Industrial Commercial Update
July 25, 2015
Written by: Bryon Carney
Managing Principal, DTZ
Phoenix is once again among the West’s top-performing large metro economies and remains one of the strongest industrial markets in the country. The economy has strengthened since mid-2014, with year-over-year growth in nonfarm jobs near a cyclical high, much higher than both the state and national averages. Phoenix’s industrial market ranks fourth in the nation relative to net absorption gains during this recovery, having registered nearly 30 million square feet (MSF) of occupancy gains since 2011. Perhaps even more impressive is the fact that Phoenix was one of only six major markets that actually posted positive occupancy gains during the recession, when it posted nearly 1 MSF of net absorption. This makes Phoenix one of the hottest industrial markets in this economic expansion and one of the most recession-resilient industrial markets in the country. Phoenix also enjoys strong demographics: the metro area’s population expanded by nearly 2% in 2014, almost three times the national average and the fastest pace of growth since the Great Recession. Housing stands to gain the most in the near term, and this in turn will fuel continued demand for industrial space, particularly among mid-sized users who in the aggregate are critically important to the Phoenix industrial market.
In this tight market mid-sized spaces can be hard to find, but that is about to change with exciting projects such as West 80, a ±379,635-square-foot speculative development by Wentworth Property Company that is slated to come online in 2016 and provide state-of-the-art features that tenants want, including 36-foot clear height. West 80’s design and flexibility, with the ability to divide the building among several tenants and three potential office locations, are distinguishing attributes. Considering the steady demand of smaller to mid-size industrial users, who have been the “bread and butter” of our market and want newer cross-dock distribution facilities, expect to see additional speculative projects with the design and flexibility to attract these users.
An evolution of design is also apparent in the changing building characteristics of the “big-box” distribution center. In the age of e-commerce, distribution centers must be both larger and more specialized to accommodate greater inventory and high-tech order fulfillment equipment operated by increasingly skilled warehouse workers. Several trends have become clear. First, 36-foot clear height is the new minimum, with some retailers looking at 40-foot or 42-foot clear height to accommodate the need for mezzanine space and multi-level conveyor systems. Second, power capacity is increasingly important due to robotics and modern technology needed to effectively operate. Third, human capital needs to be considered as workers must master the latest fulfillment technology.
Perhaps the clearest trend of all is that Phoenix metro remains one of the hottest industrial markets in the nation, and there is every reason to believe industrial demand is about to get even hotter.