Research &
Forecast Report
GREATER PHOENIX | INDUSTRIAL
3Q 2016
Strong Tenant Demand Fueling
New Development
Key Takeaways
>> The vacancy rate in Greater Phoenix industrial properties held
steady at 10.8 percent from the second quarter to the third
quarter. In the past year, vacancy in Greater Phoenix has ticked
down 80 basis points.
>> Net absorption totaled nearly 1.1 million square feet in the
third quarter, the fourth time in the past five quarters where
absorption topped 1 million square feet. Year to date, net
absorption is up to nearly 3.4 million square feet.
>> Healthy demand from tenants continues to push rents higher. Asking
rents in Greater Phoenix have spiked 6.4 percent in the past year,
with additional increases forecast in the coming quarters.
>> Construction of new projects remains active. Approximately
1.4 million square feet was delivered in the third quarter and
more than 4.5 million square feet has come online year to date.
Projects totaling 2.4 million square feet are under way.
>> The investment market cooled somewhat in the third quarter,
with fewer properties changing hands than during the preceding
three months. Prices and cap rates thus far in 2016 are nearly
identical to 2015 figures.
Greater Phoenix Industrial Market
Property performance trends remained on course in the Greater
Phoenix industrial market during the third quarter. Net absorption
and new development both continued at healthy paces in the third
quarter, and additional projects are slated to come online in the
months ahead. The strength of demand in the market is helping
push rents higher at a healthy pace, a trend that has been in place
for the past 18 months.
Leasing activity has been steady throughout much of 2016, with
an acceleration being recorded in larger spaces in recent months.
Market Indicators
Market
3Q 2016
Relative to prior period
Market
3Q 2015
Vacancy
Net Absorption
Construction
Rental Rate
Third Quarter Economic Trends*
Phoenix Metro Employment
U.S. Employment
*Source: Bureau of Labor Statistics
Summary Statistics
Vacancy Rate
Change from 3Q 2015 (bps)
Phoenix Industrial Market
10.8%
-80
Net Absorption (thousands SF)
1,091
New Construction (thousands SF)
1,436
Under Construction (millions SF)
2.429
Asking Rents
Per Square Foot Per Month
Change from 3Q 2015
$0.56
6.4%
Greater Phoenix Industrial Market (continued)
Several of the tenants that signed large leases in the second and
third quarters will move into their spaces in the months ahead,
driving the local vacancy rate lower.
and future tenant demand. This construction activity will slow the
pace of vacancy improvements in the year ahead.
Investment activity slowed in the third quarter, but sales velocity
thus far in 2016 is ahead of last year’s pace. Investors are attracted
to the ongoing tenant expansion in the market, as well as the yield
premium offered in Phoenix over competing markets. This trend is
being reflected at the high-end of the market, which has recorded
an acceleration in sales velocity thus far in 2016.
This persistent tenant demand is fueling new development for both
spec and build-to-suit projects. More than 4.5 million square feet
of space has been delivered year to date, and another 2.4 million
square feet is currently under way. Additional projects will break
ground in the coming months, as developers work to meet current
Recent Transactions in the Market
SALE ACTIVITY
Property Address
Submarket
Sale Date
Sale Price
Size SF
Sale Price SF
Class
6835 W Buckeye Rd., Phoenix
Tolleson
7/20
$74,750,000
1,009,351
$74
A
16920 W Commerce Ln., Goodyear
Goodyear
8/18
$56,200,000
820,384
$68
A
9081 W Washington St., Tolleson
Tolleson
8/11
$48,000,000
466,418
$103
A
7037 W Van Buren St., Phoenix
Tolleson
7/8
$32,828,000
552,330
$59
A
LEASE ACTIVITY
Property Address
Submarket
670 S 91st Ave., Tolleson
Tolleson
6200 W Van Buren St., Phoenix
SW N of Buckeye Rd
7775 W Buckeye Rd., Phoenix
Tolleson
Tenant
Size SF
States Logistics
417,600
OHL
295,695
Amerisource
240,298
Historical Absorption, Deliveries and Vacancy Rates
10,000,000
18%
8,000,000
16%
14%
6,000,000
12%
10%
2,000,000
8%
-
6%
(2,000,000)
4%
(4,000,000)
(6,000,000)
2%
2009
* Forecast
2
Vacancy
Square Feet
4,000,000
2010
2011
2012
2013
2014
Net Absorption
2015
2016*
Deliveries
2017*
0%
Vacancy
Greater Phoenix Research & Forecast Report | 3Q 2016 | Industrial | Colliers International
Vacancy:
Vacancy by Building Type
>> Industrial vacancy in Greater Phoenix was unchanged from the
second quarter to the third quarter, holding steady at 10.8 percent.
