Phoenix Industrial Development Has Found a Perfect Balance

Article originally posted on Globe St. on December 2, 2019

The Phoenix industrial market has found its perfect balance. The market has one of the most active new construction pipelines in the nation for industrial product, but the development isn’t in danger of surpassing demand. In fact, Phoenix has seen consistent industrial absorption since 2016, giving developers a good forecast of activity and helping to keep new construction in check.

“The most remarkable factor of the Phoenix Industrial Market has been consistency,” Cooper Fratt, SVP at CBRE, tells GlobeSt.com. “Each year, beginning in 2016, Phoenix has seen between 9.5 and 10 million square feet of annual net absorption and between 17 and 18 million square feet of annual gross absorption. This trend has held true through the first three quarters of 2019 and we expect this activity to continue through 2020.”

New entrants into the market are driving the strong industrial absorption. These companies include Nike, Microsoft, Chewy and Daimler, all of which have moved into the market this year. “Due to the tightening supply of developable Industrial land in many of the market’s traditional industrial submarkets, we are starting to see Glendale, El Mirage and Surprise attract larger manufacturing and warehouse users,” says Fratt.

Population growth has also created more need for e-commerce-related facilities, including big box warehouses and distribution facilities. This use has also helped to drive absorption and create demand for new space. “With the continued rise of e-commerce and the need for big box warehouse space, we will continue to see larger developments in the West Valley,” says Fratt. “While our infill markets have limited Industrial land remaining, developers will continue to get creative in finding redevelopment opportunities to meet the needs of the modern Industrial user.”

Thanks to these demand drivers, professionals in the market like Fratt don’t have any concerns about new construction levels or that the supply will outweigh demand. “At this point in the cycle, we have no concerns about the amount of new development in the pipeline as over 40% of the 12.7 million square feet of industrial space under construction is pre-committed, according to CBRE research,” he says. “That is a very healthy ratio and a trend I expect to continue. During the previous cycle, the amount of pre-committed space typically hovered between 10% to 20%.”

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