ProLogis Inks Lease on 221,000-SF Facility

February 16, 2011
By Barbra Murray, Contributing Editor

Industrial leasing activity continues to pick up in Phoenix and ProLogis’ recent securing of a tenant for an entire facility in the city’s Southwest submarket further validates the trend. Data center technologies provider i/o Data Centers entered a lease agreement with ProLogis to occupy the 221,000 square-foot Papago Distribution Center Building Three.

Developed in 1994, Papago Three sits within a mile of I-10 at 402 N. 44th Ave. The building will serve as a production factory for i/o’s branded data center modules. “A big driver for i/o was rail distribution,” Jeff Foster, vice president and market officer for ProLogis in Phoenix, told CPE. We have three facilities in Papago that have rail access. Papago Distribution Center Building Three is a good, clean second-generation facility so we moved to the top of the list.”

And rail may very well be the key to even greater demand for industrial properties in Phoenix. “As oil prices rise, will companies begin to use rail more than they have? Maybe they will put rail into consideration for their distribution options.”

The i/o transaction marks ProLogis’ second lease deal in the immediate area within just two months; the REIT closed a lease agreement with Arizona Records Storage Center L.L.C. in December for 139,000 square feet at Papago Distribution Center Building Two.

“In 2009, Phoenix had 4.5 million square feet of negative absorption and in 2010 we absorbed it all back; we had 4.5 million square feet of positive absorption last year,” Foster said. “There’s been a dramatic swing in both directions in two years. Companies have gotten out of the ‘analysis paralysis’fo mode and are realizing that it’s a good time to take advantage of the market. There’s been a lot of new supply built in Phoenix in the last two years and many second generation properties are back on the market so there’s a lot of available space.”

Industrial users outside the area, or the country for that matter, have been showing interest in Phoenix, especially those with sustainability initiatives. Phoenix’s sun beams brightly year-round, a plus for the use of solar panels to generate energy. “The sun combined with the strong workforce, availability of space and attractive rates make it an attractive time for companies to take down space and get good deals.”

Should the call for more distribution centers grow louder, ProLogis will be able to answer. The REIT has 150 acres of developable land two miles south of the Papago buildings. “We’re seeing build-to-suit opportunities of fairly significant size,” Foster noted, highlighting potential deals for projects of 650,000 square feet and 250,000 square feet. “There may even be spec construction in 2012. Our transactions are an encouraging sign that the uptick in the market is not an anomaly.”