Q3 2022 Industrial Space Report: Phoenix, AZ
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Phoenix capped off a successful third quarter of 2022 with its industrial real estate market achieving record highs, as rent rates soared and space on the construction pipeline filled quickly. With low vacancy levels holding steady, this booming sector shows no signs of slowing down anytime soon.
Phoenix also demonstrated impressive growth in Q3 2022, with employment reaching 2 million jobs and the unemployment rate holding steady at around 3%. This momentum was further evidenced by an increase in households of nearly 3%.
General Area Overview & Demographics
Phoenix, Arizona, is one of the most densely populated cities in the US, with an estimated population of over 1.7 million. It is home to a diverse and vibrant culture, with many different ethnic groups in the area.
The largest group of residents are Caucasians, accounting for 52% of the population. Hispanics make up 30%, while African Americans account for 8%. Native Americans comprise 4%, Asians 2%, and other races 4%.
Regarding languages spoken at home, English is the predominant language spoken by 86% of residents. Spanish is spoken by 27%, while Chinese and Tagalog are spoken by 1%.
Regarding housing, Phoenix has a high homeownership rate (67%), with nearly half of all properties owner-occupied. The median value for owner-occupied homes is $245,000, while the median sales price for houses sold in 2019 was $270,000.
The average household size in Phoenix is 3 people; 25% of households have children under 18, and 19% are composed of non-family members living alone.
In terms of education, Phoenix has some impressive stats: 20% of adults aged 25+ hold a bachelor’s degree or higher, and 67% hold a high school diploma or equivalent. Additionally, 11% have some college experience but have not attained a degree, and 7% have less than a high school education.
Phoenix, Arizona, is known for its hot and sunny weather. The city experiences an average high of 87°F in the summer and an average low of approximately 50°F in winter.
During the cooler months, rainfall can be expected, with an average annual precipitation of 8.25 inches per year. The sun shines brightly in Phoenix for more than 300 days a year, making it one of the sunniest cities in the country.
Summary of Phoenix Industrial Space Performance in Q3 2022
Phoenix’s rental market is flourishing with unprecedented growth this quarter, boasting occupancy gains of over 6 million square feet compared to last year’s total net absorption.
With vacancies historically low at 3% and 35 million square feet under construction, demand for all space sizes remains vital for industrial real estate in Phoenix.
What Are Industrial Space Rents Like in Phoenix?
The current average asking rent per square foot of industrial real estate in Phoenix is about $9.00 per square foot per year or about $1.20 per square foot monthly. This quarter was marked by a surge in rental costs, with nearly every submarket experiencing rises of 20 to 40% for tenants.
Rents also continued to escalate across all sizes and product types. Direct asking rents grew over 9% since Q2 2022.
Purchase & Leasing Activity
Leasing activity for the industrial real estate in Phoenix in Q3 2022 was impressive, as 3 million square feet of space saw a successful transition. This success story can be attributed to the Southeast Valley submarket, which drove more than 50% of leasing activity for this quarter.
Demand for under-construction space continues to grow, with over 61% supply already pre-leased. Just 14 million square feet remain available in the near future.
Leasing activity remains strong, as nearly 3 million square feet of space was leased in Q3 2022. The Southeast Valley submarket cluster drove more than 50% of leasing activity.
The industrial market in the Valley broke several sales metric records. Transaction volume by cost ended the year at $2.5 billion, with the average price per square foot at $164.40, up more than 50% from before the pandemic but still lower than other nearby, more expensive markets in the region.
Notable Industrial Space Deals in Phoenix in Q3 2022
Several notable industrial deals and leases occurred in Phoenix in Q3 2022. These include:
- Lowe’s leasing of about 1,200,000 square feet; and
- Amazon’s leasing of about 1,190,000 square feet.
These are just a few among other transactions that took place.
New Industrial Space Development Activity in Phoenix in Q3 2022
Development activity increased by 96% throughout 2022 compared to last year, with 26 million square feet of industrial space available. Phoenix’s southeast, southwest, and northwest submarkets accounted for 25 million of that 26 million square feet.
In Q3 2022, the Phoenix industrial real estate market rose 7.5 million square feet this quarter alone, increasing the total square footage under construction to approximately 47 million square feet. Of all product types under construction, approximately 91% of that inventory belongs to the warehouse sector.
The Cubes at Glendale is creating an additional 1.2 million square feet of space to be delivered by the Summer of 2023. Contour and Miramar is developing the Southern Industrial Center, providing 1.2 million square feet of industrial space.
Market Forecast for Phoenix’s Industrial Space Market in 2023
The Phoenix industrial real estate market is moving at a record-setting pace. Tenant demand even stayed strong throughout the summer months, which are usually slower.
However, with a history of overbuilding, there is concern about a potential negative impact on consumer demand.
Takeaways for Industrial Space Investors
Investors continue to be highly confident about the industrial real estate in Phoenix.
The Phoenix industrial real estate market’s performance this quarter reflects its health shown cycle after cycle. With nearby major markets, low business costs, and desirable demographics, investors have remained energetic about this market.
As always, investors must research what’s best for them and their situation.
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