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Category: Industrial, Report Tags: market report, Phoenix

Industrial Market Report | Phoenix, AZ

Phoenix Industrial Market Overview

Phoenix’s job market has shown remarkable resilience and growth, with an addition of 55,300 jobs in the past year, contributing to a total gain of 218,500 since before the pandemic. The city’s allure lies in its affordability, job opportunities, and business-friendly environment, attracting both individuals and major companies. Notably, the presence of leading educational institutions like Arizona State University and Grand Canyon University enriches the local talent pool and signifies confidence in Phoenix’s economic future. Phoenix’s industrial sector is experiencing a surge in development, leading to a rising vacancy rate that may continue into early 2025. Over the past year, there have been unprecedented levels of new construction, significantly surpassing pre-pandemic averages. Large properties over 100,000 square feet are experiencing the most significant increases in available space, while smaller properties remain relatively insulated. Anticipation for a potential supply relief by late 2025 or 2026 could lead to a return to tightening vacancies and increased rent growth.


By the Numbers

  • Vacancy rate: 10%
  • Rent growth: 9.5%
  • Deliveries (SF): 39.6M
  • Absorption (SF): 11.8M
  • Sales volume: $2.4B


Rents, Vacancy, and Construction

Rent growth in the Phoenix industrial market is slowing down due to reduced demand and increased competition from new developments. However, rents still rose to a healthy 9.5% over the past year. Smaller spaces remain in higher demand, giving landlords more pricing power. Despite strong rent growth, Phoenix industrial properties remain affordable compared to other markets, making them attractive for distribution network expansion in the Southwest. The market is experiencing an intense surge in construction, with a record-breaking 23 million square feet delivered in H2 2023. Currently, 35.9 million square feet are under construction, representing 7.8% of existing inventory, the highest proportion among U.S. markets.


Despite resilient demand from logistics, construction, and manufacturing sectors, the pace of construction has outpaced absorption, leading to a swift upward trajectory in vacancy rates, rising from 4.2% in mid-2022 to 10.0% by Q2 2024. Despite the current construction boom, a decline in construction starts suggests a potential easing of supply pressure by 2025, offering a breather for the market.


Phoenix Industrial Sales

While the pace of sales in the Phoenix industrial sector has slowed from the exceptionally strong levels of 2021 and 2022, it has remained more resilient compared to other property types. Approximately $2.4 billion worth of industrial assets were sold in the past year, marking a 30% increase from the pre-COVID-19 five-year average. Institutional-grade assets have become increasingly abundant due to the surge in construction, attracting significant investment from REITs, private equity groups, and other major investors. As interest rates have risen, there has been a shift in investor preference towards value-add deals, particularly those with leases significantly below market rates, offering opportunities for rent increases. Transaction activity is expected to possibly pick up in the near future, driven by upcoming loan maturities and the potential for owners to capitalize on gains.

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