The Phoenix metro had another big year for leasing in the industrial market in 2022 with the largest leases signed for newly built class A buildings in West Valley cities and Mesa.
Although some developers had to pause projects, the demand from companies looking for space did not slow down much. As of Q3, the Phoenix metro had a total of 21.7 million square feet of industrial space absorbed, or the space leased minus what became vacant, while vacancy was at 3.1%, according to CBRE Group Inc. data. Some of this year's largest leases were inked by home improvement company Lowe's, Amazon.com Inc. and global sports brand Puma, which each took down more than 1 million square feet in space.
Experts said they expect the Valley to have a total of around 25 million square feet of space absorbed by the end of the year, which is close to last year's total. Growing industrial areas like the Loop 303 in the West Valley and the Phoenix-Mesa Gateway Airport attracted some of the biggest tenants in addition to cities known for their industrial base including Tolleson and Goodyear.
"We're going to see more of the same in '23 too from a demand and supply perspective from different companies moving and expanding to Phoenix, whether it's food and beverage, manufacturing, chip-related uses, data centers, e-commerce, 3PL continues to be strong," said Mike Haenel, a vice chairman with Cushman & Wakefield. "We continue to see great growth from California, their market continues to thrive and it's very difficult to find space in California."
Many companies have looked to the Phoenix metro for space due to its growing population and availability of workforce, transportation systems, lower costs and proximity to key markets like Southern California and Mexico. Also in the third quarter, triple-net lease rates increased to 85 cents in Q3 compared to 66 cents in the first quarter, according to Colliers International.
The Valley is also attractive to users because of its quality higher education institutions and programs, lack of natural disasters and more available building space and land compared to other markets. Certain industries including semiconductor suppliers have also driven demand in areas like Deer Valley and Pinal County.
New buildings in the Valley also have accommodations and requirements needed for companies such as increased building heights, amenities and more dock doors compared to older warehouses. Although the top 10 leases signed this year were for buildings ranging in size from 400,000 square feet to 1.2 million square feet, experts have said that most of the activity in the Valley is for tenants looking for small-to-midsized buildings.
If high inflation continues to pause the development of industrial buildings, this could make it more difficult for potential tenants to compete for existing space as e-commerce picks up again and logistics and manufacturing drive demand in the Valley.