Valley Leads Nation in Industrial Project Construction

Article originally posted on HERE on March 1, 2024

The Phoenix Metro region started 2024 with the most industrial space under construction, two reports show.

And while one study, by Transwestern Real Estate Services, warns that “it might take a while for the market to catch up and that will translate to some volatility for industrial fundamentals” in the short-term, “anticipate leasing activity to remain solid.”

Looking at fourth quarter data for 2023, it said, “We witnessed a record-breaking 8.9 million square feet of new industrial space being delivered. It’s second only to the whopping 14.2 million square feet in Q3.

“The speedy delivery of all this square footage is bound to have an impact on vacancy rates in the coming quarters. While there’s a bit of a slowdown in construction, there’s still more than 40 million square feet in the pipeline, set to be delivered over the next 12-24 months.”

Valley-wide, Transwestern said, vacancy rates were higher in the West Valley, where Glendale recorded a 20% rate – about three times the Valley-wide rate of 6.5%.

“Vacancy closed the quarter at 7.6%, which would make the office market envious, though up notably from 4.7% year-over-year,” Transwestern said of the Valley-wide rate. The national vacancy rate is 4.6%

In the East Valley, where the vacancy rate overall was reported at 9.6% for the final quarter of last year, industrial buildings in the Chandler/Loop 202 area were running a 6.8% vacancy rate while Tempe was at 5.5%.

Scottsdale industrial buildings overall had a vacancy rate pf 4.2%, according to Transwestern, while Scottsdale Airpark had a 6.5% rate.

North/Central Phoenix overall had a vacancy rate of 6.3%, compared to 4.1% in the Grand Avenue area.

Rent per square foot was highest in Scottsdale, at $17.88 per square foot, compared to the Valley-wide average of $13.17 and an average $16.39 in the East Valley, according to Transwestern.

In all, the total amount of square footage of new industrial buildings under construction at the end of the year reported at close to 12 million for the East Valley with none of that occurring in Scottsdale or Tempe and most of it occurring in the Chandler-Gilbert area.

Meanwhile, commercialsearch.com, ranked Phoenix Metro among markets with the most industrial real estate under construction and that it had two of the nation’s 20 largest industrial projects currently being built.

Those two projects include the 2.85 million-square-foot second phase of electric vehicle manufacturer Lucid Motors, the eight largest project in country; and First Industrial Realty Trust’s three-building, 1.8-million-square-foot complex in the West Valley.

At a regional level, there are seven projects from the Western United States among the top 20 largest industrial deliveries of 2024. Besides Phoenix, two each are in California and Nevada and one in Colorado.

“At a national level, there is currently 463 million square feet of industrial space under construction nationwide, representing 2.4% of current industrial stock,” commercial research said.