Slowing Leasing and Rising Vacancy Rates in Phoenix, Arizona's Industrial Market
Chandler, AZ Industrial Park Retail Shops to Industrial Warehouses:
In the scorching desert heat of Phoenix, the industrial real estate landscape has been sizzling over the past two years. A thriving hub for both residential and commercial developments, Phoenix stood tall as the second-largest contender in the nation for industrial real estate construction. Only Dallas Fort Worth Metro outshone it, while the Los Angeles/Inland Empire Market took the third spot. This rise in industrial development was fueled by our shifting consumption habits, as traditional retailers pivoted to e-commerce, and consumers embraced online shopping, having goods delivered right to their doorstep.
A Downward Turn, Absorption vs. Construction:
At its peak, Phoenix had about 58 million square feet of industrial assets under construction. Dallas Fort Worth was far ahead, with over 80 million square feet, and the Inland Empire contributed 44 million square feet to the national construction frenzy. As the dust settles in the construction scene, a new dilemma emerges. The construction pipeline in Phoenix has gradually dwindled to 47 million square feet, with millions of square feet already delivered. However, this massive supply now poses a significant problem: absorption.
Capital Markets Frozen, Leasing Slows:
High interest rates and sluggish sales With high inflation looming large, interest rates have been raised to combat inflation. This has left investors and institutions sitting on their capital due to economic uncertainty, and many companies are in a bind on the sidelines rather than absorbing new warehouse space for their businesses. The result? A temporary freeze in the industrial real estate markets.
Unveiling the vacancy surge the repercussions of this construction-absorption gap are most evident in the surge in vacancy rates. Phoenix, once a bustling hotbed for industrial growth, now faces a vacancy rate that has crept above 7%. The influx of new developments has left many industrial spaces unoccupied, and businesses cautious about taking the plunge.
Phoenix's Industrial Market Resilience:
In the blazing sun of Phoenix, the industrial real estate landscape’s construction frenzy is driven by the changing face of consumer habits. However, the slowdown in absorption, has caused an effect on the market’s vacancy. As the city navigates this new chapter in its industrial real estate saga, industry players and investors will need to adapt to the changing landscape. The resilience and adaptability of Phoenix's real estate market have been tested before, and it's likely that, with time and strategic maneuvering, it will once again rise to meet the demands of a rapidly evolving economic environment.
