, October 15, 2020 – Colliers International reports the Greater Phoenix industrial market surged during the COVID-19 pandemic, driven largely by the country’s increased use of e-commerce and elevated grocery shopping while restaurants were closed. Completion of new industrial projects in 2020 has been the strongest year in more than a decade.

Arizona’s business-minded approach led to more companies remaining open during the pandemic. The trade, transportation and utility super industries actually increased jobs year-over-year in the months of June through August. Additionally, demand for warehouse and distribution buildings surged because of online purchasing of goods and groceries.  

Net absorption of industrial space exceeded 2.5 million square feet during third quarter. This marked the sixth consecutive quarter of net absorption exceeding 1 million square feet. Manufacturing and distribution space dominated the quarter, particularly in the northwest and southwest submarkets.

Large transactions for the quarter include MLILY, a mattress and foam manufacturer, leasing 643,798 square feet in Goodyear. Kehe Distributors closed on its 471,205-square-foot build-to-suit facility west of Loop 303 on Thomas and Cotton roads. Amazon signed the most leases, totaling 746,296 square feet. Leasing increased 56 percent over-the-quarter and 57 percent year-over-year by square footage.   

The vacancy rate during third quarter remained low at 7.9 percent, having increased 10 basis points during the quarter and 80 basis points year-over-year. This marked continuation of sub-10 percent vacancy that began in third quarter 2015. Vacancy remained low despite delivery of 3.2 million square feet of new space during the quarter. Vacancy is expected to stay low as new tenants are migrating here at an increased rate. Space is being absorbed at a faster pace than previous years. Currently, the top 10 largest buildings under construction have a vacancy rate of just 58 percent.   

Construction of new properties declined 2.4 million square feet from the second quarter to a total of 9.2 million square feet. The Phoenix industrial market delivered more product in the first three quarters of 2020 than it has in more than a decade. The West Valley submarket contains more than 85 percent of the current construction activity.

However, the Southeast Valley delivered its first sizable big box project this past quarter. The 486,000-square-foot speculative building has been leased to Dexcom and set up that submarket for more big-box projects in the future. Infill development resulting from the South Mountain Freeway 202 expansion has captured a lot of attention from the Southeast Valley. This transportation connection to the historically lower-priced Southwest Valley is driving up rents along that freeway expansion.

Rental rates increased 6.6 percent year-over-year and 0.15 percent over-the-quarter to an average of $0.61 per square foot. Distribution buildings posted the largest gain in rental rates, increasing 11.5 percent year-over-year to $0.51 per square foot. The Airport Area submarket cluster led rental rate increases with year-over-year improvement of 12.3 percent. The Southwest submarket follows with an increase of 8.6 percent year-over-year.

Rental rates are expected to continue rising because of strong demand for space and limitations of space availability. A high volume of product under construction will push rates up because of the expense of this new, quality space.

The USMCA officially became effective on July 1st, which will benefit manufacturing and distribution in Phoenix. This is especially true at Phoenix-Mesa Airport, which is developing the nation’s first international air cargo hub to house both Mexican and United States customs, designed to streamline transportation of goods between countries.

Investment sales volume of industrial properties outpaced second quarter by 77 percent. However, 2020 has not been able to keep pace with immense bulk sale transactions experienced in the market during 2019. Third quarter brought $512 million in volume, but the price per square foot decreased 3.2 percent over-the-quarter. Price per square foot increased 6.81 percent year-over-year to $114.

The largest transaction during third quarter was UPS, spending $54.69 million to purchase its 970,000-square-foot distribution building. Additionally, Westcore Properties sold West 80 Industrial for $43.25 million. The building sold for $113.82 per square foot and is 100 percent leased by ABB Electrification.  

The Greater Phoenix industrial market is experiencing tremendous activity and is forecast to continue this trend. Construction will continue moving forward and new speculative development is expected to increase in the fourth quarter. This city has attracted national attention from investors and tenants alike. The enthusiasm for Greater Phoenix will help our economy and, specifically the industrial market, thrive moving through 2021.

About Colliers International
Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services and investment management company. With operations in 68 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to maximize the value of property for real estate occupiers, owners and investors. For more than 25 years, our experienced leadership, owning approximately 40% of our equity, has delivered compound annual investment returns of almost 20% for shareholders. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers and LinkedIn.

Colliers International in Arizona has served clients locally and globally for more than 40 years.

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Phillip Hernandez

Research Manager

Phoenix

As research manager for Colliers International in Arizona, I am responsible for proactively developing and implementing research objectives and directing all research activity for the Arizona offices.

I provide leading-edge, thought-provoking research and analysis of market data for use in producing quarterly statistical market reports for each property discipline, as well as other ad hoc reports, research projects and presentations. I analyze and interpret real estate trends and maintain a database of economic indicators to provide forecasts.

Regardless of the property type or sector, I believe each has a story to tell and that data provides the opportunity to redefine the narrative. With a background in location analytics, I am highly experienced in interpreting complex data sets. Using the latest technology, I developed a system to blend analytics with a visually attractive approach to bring data to life.

Focusing on business development, I leverage market intelligence and insights for thought leadership content strategy in support of client engagement. My goal is to strategically align research and business development efforts and present research in an easily digestible format that promotes Colliers’ market share and revenue growth.

Colleagues describe me as a brilliant storyteller and a passionate, creative and experienced professional.

Prior to joining Colliers, I served as a business analyst at CBRE, where I specialized in creating tailored research reports, as well as unique and interactive applications and dashboards that elevated the market position of assets.

I delivered weekly research updates with relevant lease and sale comps, custom competitive sets and current market activity. I provided complex market and trend analyses, monitored an extensive database of proprietary market data, and delivered custom quarterly and annual reports that were strategically positioned towards targeted clients. I also led weekly department research meetings to develop initiatives surrounding market trends, produce innovative industry solutions and analyze client-centric objectives.

Previously, I was a GIS analyst for the central region of CBRE. Working exclusively with top-performing markets, I created unique models that illustrated custom real estate datasets through location analytics. I produced high-quality geographic and demographic maps, and investigated multiple approaches to storytelling through map and market analytics.

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