AZ Top Commercial Brokers : Market Reports

NAI Horizon
Industrial Market Report | Second Quarter 2007

Overview

The Phoenix industrial market continues to enjoy strong leas¬ing, investment and development activity fueled by population growth and the favorable business conditions of the region. With a slight rise in vacancy rate to 7.61%, leasing activity has remained strong, but not overheated. The continued escala¬tion of construction costs have meant that building sales transaction values in Phoenix were running modestly ahead of replacement costs. Current industrial construction totals 9.4 million square feet, with the highest construction levels coming from the South¬west submarket. There is a wide swing for average industrial asking lease rates, based upon submarket and type of product. None¬theless, the average asking rate is driven by strong tenant demand. Asking rents have continued to rise, while leasing concessions have settled in the range of normal negotiating balance. Due to built up demand, net absorption rose to 2.9 million square feet with new product being pre leased or not stand¬ing vacant for long. While demand is forecasted to remain strong, the large amount of product coming on line will likely cause asking rates to stabilize.

Forecast

Slowing job growth in the industrial sector, and the resulting impact of upcoming national elections is likely to affect the rate of future absorption of industrial space. The Arizona Business Leaders Confidence Index (ALBCI) is virtually neutral on the question of whether economic conditions are improv¬ing or deteriorating. This indicates a move towards a tenant’s market in the coming quarters as the marketplace becomes more balanced. With the amount of product that is under construction or planned, existing Phoenix companies looking to expand and out-of-state companies seeking to relocate will have more options for their space requirements. Greater Phoenix will continue to see growth brought on by the demand from California companies looking to escape the cost-prohibitive environment and lack of space. The diversity of labor market and product type within the submarkets will also continue to demonstrate that Greater Phoenix is a region of choice for expanding and relocating businesses.

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NAI Horizon
Industrial Market Report | Third Quarter 2007

Overview

In October, Phoenix once again placed among the top cities for job growth, ranking 3rd on the annual Forbes list. High levels of job creation and population growth throughout Greater Phoenix will likely continue to drive strong activity throughout 2007 and into 2008.

The Phoenix Industrial market ended the third quarter 2007 with a vacancy rate of 8.2%. The vacancy rate was up from 7.6% the previous quarter, with positive net absorption in the third quarter. Much of the increased vacancy can be attributed to the delivery of new space now ready to occupy.

Flex projects reported the highest vacancy rate at over 13%, with warehouse/distribution projects again reporting a low 8%. Notable leases in 2007 include the lease signed by Amazon.com for the ±604,500-square-foot Buckeye One and The Home Depot deal for the ±375,000-square-foot at Riverside Industrial Center – I, both in the south west valley sub market.

There was strong absorption activity reported again in the 3rd quarter. Given the high demand for industrial space, this activity is not surprising, even at slightly higher rental rates. New construction will continue to be strong and the pipeline for new product boasts 8.5 million square feet still under construction at the end of the quarter. This is down slightly from last year and last quarter, however.

The largest projects underway at the end of third quarter 2007 were the 1.2 million-square-foot Riverside Industrial Center - Phase II, and McShane Westside Business Park - Bldg 4, a 535,213- square-foot facility. The interest in warehouse/distribution product, especially in the southwest valley, further demonstrates that Greater Phoenix will continue to see growth brought on by the demand from companies seeking a great location to escape a cost-prohibitive business environment and lack of space choices in the Southern California submarkets.

Forecast

Healthy job growth and low unemployment will continue to promote leasing activity and a balanced market with positive absorption that will offset the massive new deliveries. Even with the national discussion centering around recession and a “wait and see” election cycle, employers are on pace to create 1.7 million new U.S. jobs by year end.

The Arizona Department of Economic Security is forecasting growth of 113,700 nonfarm jobs, with growth rates of 2.4 percent in 2007 and 1.7 percent in 2008. This suggests that the economy is not at the sprinter’s pace of years past, however it is on track to once again outpace the national economy.

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U.S. Market Spotlight:
Sunshine Brightens Outlook for Southwest U.S.

An increasingly prosperous U.S. population is expected to grow by about 60 million people (nearly 25 million households) between 2000 and 2020, or 42 million over the next 14 years. This growth will bring with it both substantial challenges and opportunities, significant infrastructure and real estate requirements, and the attendant demand for consumer and business goods and services. The Southwest region of the U.S. is especially well positioned to benefit from this expected growth.

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Phoenix Market Report

Since 2001, Phoenix has added over 270,000 new jobs, representing almost 150 per day. The annualized job growth rate for the most recent 12 months is 5.3%. This job growth stimulates a strong demand for commercial development in all sectors. Aggressive building of new homes has slowed over previous years but housing starts are still on a pace of 45,000+ per year. Phoenix continues to be one of the strongest new housing markets in the nation.