Phoenix Industrial Sector Builds on Recent Successes


Phoenix, AZ – January 19, 2012 – (RealEstateRama) — The Phoenix Industrial Market continues to build on last quarter’s success as figures show a strong reduction in overall vacancy and a strong rise in absorption. Rental rates have rebounded slightly from their low point in the second quarter of 2011. Along with this good news are a few sobering facts which still point to a sector that continues to struggle to return to historic norms.

Lease transaction volume is off pace by half from last quarter in the number of deals and in total square feet. The majority of space being leased is for larger, corporate users. Owner/user deals are still off from historic highs due to tight credit and lack of startup capital. Sales transactions improved this quarter in total dollar volume to $249.2M compared with last year’s $164.4M, however, the number of sales transactions is the lowest since third quarter of 2009. This shows that investors are still focused on large, premium properties to build their portfolios. Investors remain relatively risk adverse and are still focused on easily structured transactions. Cap rates for this quarter have posted at 7.91 percent.
The Phoenix Industrial vacancy rate continues to improve and now stands at 13.9% compared with 14.8% last quarter. Absorption rates are up again for the seventh consecutive quarter with a substantial gain of 2,868,909 square feet. This is over 1.2 million more square feet absorbed this quarter compared with the last. The Southwest submarket had the vast majority of absorption while the Sky Harbor submarket was the only one with negative absorption at (163,915) square feet. The big news is that overall absorption is up over 6.66 million square feet for 2011. This is a strong indicator of healthy activity and modest demand. With very little new product delivered in the previous six quarters, this quarter showed a strong 570,673 square feet of build-to-suit activity. Construction posted 2.8 million square feet for the fourth quarter; however, two enormous manufacturing projects for Intel and First Solar make up 2.2 million of that total.

Overall annual rental rates are rising incrementally each quarter and currently stand at $6.36 per square foot ($0.53 per month). Rental rates are still depressed from historic levels and are expected to remain comparatively low throughout 2012. However, for the past few quarters, market activity is up and momentum is beginning to head in the right direction.

The largest lease transaction posted this quarter was the Cornerstone Services lease of 337,897 square feet of distribution space at 7210 W Buckeye Road in Phoenix. In the top sales transaction for the quarter, NY-based REIT Crexus Investment Corporation spent $33.25M for 3 distribution buildings totaling 629,764 square foot at Papago West Industrial Park. The cost per square foot was $52.80.

The ever resilient Industrial sector marches steadily forward, albeit slower, as the health of the overall economy continues to improve slightly. As consumers begin spending again, inventories will need to be replenished and products will need distribution. These conditions are already beginning to take shape and should expand as we move through 2012. A national move by U.S. companies to onshore some operations previously moved overseas will also increase demand on existing building inventories.


About NAI Horizon
Established in 1992, NAI Horizon is a full-service commercial real estate company located in Phoenix, Arizona. NAI Horizon offers a full range of comprehensive real estate services including property management; brokerage and appraisal services to local, national and international clients. Serving the greater Phoenix metropolitan area, NAI Horizon is a member of the NAI Global commercial real estate network providing real estate solutions to 350 offices in 55 countries worldwide. For more information visit or

Terry Martin-Denning 602.852.3438
COO/Designated Broker


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