Phoenix Leads All Markets for Industrial Development Activity

Driven by a growing economy, an influx of residents from neighboring markets and the increasing requests of the e-commerce industry, Phoenix’s industrial market continues to thrive. Underneath, we’ve assembled CommercialEdge data for a rapid overview of the dynamic performance of Phoenix’s industrial market throughout 2023.

Despite a notable cooling in the industrial real estate sector in 2023, some markets such as Phoenix—which was the number one industrial market for industrial development in the U.S.—demonstrated their resilience. Maintaining its momentum from last year, the metro’s industrial under construction pipeline accounted for 11.2 percent of existing stock, much higher than the national average of 2.4 percent.

Phoenix continues as the unrivaled leader in development

When talking about industrial development, Phoenix remained the unchallenged leader in the nation. As of January, more than 42.6 million square feet of industrial space was under construction within the Phoenix market, representing 11.2 percent of existing stock.

Some 32.5 million square feet of industrial space were delivered in the metro last year, encompassing 152 projects, or 8.6 percent of total stock, according to CommercialEdge data. Among peer markets, Dallas came in second place, accounting for 6.6 percent of existing stock.

Last year, 106 properties broke ground within the Phoenix market, accounting for 6.2 percent of total tock—significantly higher than the U.S. average of 1.3 percent. Construction starts were notably higher in Phoenix last year, with 23.6 million square feet of new industrial space starting construction.

In the last quarter of 2023, Lincoln Property Co. commenced construction on Luke Field, a Class A industrial project totaling 2.4 million square feet in Glendale, Ariz. The $515 million development is slated for completion in the fourth quarter of this year.

Q2 had the highest sales volume

With the national industrial sales totaling $52.1 billion last year, the figure is currently about half of the volume seen in 2022 and 60 percent lower than in 2021. Phoenix’s transaction activity has remained more than resilient last year, with the total sales volumes reaching $1.8 billion. A total of 160 industrial assets changed hands in 2023 in the metro, totaling to more than 13 million square feet of space.

The market had an average price per square-foot of $162 last year, higher than the $129 national average. Another strong performing Sun Belt market, Dallas, came in under the national average, with its average price per square-foot at $126. Phoenix’s average price was outpaced by markets such as The Inland Empire ($243 psf) and New Jersey ($216 psf).

Phoenix had the highest number of total sales volume in the second quarter of 2023, with $710 million recorded and more than 4.6 million square feet sold overall.

One of the major transactions in Q2 was the sale of The Cubes at Glendale’s Building E, a 570,080-square-foot speculative industrial facility in Glendale, Ariz., to Fundrise for $82.6 million.

Industrial vacancy rates slightly lag behind national average

With a healthy construction pipeline and as one of the leaders for industrial completions in 2023, Phoenix ended the year with vacancy rates at 3.2 percent. As of January, the metro had recorded a slight bump in vacancy, with the rate at 3.7 percent.

Similar vacancy rates were reported last year in markets like Atlanta (3.7 percent) and Indianapolis (3.3 percent), all below the national figure. The vacancy rates in Dallas reached 4.3 percent, much like Chicago (4 percent) and New Jersey (4.8 percent). The Inland Empire’s vacancy rates were 40 points higher than the national figure, ending last year at 5 percent.

Several major leases were signed in the metro in 2023, such as Cubework.com Inc.’s 916,150-square-foot, full-building lease at the Cotton 303 Logistics Center in Glendale, Ariz. The long-term lease marks the company’s second large expansion over the last year, bringing its Greater Phoenix presence to almost 2 million square feet. Saddle Creek Logistics Services entered the Arizona market with the 570,080-square-foot lease at The Cubes at Glendale’s Building E.

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