Phoenix industrial market starting to lose steam after big growth

Kristena Hansen

Reporter- Phoenix Business Journal

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After three years of record-breaking absorption, the metro Phoenix industrial market has been experiencing a cool down in the past six months.
During the third quarter, Valley industrial space posted 942,161 square feet of positive absorption. That means more space was occupied than vacated during the three-month period, according to Cassidy Turley’s latest market report.
But the report noted that the absorption gain was entirely attributable to TJ Maxx’s move into its massive 1.2 million-square-foot warehouse in west Phoenix. Without it, “metro Phoenix would have recorded a net loss in terms of net absorption,” the report said.
This speaks to a larger post-recession trend occurring nationwide in which record demand for industrial space has been driven entirely by large users. Last year, for instance, there were eight users that occupied industrial space greater than 200,000 square feet.
Phoenix-area industrial space also saw a modest uptick in vacancy — 12.5 percent in the second quarter to nearly 13 percent in the third quarter — and rents were virtually stagnant quarter-over-quarter.
The Gilbert submarket had the highest average industrial vacancy rate in Maricopa County at 20 percent, followed closely by north Glendale’s 19.9 percent and west central Phoenix’s 15.5 percent.
Central Phoenix had the lowest industrial vacancy rate in the county at 5.3 percent, followed by the Grand Avenue corridor’s 7.1 percent average and east Mesa’s 10.5 percent, the report said.
There were nearly 5.5 million square feet of industrial space under construction at the end of September, roughly 30 percent of which was speculative. Almost half of this new construction is being built in the Chandler submarket, while another 1.5 million is taking place in southwest Phoenix , 831,775 square feet in west central Phoenix and 582,000 square feet in Glendale.

Kristena Hansen covers residential and commercial real estate.