Phoenix Industrial Market Overview
Q2 2022 Report
Phoenix has become a hot spot for commercial real estate over the past few years, with industrial assets leading the pack. The market boasts one of the strongest construction pipelines in the country and a low average vacancy rate of 4.3 percent. Growing substantially in population, Phoenix’s industrial sector is fueled by the city’s robust consumer base and the ever-increasing demand for e-commerce and logistics spaces. Investors from across the globe have found Phoenix to be a haven for real estate investment due to business-friendly tax policies, an expansive workforce, a relatively low cost of living, and a limited risk of natural disasters. Sales volume reached a historical high in 2021, and activity continued into 2022, with institutional and out-of-state investors taking up most of the transactions.
Vacancy & Rent
New supply has entered the Phoenix industrial market rapidly, but vacancy rates have remained steady, supporting positive rent growth for almost the last ten years. Reaching 13.8 percent, Phoenix’s annual rent growth is higher than the market’s historical average but is still affordable compared to neighboring California markets by 30 to 40 percent. This growth is expected to decelerate toward the end of the year, according to CoStar.
Transaction activity ramped up in 2019 and has continued to perform well, setting sales records for the past consecutive two years. Similar to the metro’s development pipeline, the Southwest and Southeast Valleys see the most action. 1031 Exchange deadlines are fueling much of the transaction activity, along with an influx of out-of-state buyers entering the market. Industrial assets are selling at an average of $157 per square foot after consistent pricing pressure. Although 30 percent higher than the market’s previous record, Phoenix’s market price per square foot is much lower than many coastal markets, attracting qualified and eager investors.