Warehouse Sales Continue to Surge in Phoenix, While Suburban Flex Space Attracting Foreign Investors
Phoenix, AZ – October 26, 2011 – (RealEstateRama) — Resurgent economic headwinds have rattled the nation’s employment and industrial markets, as both hiring and industrial property sales volume eased in the third quarter. Nevertheless, the economic turbulence is not expected to lead to a double-dip recession. So far in 2011, national blue-collar employment levels have expanded by an estimated 361,000 positions, or 1.3%, and roughly $17 billion in industrial transactions have closed. During the same stretch last year, fewer than 3,000 manual-trade positions were added and industrial sales volume reached just $11.7 billion. Furthermore, several key hiring and industrial market indicators, including the Institute of Supply Management’s PMI index, showed improvement late in the third quarter, strengthening fourth quarter expectations. Total nonfarm employment is an ticipated to expand by 1.4 million new jobs in 2011, or 1.1%, after 940,000 workers were added last year. Manual industries will generate 451,000 positions, representing growth of 1.6%.
Recovery in Phoenix continues at a pace seemingly independent of national economic trends. Since mid-2010, the expiration of the federal stimulus measures stymied nationwide employment growth, but did little to discourage second half hiring among many Valley industries. Subsequently, sovereign debt worries this year have dampened early-year job creation on a national-level. In Phoenix, however, the education and health services sectors have posted sizable gains year to date, and expansion within the metro’s solar industry has bolstered manufacturing staffing. Still, negative national sentiment contributed to a 4% quarter-over-quarter dip in Phoenix industrial property sales, though annual deal flow is up 59% since the third quarter of last year. Job growth will remain steady through the fourth quarter, sustaining buyer confidence and activity near current levels. For the year, employment will expand by 24,000 workers, or 1.4%, up from the creation of 4,700 jobs in 20 10. Blue-collar industries will add 7,400 positions, a 2.2% increase.
Warehouse deal flow has surged 50% in the past 12 months, as a result of falling prices, though activity varies greatly between owner-users and investors. So far this year, the median price for a warehouse in the metro has regressed 10.9% to $55 per square foot. Price declines have been largest for warehouses sized in the 50,000- to 100,000-square foot range and in the 10,000- to 25,000-square foot range. Elevated vacancy rates at large multi-tenant properties have moderated investment demand growth, while mid-sized to large owner-users are watching the market for signs of further price reductions among smaller assets. Alternately, in the 100,000- square foot or larger segment, dwindling for-lease supply has eased declines, with the median price falling just 4% in the past year to $36 per square foot.
Although sales of flex properties remain well below peak levels, the number of transactions in the past 12 months has surged 167%. The increased activity is due to greater investor confidence for larger flex facilities and renewed interest from foreign buyers. The inflow of Canadian capital has accounted for more than 50% of flex transactions in the past two quarters. These investors are particularly bullish on northern Scottsdale flex assets, targeting both stabilized and operationally distressed spaces. With more than $30 million in flex properties identified as distressed in the city of Scottsdale, sales and buyer interest will remain elevated for the foreseeable future.
About Lee & Associates Arizona Research Division
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, multi-family, office and 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 – empow ering 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.
