Phoenix industrial construction pipeline reaches 10-year high

PHOENIX, October 10, 2019 – According to the Q3 Industrial Insight report from the Phoenix office of JLL, metro Phoenix now has more than 10 million square feet of industrial space under construction – the highest level of year-to-date construction activity since 2007. Despite still-rising construction costs, the JLL report cites in-migration and a growing pool of skilled labor as key factors driving the growth.

“Companies have recognized the favorable operating conditions in the Valley and they are not only driving new industrial construction but are also committing to new spec projects prior to completion of their construction,” said JLL Vice President Riley Gilbert. “Phoenix has not traditionally been known as a pre-leasing industrial market but we are seeing that now, and fully anticipate this trend to continue as the market evolves.”

As of the end of the third quarter, Phoenix’s leading population growth was adding approximately 200 new residents per day. This has helped push a 2.7 percent increase in metro Phoenix’s labor force year-over-year, with industrial-focused and construction workers alone increasing by 6 percent annually for the past three years.

Even with these gains, however, construction employment in Phoenix remains approximately 20 percent lower than pre-recessionary levels, creating a higher cost of labor that translates to higher build-out costs.

“The fact that costs remain high yet construction and investments continue at this historic pace is a testament to Phoenix’s future as a hub for industrial and manufacturing growth,” said Gilbert.

Metro Phoenix asking industrial rents continue to rise, reaching an average $0.56-per-square-foot at the end of the third quarter. The market’s overall vacancy rate sits at 7.2 percent despite the consolidation of major tenants including Ulta, Nestle, Safeway and Conair, who together have left more than 2.0 million square feet of space.

The largest industrial deal of the year was completed in September with Nike’s purchase of Lincoln Logistics 40, a 901,700-square-foot Class A industrial project in the Southwest Valley, for $69.8 million.

To access JLL research for Phoenix and across the U.S., visit the company’s research page at https://www.us.jll.com/en/trends-and-insights#research.