Phoenix, AZ’s industrial real estate market has been performing well since over the last few quarters.
The Phoenix Industrial Real Estate (PIR) has recorded its lowest vacancies.
The average rent for office space increased to $0.80 per sq ft, up from $0.72 per sq ft last quarter and an annualized pace of nearly 20%.
We expect rents to continue increasing as demand outpaces new construction.
Overview of Phoenix
Since its 2010 population of about 1.5 million, the city of Phoenix, Ariz., has seen a steady increase in its population. Its population is currently estimated at around 1.65 million people.
Phoenix has been rapidly growing for years thanks to its economic diversity and the many companies that moved there to take advantage of the friendly business climate.
Corporations such as Intel and Merrill have helped Phoenix attract white-collar workers to the Phoenix and Maricopa areas, raising median incomes in recent years.
Industrial Warehouse space in Phoenix
Warehouse spaces in Phoenix saw an almost 7 percent increase in average rents per square foot between Q1 2022 and Q2. They now sit at about $0.8 per square foot.
The average cost per square foot for purchasing warehousing space in Phoenix, Arizona, was approximately $173 per square foot during Q2 2022.
Phoenix Industrial Market Activity
Industrial leasing has historically been an intense period for Phoenix, and there is a mad dash of business, individuals, and investment groups in the city.
Despite economic uncertainty entering the investment arena, vacancies declined for gross leaseable areas and sublease spaces.
Vacancies fell to their lowest level recorded in the market, at just 2.6%. In Phoenix, industrial net absorption for the second quarter of 2022 totaled just under nine million square feet. In addition, about 6.5 million square feet of new industrial buildings were delivered in Q2.
Industrial development activity increased by nearly four percent in Phoenix in Q2 2022, with approximately 35 million sq ft underway.
Industrial Rents in Phoenix
Industrial rent prices in Phoenix have steadily risen since 2015, when they averaged about $0.50/square foot. However, the last couple of years has led to the most significant increases.
Rental prices for industrial spaces have been increasing at an annual rate of about 8%. Currently, their price per square foot is around $0.73.
As demand increases, rents are projected to rise as more tenants compete for available space and prelease units become vacant. Nearly every submarket in Phoenix saw a quarterly and annual rise in direct rental rates.
Long-run, the outlook for the industrial market could be more precise. Still, there are no significant indications at this point in the year pointing to harsh industrial market equality by 2023.
Vacancy rates and occupancy rates
Industrial vacancy rates in Phoenix were the lowest they’ve ever been in Q2 2022, standing at just about 2.5%
Industrial vacancy rates declined significantly across every submarket cluster except for Northeast Valley. The average annual decrease in industrial vacancy rates among these clusters was approximately 3%.
There will be no significant increases in vacancies in the coming quarters, even as the economy improves. This is because there has been an enormous surge in prelease activity and prospective renters rushing to claim unoccupied spaces.
Industrial Investment Overview in Phoenix
Industrial sales in Phoenix, Arizona, increased exponentially in Q2 2022. Both quarterly and yearly.
The total quarterly increase (from Q1 to Q2) in sales volume for 2022 was about 60%. It totaled about $1.4 billion.
H1 2022 sales were also better than H1 2021 revenue by about 51%.
There are approximately 35 million square feet of industrial space under construction in Phoenix, Arizona’s industrial market.
This is a four percent increase from Q1’s new building numbers, continuing Phoenix’s upward industrial development trajectory.
Final Remarks on Phoenix Industrial Real Estate
The industrial realty market in Phoenix is hot right now, driven by mass migration from individuals and businesses to the city.
Even though rising interest rates and long-term economic uncertainties plague the nation’s investors, Phoenix needs to start new industrial developments and invest in real estate.