Commercial: Phoenix Metro Industrial and Office Progress
November 29, 2016
Regional Director of Analytics, Xceligent
The Phoenix Metro commercial real estate market continues to follow its own trends from the rest of the nation, as it makes its way back up the recovery ladder from the Recession. Phoenix and the surrounding metro cities are working hard to attract new companies and businesses to the Valley in all sectors, but we see its growth particularly in Industrial and Office properties.
Phoenix metro’s location to support distribution to and from noteworthy markets has considerably helped with growth. This includes California with its international ports and Mexico with its large number of manufacturing plants. As a result, the Phoenix metro Industrial vacancy rates have dropped as 2016 activity in this market has progressed.
The year 2016 started with a vacancy rate of 9.3 percent in the Industrial sector; by the end of the 3rd quarter it realized an 8.6 percent vacancy rate, according to our calculations. This decrease in vacancy rate is attributed to the several large leases that were signed this year. The new tenants have contributed to the positive net absorption numbers compared to those of surrounding markets. The net absorption numbers for 3Q2016 were 1.2 million sq. ft., including a YTD total of 5.7 million sq. ft. This increase shows a strong number of companies desire to be in the Phoenix metro market and taking advantage of its job force.
Move-ins to existing industrial properties are strong as the demand for build-to-suits and new construction are also on the rise. New industrial properties that have been delivered to the marketplace in 3Q2016 totaled 1.34 million sq. ft. For the remainder of 2016 and going into 2017, the Phoenix metro industrial market has over 2.1 million sq. ft. under construction. This growth will help support the existing labor market strength in several industries including technology, manufacturing, bioscience research & business services.
At the same time, an increase in strength is occurring in the Phoenix metro Office market segment and continues to garner national and international attention. Many of the city’s economic development groups are working successfully to attract new headquarters of major corporations to the area. This includes notable companies that have relocated to Scottsdale such as: Carlisle Companies from North Carolina, Plexus headquarters and warehouse from various locations, as well as Kudelski Group headquarters from Switzerland. The Phoenix metro year over year Office vacancy rates have declined from 16.9 percent in 3Q2015 to 14.6 percent in 3Q2016, which marks an encouraging improvement.
As of 3Q2016, the Office market is reporting 1.17 million sq. ft. of projects that are under construction in the Phoenix Metro area. Existing office space net absorption for the 3Q2016 was 777,000 sq. ft. The year to date figure totaled 4.2 million sq. ft. of absorption.
The year 2016 has shown steady and strong progress. I believe the year 2017 will show similar growth that will help both Industrial and Office markets in the Phoenix Metro area.