The vacancy rate is 80 basis points lower than one year ago.
15%
10%
5%
0%
>> Forecast: Vacancy in Greater Phoenix will retreat modestly by the
end of 2016, reaching 10.5 percent. While tenant demand for space
is strong, developers continue to bring new projects to the market,
increasing the amount of available space.
>> Net absorption reached nearly 1.1 million square feet in the
third quarter, bringing the total for the year to more than 3.4
million square feet. Through the first three quarters of 2015, net
absorption had topped 4.1 million square feet.
1Q
2012
3Q
2012
1Q
2013
3Q
2013
1Q
2014
3Q
2014
1Q
2015
3Q
2015
1Q
2016
3Q
2016
Vacancy Among Major Submarkets
3Q 2016
3Q 2015
16%
14%
>> Over the past 12 months, net absorption has exceeded 6.7 million
square feet. This has outpaced the delivery of new space during
the same timeframe by approximately 1.5 million square feet.
12%
10%
Vacancy
>> Tenant demand has been concentrated in the Southwest Valley.
Net absorption in the Southwest Valley in the third quarter was
more than 470,000 square feet, and year to date, the figure has
reached nearly 1.5 million square feet. Both figures represent more
than 40 percent of the metrowide total.
Flex
20%
>> Vacancy in the Southwest Valley ended the third quarter at 13.1
percent, 140 basis points lower than one year ago. The rate is
forecast to dip in the coming months, as several large blocks are set
to be occupied following recent lease and owner-user sales activity.
Absorption and Leasing Activity:
Manufacturing
Vacancy
>> Vacancy in the Northwest Valley dipped to 6 percent in the third
quarter. The vacancy rate is 190 basis points lower than one year
ago. Vacancy in the Northwest Valley has been trending lower
even as spec projects have come online.
Warehouse
25%
8%
6%
4%
2%
>> Forecast: A strong fourth quarter will drive total net absorption for
2016 to approximately 6 million square feet. Preliminary forecasts
call for net absorption of nearly 7 million square feet in 2017.
0%
Airport Area
Northeast Valley Northwest Valley Southeast Valley Southwest Valley Greater Phoenix
Rental Rates:
>> The big-box distribution market continues to post healthy rent
gains. After spiking at the end of 2015, asking rents in big-box
distribution buildings have advanced 6.2 percent through the first
nine months of this year to $0.42 per square foot, per month.
Asking Rent Trends
$0.56
$0.55
$0.54
Average Asking Rent (per SF, per month)
>> Rents continue to push higher, although the pace of gains slowed
in the third quarter. During the past 12 months, asking rents have
increased by 6.4 percent, reaching $0.56 per square foot, per
month at the end of the third quarter.
$0.53
$0.52
$0.51
$0.50
$0.49
$0.48
$0.47
$0.46
$0.45
3Q
2012
3
1Q
2013
3Q
2013
1Q
2014
Greater Phoenix Research & Forecast Report | 3Q 2016 | Industrial | Colliers International
3Q
2014
1Q
2015
3Q
2015
1Q
2016
3Q
2016
>> Asking rents in flex buildings have advanced 8.3 percent in the
past 12 months to $1.04 per square foot, per month. Greater
Phoenix continues to attract back-office jobs and conditions
in the office market are tightening, trends that should support
continued strengthening in the flex market.
Construction:
Construction Employment
>> Forecast: Additions to inventory are forecast to total
approximately 6.3 million square feet in 2016, down from nearly
7.5 million square feet last year.
