Mostly Positive Indicators Show Strong Phoenix Industrial Market
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Mostly Positive Indicators Show Strong Phoenix Industrial Market

PHOENIX, AZ – October 15, 2012 – (RealEstateRama) — The Phoenix industrial market continues its convincing march toward recovery by reaching several important milestones. As a more resilient sector during the recession, the industrial market was not plagued with as much bad debt and CMBS loan defaults as others sectors. Industry experts concluded that the industrial sector would recover faster as favorable economic conditions such as durable goods orders and manufacturing output favored the industrial market early.

The sector has posted ten straight quarters of positive absorption going back to 2010. Vacancy rates have returned to levels not seen since Q3 08. This positive direction refl ects a rebound in U.S. > exports, consumer spending and online purchasing, which has led to a high demand for large distribution space in which there are few options in the Phoenix market. Confi dence in the industrial market and Phoenix in particular, has brought renewed interest in developing new projects. Most new construction is a combination of build-tosuit manufacturing space and several new speculative projects to meet the demand for 100K+ distribution space.

Industrial investment sales transaction velocity remains quite strong despite being down from last quarter’s signifi cant level. However, price per square foot has increased again this period as it has quarter after quarter since Q3 09. Industrial land sales transactions were also strong this quarter, posting its best month in a year and second best quarter since Q3 08.

But not all is well in the industrial sector. Rental rates, despite slight improvements in several areas, continue to struggle to gain momentum overall. Leasing activity remains sluggish and has slowed by 28% compared with last quarter and is the lowest third quarter total since Q3 08. “Larger leases tend to make up a stronger percentage of leasing activity while currently leases less than 100K SF are proving to be less robust,” says Matt DePinto, Senior Research Analyst with Lee & Associates.

The Valley’s industrial vacancy settled at 13.2%, a 20-basis point drop from last quarter and the lowest overall vacancy rate since Q3 08. Absorption settled at a positive 758,573 SF, a far cry from last quarter’s nearly 2.6M SF of space; however, it completes ten-straight quarters of positive absorption. Year-to-date absorption is at 3.5M SF.

A total of eleven projects totaling 3,857,700 SF are under construction this quarter. Coldwater Depot, a 56-acre project in Avondale was the fi rst spec project to announce plans to build a 603,863 SF distribution building since the recession began. There were no deliveries of industrial product this quarter.

Rental rates were fl at this quarter at $0.51 PSF (monthly). The Northwest and the Southeast submarkets experienced the most rental growth compared to other submarkets. The Airport Area rates showed the greatest decline. In the largest lease transaction

for the quarter, States Logistics Services, Inc. renewed their lease for 276,336 SF at 10397 W. Van Buren St., Tolleson.

There were 96 sales transactions totaling $223.6M, which is down from last quarter’s $350M+ quarter, however, it is the second strongest of any quarter since Q4 08. Average PSF was posted at $63.38 and is the highest price per square foot in three years. Actual cap rates have fallen to 6.0% from 6.7% last quarter.

The largest sales transaction of the quarter totaled $90,290,000 for 1,267,110 SF of Class A distribution space at 800 N. 75th Ave. in Phoenix. The buyer was a private REIT, Industrial Income Trust, Inc. of Denver, CO. Price per square foot was calculated at $71.26.

The industrial market outlook remains positive as the Arizona and the U.S. economies continue to improve. Expected population increases here and better than average employment fi gures have helped bring renewed optimism. Greater speculative development in the Valley has taken hold to fi ll gaps in inventory. “This boosts not only optimism in this sector but creates more investment opportunities for the community as well,” added DePinto. Lower unemployment fi gures, higher consumer spending, available inventory at low interest rates, all add up to a sector that is moving confi dently in the right direction.

About Lee & Associates
Lee & Associates specializes in providing exceptional commercial brokerage services to the industrial, offi ce, land and investment sectors of the Phoenix commercial real estate market. The Phoenix offi ce was established in 1991 and is now recognized as one of the most successful brokerage fi rms in Arizona. Each of the 46 nationwide Lee & Associates offi ces has a strong local ownership combined with a powerful platform from the national Lee & Associates network.

Matt DePinto
Senior Research Analyst
Public Media Relations
pr (at) leearizona (dot) com


In addition to celebrating 20 years of leadership excellence in commercial real estate in the Phoenix market, Lee & Associates is one of the largest national commercial real estate providers with regional expertise. Lee & Associates currently has more than 40 offices located throughout the nation. Clients of Lee & Associates Arizona enjoy a comprehensive range of specialized commercial real estate services including: industrial, office, retail property sales and leasing; real estate investment consulting, property acquisition and disposition; tenant representation and relocation, land assemblage.

The Phoenix office of Lee & Associates was established in 1991 as the first office to open outside of California. The Lee & Associates model – empowering agents as owners of the company – attracts industry-best real estate agents and has fueled the Phoenix office’s growth from 12 brokers in 1991 to nearly 40 brokers today. 


3200 East Camelback Road, Suite 100
Phoenix, Arizona 85018

Phone: 602-956-7777
Fax: 602-954-0510

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