Wave of Speculative Development Signals Confidence in Phoenix Industrial Market

Article originally posted on CoStar on September 19, 2019

Construction is underway on a 643,000-square-foot distribution building in Goodyear, Arizona. Slated to be completed later this year, the single-tenant building is fully leased. (CoStar)

Phoenix industrial developers can’t build fast enough, even after new supply reached a decade-high last year. Developers have broken ground on nearly 4.2 million square feet of industrial space since July. Robust demand, fueled by strong employment and population growth, has tightened vacancies to under 7%, far below the market’s long-term average.

While Phoenix has a long history of overbuilding, this has not been the case throughout the current expansion.

The 12.6 million square feet of space underway is needed as occupiers scour the market for high-quality and well-located facilities. About 61% of the space under construction is available for lease. The high share of speculative space is a good indication of developer and lender confidence in the market.

The usual suspects continue to account for the majority of new space. Construction is concentrated in submarkets in the West Valley, including Glendale, Goodyear and Tolleson, where there is plenty of available and affordable land to build. Projects there range from data centers to extensive manufacturing and distribution facilities, with several topping 500,000 square feet. Glendale and Goodyear have a large share of build-to-suit developments, while Tolleson has the most speculative space underway, which could temporarily inflate the submarket’s vacancies.

The largest project underway is The Hub at Goodyear, a 790,000-square-foot spec warehouse. The project was fully available at the end of August and is slated for completion later this year.

And in the East Valley, several advanced manufacturing and last-mile distribution centers have clustered in high-growth areas of Chandler and Gilbert. Developments in the East Valley are much smaller than projects in the West Valley, with all but one project under 200,000 square feet.