10%
160
0%
120
-10%
80
-20%
40
0
-30%
2007
2010
2011
2012
2013
2014
2015
YTD
2016
2015
2016*
2,500,000
2,000,000
1,500,000
1,000,000
500,000
Airport Area
Northeast Valley
Northwest Valley
Southeast Valley
Southwest Valley
* Forecast
Investment Trends
Cap Rate
10%
$80
9%
$60
8%
$40
7%
$20
6%
5%
2009
2010
2011
2012
Greater Phoenix Research & Forecast Report | 3Q 2016 | Industrial | Colliers International
2013
2014
2015
YTD 2016
Average Cap Rate
Median Price per SF
Sales Price
$100
$-
4
-40%
3,000,000
>> Sales of industrial buildings slowed in recent months, dropping
by approximately 35 percent from the second quarter to the third
quarter. The greatest drop-off in activity occurred in properties
selling between $1 million and $5 million, while sales volume in
properties of $20 million or more accelerated in the third quarter.
Total activity thus far in 2016 is approximately 5 percent ahead of
the 2015 pace.
>> Cap rates have averaged approximately 7.5 percent in the first
three quarters of 2016, down slightly from the average in 2015.
Sales of large buildings leased to institutional-grade tenants
drove the average cap rate lower in the third quarter.
2009
2014
Investment Trends:
>> Prices ticked higher in the third quarter, with the median
reaching $71 per square foot in the third quarter, up from a
median of $68 per square foot in the second quarter. The median
price in transactions thus far in 2016 is $72 per square foot,
nearly identical to the 2015 median price.
2008
Construction Trends by Submarket
Square Feet
>> New development has been widespread throughout the Greater
Phoenix market. Completions year to date include more than 1
million square feet in the Northwest Valley, more than 1.3 million
square feet in the Southeast Valley and nearly 1.5 million square
feet in the Southwest Valley.
20%
200
>> Developers delivered approximately 1.4 million square feet of
space in the third quarter, bringing the total for new construction
to approximately 4.5 million square feet year to date in 2016.
More than 2.5 million square feet of spec space has been
delivered thus far in 2016.
>> Projects totaling nearly 2.5 million square feet are currently
under way, and additional buildings are likely to break ground in
the next nine months.
Employment Change
Annual Change
>> Forecast: Asking rents are on pace to advance 6.5 percent in
2016 after a gain of nearly 7 percent last year. Current asking
rents are approximately 15 percent below the peak levels
recorded nearly a decade ago.
Construction Employment Overview
Construciton Jobs (thousands)
Rental Rates (continued):
Industrial Market
EXISTING PROPERTIES
BUILDING
TYPE
TOTAL
INVENTORY SF
DIRECT VACANCY SUBLEASE VACANCY
SF
RATE
SF
RATE
TOTAL VACANCY
SF
RATE
3Q-16
NET ABSORPTION - SF
RATE
3Q-15
CURRENT
PERIOD
YTD
NEW SUPPLY - SF
CURRENT
PERIOD
UNDER CONSTR AVG. RENT
YTD
SF
RATE (NNN)
INDUSTRIAL MARKET
Airport Market Cluster: North Airport, S Airport N of Roeser, S Airport S of Roeser, SC N of Salt River, SC S of Salt River
General Industrial
6,352,524
1,290,999
20.3%
21,800
0.3%
1,312,799
20.7%
17.3%
(48,703)
(112,609)
-
319,070
463,895
$0.63
24,982,396
2,162,283
8.7%
68,483
0.3%
2,230,766
8.9%
8.1%
(54,221)
135,374
147,480
390,404
238,070
$0.53
Manufacturing
8,397,713
803,301
9.6%
-
0.0%
803,301
9.6%
8.7%
39,340
(42,286)
41,252
41,252
-
$0.49
Service Center/Showroom
1,746,313
104,224
6.0%
-
0.0%
104,224
6.0%
8.2%
43,239
39,739
-
-
-
$1.04
Flex
3,819,861
841,580
22.0%
31,791
0.8%
873,371
22.9%
21.6%
21,356
(57,893)
-
-
-
$1.05
Total
45,298,807
5,202,387
11.5%
122,074
0.3%
5,324,461
