Metro Phoenix industrial market absorption in the third quarter of 2024 was the lowest of the year. Phoenix no longer leads the nation in industrial space under construction, Dallas has taken that spot. With all the development in Phoenix over the past few years, it may be healthy not to have so much new industrial development.
So far the industrial sector has been financially steady, not having the problems that multi-family and office developments have. As new larger industrial developments sit vacant for an extended time, the lender pain may become more acute. Developers are seeing more smaller-sized leases being done and some are dividing their large buildings. Owners are building spec offices and demising walls to expedite the tenant occupancy time frame. One developer who recently finished a 102,000 sf building divided the building into 4 suites, aggressively priced them, and leased all four spaces upon building completion. More tenant improvement work/expense can result in a faster lease-up time.
Regardless of the slowdown in industrial leasing, the Valley's residential growth continues. A recent article says 173 Californians are moving to AZ daily (63,000 annually). Even with the increase in real estate pricing, our single-family homes are still half the price of an average California home.
AZ Rent is 30% less.
AZ income tax rate is 2.5% compared to 13.3% in California.
The new arrivals' age groups are as follows:
Millennials- 26%, Gen Z- 20%, and Baby Boomers- 18%
Phoenix has one of the highest occupancy rates for older industrial buildings. Most of our older building inventory is close to the city core. I-10 & 202 corridors in west Phoenix and Tempe-Chandler, the 101 & US 60 in Tempe-Mesa, and south to Chandler are in strong demand. These buildings built close in are typically smaller in size and have features acceptable to most tenants.
Phoenix leads the nation in the widest industrial lease spread. This means a new lease signed has almost a $.31 psf/month increase (20-50% increase) over the existing average rent being paid. Rents are still being renewed at higher rates.
Following up on previous leases, Amazon is moving into two of the three 1 million+ buildings leased in the first quarter of 2024. Tenant improvements are continuing on the third building.
3rd Quarter leasing is the lowest of the year, with one 500,000 sq. ft. + and several leases in the 100,000 sq. ft.+ range signed:
GTI Fabrication 531,583 sq. ft. Knotwood: 103,976 sq. ft.
Freeport: 137,980 sq. ft. Branded Bills: 96,407 sq. ft.
Quantum: 135,1759 sq. ft. Waymo: M@C Discount 82,850 sq. ft.
Vistar: 131,500 sq. ft. Rivian: 63,720 sq. ft.
Int.Paper:113,528 sq. ft. Erbie: 48,980 sq. ft.
Three major industrial sales:
Investment: 725,303 sq. ft. $149.00 psf
Investment: 539,560 sq. ft. $161.00 psf
Packaging Corp of America: 364,708 sq. ft. $202.00 psf
One of the most surprising statistics in the 3rd quarter is the amount of industrial space that has come onto the market. These numbers are a compilation of availabilities shown in my weekly reports:
Existing Space: 3,423,000 sq. ft.
Sublease Space: 2,828,000 sq. ft.
New Constructed Space: 2,239,000 sq. ft.
CoStar Insight
CoStar Power Broker
AZ Big Media
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