Cushman & Wakefield, a global leader in commercial real estate services, announced today that the Metro Phoenix industrial real estate market ‘s vacancy rate dropped below 11% for the first time since 2007. The vacancy rate had hovered between 11% and 12% for the past six consecutive quarters.
“An incredibly strong fourth quarter brought more than 4.0 million square feet (msf) of net absorption to the market,” said Curtis Hornaday, Research Analyst with Cushman & Wakefield in Phoenix. “Nearly half the year’s 8.5 million square feet of occupancy growth occurred in the last three months.”
Tracking 17 industrial geographic submarkets, Cushman & Wakefield reported 14 of these areas experienced a decrease in vacancy during Q4. The Deer Valley submarket had the largest decline falling 480 basis points (bps) during the fourth quarter. This was largely due to Aligned Energy occupying its renovated 545,000 square foot (sf) data center. The West Mesa submarket posted the largest increase in vacancy, rising 280 bps to 8.4% at year-end. Two new buildings in the Broadway 101 Commerce Park were delivered during the quarter, adding nearly 213,000 sf of speculative warehouse/distribution space to that submarket.
During 2015, the Metro Phoenix industrial market added approximately 6.0 msf in new projects to its inventory. Remarkably, an estimated 56.4% of that space was preleased when brought to market. The largest facility completed in Q4 was the 650,000 sf Tractor Supply West Coast Distribution Facility in Casa Grande. The largest speculative project delivered was a 386,000 sf distribution center at 9310 W. Buckeye Rd. That Southwest Phoenix project was 44% preleased upon completion. At year-end, the Metro Phoenix industrial market had 2.9 msf of new construction underway with 2.3 msf of that scheduled to deliver in Q1 of 2016. Approximately 48% of that new space is either preleased or build-to-suit projects.
“Occupancy growth remains strong in Metro Phoenix,” said Hornaday. “Our net absorption has exceeded 1.0 msf in seven of the past eight quarters.” The Southwest Phoenix submarket posted the largest occupancy growth with 1.2 msf in Q4 and nearly 2.2 msf for all of 2015. Menlo Logistics was the second largest single occupancy for the quarter, behind the Tractor Supply build-to-suit. Menlo Logistics took occupancy of 552,000 sf of warehouse/distribution space in the Southwest Phoenix submarket in late 2015.
The average asking rental rate for Metro Phoenix industrial space rose just a penny during Q4 to $0.52 per square foot (psf) on a monthly triple net basis. Asking rates in Black Canyon ($0.77 psf) and Central Phoenix ($0.81 psf) submarkets increased by $0.16 and $0.17 psf respectively over the past year. During that same time, Scottsdale and Tempe rates fell by $0.14 and $0.09 psf.
“Asking rental rates should stabilize during 2016 as we are expecting 1.5 msf of speculative space delivered next quarter,” said Hornaday.”It is important that our market continues attracting new businesses to the Valley and expanding existing tenants in order to maintain our healthy market condition.”
View report here: 4Q2015 Industrial Report