Q3 2020 Industrial Market
COVID-19 encouraged us to re-evaluate how we track and categorize absorption and vacancy as sublease space became a noteworthy factor here in Greater Phoenix. Previously, if a tenant placed space in the market for sublease and had moved out of the square footage, we categorized the move as negative absorption and increased Sublease Vacancy.
However, COVID-19 peeled open a flaw in the previous recordings. The tenant maintains an agreement with the landlord and is contractually obligated to pay rent for the space until a new subtenant has filled the available space even though the tenant has moved out. Because the space remains leased, though perhaps not occupied, we will not consider such vacancy as negative net absorption. Instead, absorption will be tracked on a leased status basis, regardless of tenant occupancy.
- Net absorption topped over 2.5 MSF in the third quarter
- Projects under construction decreased 2.4 MSF from second quarter to 9.2 MSF, but developers delivered 3.2 MSF of new product since June
- Industrial market delivered more new product in its first three quarters than it has in more than a decade
- West Valley has 7.9 MSF currently under construction and the Northwest submarket cluster took over the top spot with 5.0 MSF being constructed
- Market rents increased 6.6% over-the-year and 0.15% over-the-quarter to $0.61 PSF
- Distribution buildings experienced the largest gain year-over-year, increasing 11.5% to $0.51 PSF
- Industrial vacancy increased over-the-quarter by 10 bps and over-the-year vacancy increased only 80 bps to 7.9%
- Investment sales volume in the third quarter outpaced second quarter by 77%
- Third quarter closed with $512 million in volume, but the median price per square foot decreased 3.2% over-the-quarter
Vacancy will slightly increase as new product is delivered but will quickly decline as new space is absorbed. Phoenix has captured the attention of investors that previously never look at this market. We will see more sales with unique buyers as we remain on the national stage of favored cities for economic growth.
The upcoming election has placed Phoenix in the spotlight and positioned us as the nation’s top market for political advertising spending. At a local level, there are state propositions that could impact our economy and image as a pro-business city.
In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.