Phoenix, Inland Empire Are the Top Industrial Markets in 2020

Phoenix, Inland Empire Are the Top Industrial Markets in 2020

Phoenix, Inland Empire Are the Top Industrial Markets in 2020

 
Article originally posted on Globe St. on January 29, 2021 
 

In 2020, the US recorded a record number of big-box industrial transactions, and the West Coast was a central region of the activity, according to new research from CBRE. The Inland Empire and Phoenix both made the list as top markets for major industrial deals, defined as deals over 1 million square feet in size.

While these two markets seem very different, the growth drivers were the same. In 2020, ecommerce and online shopping supported rapid growth in the market. “Large-box industrial leasing activity in Phoenix was greatly driven by the same factors that kept families functioning through the COVID-19 downturn; e-commerce and food. Last year, Greater Phoenix transacted seven deals over 500,000 square feet, which accounted for more square footage for this property size than the previous two years combined,” Jackie Orcutt, SVP in CBRE’s industrial and logistics group in Phoenix, tells GlobeSt.com. “All of these large transactions were either tied to e-commerce or food industries.”

In the Inland Empire, there were similar drivers of investment volume in 2020. “COVID has accelerated large industrial space needs in Southern California beyond already previous record levels, driven by e-commerce, an increase in inventory levels of goods and products, and residential improvement projects,” Dan De La Paz, EVP at CBRE, tells GlobeSt.com. “Due to this ever-rising demand, the Inland Empire has started to see a lack of inventory. This is creating an infill dynamic unseen for this region before. That in turn has resulted in a shift with occupiers to focus on securing as much space as possible as it has become harder to find.”

The Inland Empire landed on third on the list of the top ten markets in the US last year. This wasn’t surprising. The Inland Empire is routinely considered the top industrial market in the country. In fact, it was odd to see the market rank third instead of first, but a dearth of land and deal opportunity is the primary reason that other regions topped the list over the Inland Empire. “The main reason is that the Inland Empire’s core market has little industrial land left for development, so we are seeing a somewhat significant slowdown in supply of new space, which has always fueled growth,” says De La Paz.

On the other hand, Phoenix was a newcomer to the list. The skilled workforce and population growth has made it an attractive industrial market for investment. “The abundance of skilled workforce and friendly business environment has made it possible for Phoenix to meet the fast-moving demand of companies trying to keep up with the pace of production and growth,” says Orcutt. “The municipalities in Greater Phoenix are business friendly and eager to welcome new employers to their communities. It’s a refreshing change of pace for those who are moving from more restrictive, costly markets.”

This is likely just the beginning for Phoenix. Now that the market is on the map, more investors and occupiers will look for opportunity. “I think Phoenix will continue to break absorption records in 2021,” says Orcutt. “Further investment from manufacturing companies, large data center announcements, and e-commerce expansion will dominate the industrial market in a big way. Global brands will appreciate the flexibility of the region’s transportation, affordable labor and cost of living, and tremendous power, water infrastructure and stable climate for conducting business.”

In the Inland Empire, leasing activity will dominate the market, and current owners are expecting strong rent growth. “For this year, I anticipate a robust increase of industrial lease rates,” says De La Paz. “We are predicting as much as 15-25% annual rental growth, as well as an increase in land and building values, coupled with great tenant demand and few vacancies.”

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