Market Stats from Reisman Realty: Experts on Commercial, Industrial, and Warehouse Real Estate

Reisman Read on the Local Market

Market stats show that although higher interest rates coupled with a potential economic cooldown are forecast to weigh on demand in the new year, the strong, structural underlying demand drivers in Phoenix are anticipated to help the industrial market stay at the top of the industrial ranks among the nation.

The industrial market is still considered the dominant sector, along with retail, in the Phoenix market.

Commercial Real Estate Market Stats

After several quarters of difficult economic conditions, the Phoenix commercial market has proved resilient, and the outlook for the future is positive.

This is due to key factors such as:

Phoenix offers a wide range of state-of-the-art commercial facilities that are difficult to find in other markets
An increasing demand for commercial space throughout the Valley seen by growing tenant demands, such as the semi-conductor markets
Secured water conservation planning allows for market growth

Top Growth Area

The Phoenix Metropolitan Statistical Area (Phoenix MSA) includes all of Maricopa County and Pinal County is home to 68% of the state’s population. It has been one of the top growth areas in the nation and its average annual growth rate has been higher than that of the nation since 1980.

Employment in the Phoenix MSA makes up 75% of the state’s employment. Average weekly wages of $1,311 puts the MSA in the top 15% of large regions nationally. The Phoenix MSA collected over $7.3 billion in sales tax in FY 2023, which is 74% of the sales tax collected for the state of Arizona. The state and the Phoenix MSA both have a lower median age than the US as a whole, even though Arizona, and the Phoenix MSA in particular, are among the leaders in retirement communities nationally.

For the fourth consecutive year, Maricopa County ranked #1 in Lightcast’s 2023 Talent Attraction Scorecard for large counties with population over 100,000 people.

****Sources: Arizona Office of Economic Opportunity; Bureau of Labor Statistics, Occupational Employment and Wage Estimates, Quarterly Census of Employment and Wage; Arizona Department of Revenue; U.S. Census Bureau, American Community Survey.

Industrial Real Estate Market Stats

The industrial market is beginning to experience a cooling effect after two red-hot, record-breaking years. Industrial vacancy has reached its highest level since year-end 2020. The fourth quarter marked the 15th consecutive quarter surpassing one million square feet of net absorption.

Availability and Vacancy

In the fourth quarter of 2023, the vacancy rate increased 120 bps quarter-over-quarter to 7.4%. While this was the highest vacancy rate since 2019, it was significantly lower than the 10-year average vacancy rate pre-pandemic, 10.4%. The Southeast Valley had the most notable rise in vacancy, which jumped 320 bps from the previous quarter to 8.2%. The key reason for the increase was the 3.3 million sq. ft. of vacant new supply that entered the submarket in the quarter.

It is to note that more tertiary districts apart of the Southeast and Southwest carry most of the submarket’s vacancy. The Southeast submarket would be 4.7% vacant without the Phoenix-Mesa Gateway district, as the district makes up nearly 53.9% of vacancy in the Southeast Valley. The Southwest submarket would be 6.0% vacant without North Goodyear as the district makes up nearly 53.1% of the total market vacancy.

Distribution buildings made up most of the building type delivered this quarter. Vacancy for distribution increased to 11.8%, a 210 bps increase. Back-office product had the highest vacancy rate at 17.2%.

Single-tenant industrial and small-bay multi-tenant industrial remain in extremely high demand due to scarcity and lack of development the past decades. $PSF continues to increase for these industrial sub-asset classes.

Lease Rates

The direct average asking NNN lease rate decreased in the fourth quarter to $1.08 per sq. ft. This was a 6.9% quarter-over-quarter decline for industrial space. Rates in the Southwest Valley fell 16.8% to $0.73 per sq. ft., however remained the most cost advantageous option for large blocks of space for distribution purposes. Asking rent in the Airport area increased to $1.25 per sq. ft, which remained lower than the average asking lease rate from the Southeast Valley, $1.28 per sq. ft. Distribution space was the most inexpensive product type on the market in 04 2023 with an average asking rate of $0.82 per sq. ft. NNN which represented a notable $0.14 per sq. ft decrease from 03 2023.

The market stats show that overall industrial rental rates continue to climb in the Phoenix market, with a healthy quarter-over-quarter increase.

Warehouse Real Estate Market Stats

As deliveries slightly outnumbered construction starts, product under construction ended the year with 39.2 million sq. ft. As a large sum of product delivered in the Southeast Valley, amount under construction in the Southwest Valley increased to 65% of market construction, where the North Goodyear district had the most development activity with 17.4 million sq. ft. Speculative distribution buildings comprised a majority of product under construction with 31.0 million sq. ft. Roughly, 18.1% of the product under construction was preleased. The Southwest Valley ended the year at 22.6% preleased while the Southeast Valley remained 7.7% preleased. The low preleasing percentage in the Southeast Valley can be explained by the large number of preleased builds delivered in Q4 2023 within the submarket.

8.0 Million Sq. Ft. Delivered this Quarter

Forty-eight buildings at 8.0 million sq. ft. were completed, of which 21.0% was leased by the end of the quarter. Nearly 80% of space delivered in 04 2023 was distribution. The Southeast Valley delivered 34 buildings which totaled 4.3 million sq. ft. and the Southwest Valley delivered 8 buildings, or 3.0 million sq. ft.

Experience the Reisman Realty Difference

At Reisman Realty, our pledge is to go above and beyond your anticipations, ensuring remarkable outcomes. Backed by our profound understanding of the market, meticulous planning, and steadfast commitment to ensuring client fulfillment, we stand as your dependable ally in commercial, industrial, and warehouse real estate ventures. Reach out today to learn more market stats and explore how we can assist you in reaching your real estate objectives.