11.8%
10.6%
1,011
(37,675)
188,732
750,726
701,965
$0.64
Warehouse
Northeast Market Cluster: Central Phoenix, Scottsdale Airpark, Scottsdale/Salt River
General Industrial
773,803
105,995
13.7%
41,789
5.4%
147,784
19.1%
20.9%
4,200
10,836
-
-
-
$0.83
Warehouse
5,148,870
252,692
4.9%
6,488
0.1%
259,180
5.0%
6.9%
23,703
33,799
-
-
-
$0.85
Manufacturing
2,913,245
86,218
3.0%
-
0.0%
86,218
3.0%
2.4%
(3,000)
4,649
-
-
-
$0.87
981,023
66,093
6.7%
-
0.0%
66,093
6.7%
6.4%
(23,955)
(965)
-
-
-
$1.15
Flex
4,372,031
366,424
8.4%
24,279
0.6%
390,703
8.9%
11.8%
24,165
55,692
-
-
-
$0.96
Total
14,188,972
877,422
6.2%
72,556
0.5%
949,978
6.7%
8.2%
25,113
104,011
-
-
-
$0.92
Service Center/Showroom
Northwest Market Cluster: Deer Valley/Pinnacle Peak, Glendale, Grand Avenue, N Glendale/Sun City, North Black Canyon, North Outlying, W Phx N of Thomas, W Phx S of Thomas
General Industrial
6,926,505
580,169
8.4%
3,065
0.1%
583,234
8.4%
9.4%
192,790
417,513
-
400,000
367,963
$0.41
Warehouse
28,652,322
1,606,647
5.6%
11,475
0.1%
1,618,122
5.6%
7.4%
23,901
365,508
-
220,279
188,132
$0.66
Manufacturing
10,842,055
280,051
2.6%
20,000
0.2%
300,051
2.8%
6.0%
84,609
450,275
-
384,377
-
$0.55
Service Center/Showroom
1,981,465
36,148
1.8%
-
0.0%
36,148
1.8%
6.5%
70,007
77,977
-
-
-
$0.69
Flex
4,795,851
679,114
14.2%
-
0.0%
679,114
14.2%
14.0%
(44,131)
(61,604)
-
-
-
$0.85
Total
53,198,198
3,182,129
6.0%
34,540
0.1%
3,216,669
6.0%
7.9%
327,176
1,249,669
-
1,004,656
556,095
$0.59
Southeast Market Cluster: Chandler Airport, Chandler, Chandler N/Gilbert, Falcon Field/Apache Junction, Mesa, Tempe East, Tempe Northwest, Tempe Southwest
General Industrial
10,943,601
1,267,319
11.6%
-
0.0%
1,267,319
11.6%
7.9%
(13,450)
60,492
225,600
225,600
-
$0.56
Warehouse
36,035,348
3,326,463
9.2%
98,354
0.3%
3,424,817
9.5%
9.8%
229,104
684,229
-
722,747
274,743
$0.58
Manufacturing
23,770,063
3,158,031
13.3%
80,068
0.3%
3,238,099
13.6%
15.2%
175,512
75,573
-
92,288
48,347
$0.59
2,927,692
93,520
3.2%
-
0.0%
93,520
3.2%
1.7%
(11,588)
(37,327)
-
-
-
$0.63
Flex
12,674,549
1,801,587
14.2%
209,757
1.7%
2,011,344
15.9%
16.3%
(115,141)
(156,378)
72,000
296,646
-
$1.11
Total
86,351,253
9,646,920
11.2%
388,179
0.4%
10,035,099
11.6%
11.8%
264,437
626,589
297,600
1,337,281
323,090
$0.70
Service Center/Showroom
Southwest Market Cluster: Goodyear, SW N of Buckeye Road, SW S Buckeye Road, Tolleson, Southwest Outlying
General Industrial
45,137,744
6,371,651
14.1%
226,058
0.5%
6,597,709
14.6%
15.7%
119,787
666,026
950,000
1,299,224
222,910
$0.37
Warehouse
32,213,024
3,228,842
10.0%
107,112
0.3%
3,335,954
10.4%
12.2%
264,586
501,223
-
-
222,910
$0.38
Manufacturing
11,170,181
1,426,301
12.8%
458,839
4.1%
1,885,140
16.9%
18.5%
87,089
201,439
-
57,000
402,323
$0.32
Service Center/Showroom
2,471,054
52,202
2.1%
0
0.0%
52,202
2.1%
3.4%
5,000
113,173
-
98,442
-
$0.57
Flex
1,326,450
233,531
17.6%
-
0.0%
233,531
17.6%
18.2%
(3,105)
10,136
-
-
-
$0.55
Total
92,318,453
11,312,527
12.3%
792,009
0.9%
12,104,536
13.1%
14.5%
473,357
1,491,997
950,000
1,454,666
848,143
$0.37
GRAND TOTAL
General Industrial
70,134,177
9,616,133
13.7%
292,712
0.4%
9,908,845
14.1%
14.1%
254,624
1,042,258
1,175,600
2,243,894
1,054,768
$0.45
127,031,960
10,576,927
8.3%
291,912
0.2%
10,868,839
8.6%
9.3%
487,073
1,720,133
147,480
1,333,430
923,855
$0.52
Manufacturing
57,093,257
5,753,902
10.1%
558,907
1.0%
6,312,809
11.1%
12.4%
383,550
689,650
41,252
574,917
450,670
$0.46
Service Center/Showroom
10,107,547
352,187
3.5%
-
0.0%
352,187
3.5%
4.7%
82,703
192,597
-
98,442
-
$0.83
Flex
26,988,742
3,922,236
14.5%
265,827
1.0%
4,188,063
