Phoenix Leads All Markets for Industrial Development

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

Some 32.5 million square feet of industrial space was 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 stock—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 being added to the development pipeline.

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 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 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 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 the second quarter 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 at 3.2 percent. As of January, the metro had recorded a slight bump, with the rate at 3.7 percent.

Similar vacancy rates were reported last year in markets such as Atlanta (3.7 percent) and Indianapolis (3.3 percent), all below the national figure. The vacancy rate in Dallas reached 4.3 percent, much like Chicago (4.0 percent) and New Jersey (4.8 percent). The Inland Empire’s vacancy rate was 40 points higher than the national figure, ending last year at 5.0 percent.

Several major leases made headlines 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 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.