In the fourth quarter of 2023, the Phoenix Industrial market grapples with a significant supply surge, as over 23 million square feet were delivered in the latter half of the year. This influx, surpassing the combined completion total of 2017 to 2019, has caused vacancy rates to spike from the low 4% range in Q2 2023 to the current 8.1%. While demand has eased from the intense pace of 2021 and 2022, the Valley continues to attract industrial users, absorbing 13.7 million square feet in 2023, making it the fourth-highest in the country. Leasing activity, led by logistics, manufacturing, food and beverage, and construction industries, remains elevated, albeit at a slightly reduced pace.
The market is experiencing a normalization in leasing activity, particularly for larger blocks of space, leading to increased available sublease spaces. Despite this, Phoenix’s industrial properties, despite posting some of the strongest rent growth figures in the nation, remain affordable compared to many other markets. This affordability contributes to attracting users looking to build out their distribution networks in the Southwest, with rents averaging $13.30/SF, in line with the national average and well below levels seen in most California markets. Affordable rents, strong tenant demand in west-side suburbs, and a booming construction pipeline, particularly in Glendale, Goodyear, and Surprise submarkets, further contribute to the region’s industrial real estate resilience, despite evolving investor strategies in response to rising interest rates.
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