15.5%
16.0%
(116,856)
(210,047)
72,000
296,646
-
$1.04
Total
291,355,683
30,221,385
10.4%
1,409,358
0.4%
31,630,743
10.8%
11.6%
1,091,094
3,434,591
1,436,332
4,547,329
2,429,293
$0.56
291,355,683
30,221,385
10.4%
1,409,358
0.4%
31,630,743
10.8%
11.6%
1,091,094
3,434,591
1,436,332
4,547,329
2,429,293
$0.56
289,838,162
29,893,108
10.3%
1,311,208
0.5%
31,204,316
10.8%
566,610
1,042,031
2,902,432
$0.55
288,796,131
29,179,408
10.1%
1,549,487
0.5%
30,728,895
10.6%
1,776,887
2,068,966
2,695,618
$0.54
286,727,165
29,049,434
10.1%
1,387,382
0.5%
30,436,816
10.6%
3,313,045
714,127
3,503,615
$0.53
286,013,038
31,667,807
11.1%
1,367,927
0.5%
33,035,734
11.6%
1,495,687
971,977
2,802,904
$0.52
Warehouse
QUARTERLY COMPARISON AND TOTALS
Q3-16
Total
Q2-16
Total
Q1-16
Total
Q4-15
Total
Q3-15
Total
As new, corrected or updated information is obtained, it is incorporated in both current and historical data, which may invalidate comparison to previously issued reports.
Outlook:
The Greater Phoenix industrial market will continue to benefit
from healthy tenant demand for space. Net absorption has been
averaging approximately 1.5 million square feet per quarter for
the past few years, which is driving the vacancy rate lower and
fueling new development. These trends will continue to close this
year and into 2017. New projects are a mix of spec and build-tosuit construction, and development has been occurring in several
regions throughout the Valley. These widespread development
trends are fairly recent—earlier in the recovery construction was
largely concentrated in the Southwest Valley—and highlight the
overall strengthening in the market.
The local economy will be worth monitoring in the near-term future.
Employment growth in Greater Phoenix, while still positive, has been
slowing thus far in 2016. Local employers have expanded payrolls by
just 2.2 percent in the past 12 months, down from growth of more
than 3.5 percent one year ago. In industries that directly influence
industrial demand, the construction sector has been adding workers
at an above-average pace and transportation/warehousing has been
expanding at a similar pace to the local economy as a whole. The one
sector that is still recording net job losses is manufacturing, which
has contracted by more than 1 percent in the past year.
The investment market is expected to remain healthy in the months
ahead as businesses continue to expand in industrial buildings and
new properties are delivered to the market. Prices and cap rates
have been largely unchanged thus far in 2016, and with interest
rates expected to remain low, there should be little movement
in yields. With properties changing hands at elevated prices and
compressed cap rates in neighboring markets, Greater Phoenix
could attract greater out-of-state investment activity in the next
12-24 months.
FOR MORE INFORMATION
Bob Mulhern
Senior Managing Director | Greater Phoenix
+1 602 222 5038
[email protected]
Jim Keeley SIOR
Founding Partner | Scottsdale Office
+1 480 655 3300
[email protected]
Copyright © 2016 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While
every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are encouraged to consult their
professional advisors prior to acting on any of the material contained in this report.
6
Pete O’Neil
Research Director | Greater Phoenix
+1 602 222 5029
[email protected]
Colliers International | Greater Phoenix
2390 E. Camelback Road, Suite 100
Phoenix, AZ 85016
+1 602 222 5000
colliers.com/greaterphoenix
North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International