Cushman & Wakefield Reports Steady Leasing and Vacancy Decline
(NEWS RELEASE)
Cushman & Wakefield, a global leader in commercial real estate services, announced today that the Metro Phoenix industrial real estate market posted its ninth consecutive quarter of positive occupancy growth, which reflects steady leasing and results in a slow but consistent decline in vacancy.
“The first nine months of this year brought 11,000 new industrial-sector jobs to Metro Phoenix, illustrating growth in this type of business and demand for more real estate,” said Curtis Hornaday, Research Analyst with Cushman & Wakefield in Phoenix. “Industrial vacancy closed the third quarter at 11.1%, down slightly for the quarter and from one year ago.”
Tracking 17 industrial geographic submarkets, Cushman & Wakefield reported 12 of these areas experienced a decrease in vacancy during Q3. Scottsdale recorded the largest decline, falling to 10.2% at the end of September. Chandler experienced the largest increase in vacancy, reaching 9.5%, which can be attributed to the completion of three new buildings that added approximately 263,000 square feet (sf) of warehouse/distribution space to the submarket’s inventory. The single largest lease for the Valley was States Logistics, which occupied the remaining 173,000 sf of its warehouse/distribution facility located in Southwest Phoenix.
“This marks the sixth consecutive quarter where our overall industrial vacancy has remained below 12%,” said Mr. Hornaday. “We seem to be within striking distance of dipping below 11%, but that may elude us as we continue delivering new, large speculative projects.”
Nearly 4 million square feet (msf) of new industrial space has already been completed in the first nine months of 2015 and 46.4% of that space added to the overall inventory vacant. Approximately 4.2 msf of new industrial space is currently under construction, and approximately 2.3 msf of that will be finished during the fourth quarter, of which almost 74% is preleased or build-to-suit facilities. The largest projects planned for completion before year-end are the 650,000 sf Tractor Supply West Coast Distribution Facility in Casa Grande and the 400,000 sf REI Distribution Facility located in Glendale.
The small decline in vacancy for the quarter is a reflection of the market’s relatively mild 822,000 square feet of net absorption. This places net absorption for 2015 at just under 4.5 million square feet. Warehouse/distribution space has attracted the most interest, accounting for nearly 82% of the occupancy growth this quarter. During the third quarter, the Sky Harbor Airport submarket gained 313,000 sf of occupancy, making it the top submarket for absorption. Farnsworth Wholesale leased 156,000 sf in that area.
The average asking rental rate in Metro Phoenix remains somewhat stagnant at $0.51 per square foot (psf) on a monthly triple net basis. The rate has hovered between $0.50 psf and $0.52 psf for the past three years.
“While the average rate for the entire city remains at this level, we are seeing individual submarkets posting decreases of some significance,” says Mr. Hornaday. “Chandler, Tempe, West Mesa and Scottsdale all showed declines this past quarter, all of which are located along the East Valley Loop-101 Corridor. Reduced rates in these areas will likely draw more users to their employee-rich submarkets and spur future declines in vacancy.”
Throughout the Valley, the industrial real estate market is playing a balancing game of demand for premium, turnkey space in new developments and efforts to absorb existing inventory. The goal is to keep construction at a reasonable rate that provides quality product for tenants, while simultaneously eroding the existing vacancies and maintaining healthy levels of availabilities.
The successful merger of Cushman & Wakefield and DTZ closed September 1, 2015. The firm now operates under the iconic Cushman & Wakefield brand and has a new visual identity and logo that position the firm for the future and reflect its trusted global legacy and wider history. The new Cushman & Wakefield is led by Chairman & Chief Executive Officer Brett White and Global President Tod Lickerman. The company is majority owned by an investor group led by TPG, PAG, and OTPP.
