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Industrial market shows signs of life
Occupancy rates signal growing Valley economy, officials say
Publication: East Valley Tribune; Date: 07/11/2004
By EDWARD GATELY
Led by north Tempe and the Phoenix Sky Harbor International Airport area, the Valley’s industrial real estate market experienced a dramatic recovery this year after nearly tanking last year.
Valley businesses have occupied about 2.4 million square feet of industrial space during the first six months of the year, Cushman & Wakefield of Arizona, reported. During the same period last year, occupancy dropped by 3 million square feet.
Warehouse/distribution space was the only industrial product experiencing an increase in demand during the past few years. However, all industrial real estate has seen an upswing in demand this year.
"We anticipate the current leasing pace to continue and expect more than 4 million square feet of industrial space to be (newly occupied) during 2004," said Jim Wentworth, senior managing director of Cushman & Wakefield of Arizona. "By year end, we should see some submarkets with vacancy rates in the healthy range of 6 percent to 8 percent."
North Tempe and the Sky Harbor Airport submarkets have seen the biggest jumps in occupancy, followed by Scottsdale Airpark and South Mountain.
Nearly one-third of the Valley’s industrial inventory is in the south East Valley (Mesa, Tempe, Chandler and Gilbert). The Valley’s industrial vacancy rate is about 8.5 percent, while the south East Valley’s rate is about 7.5 percent, Wentworth said.
"We like to say that a healthy industrial market in Phoenix is somewhere between 5 percent and 7 percent, so we’re almost there in the East Valley," he said.
New occupancies are on the rise in manufacturing, high tech/flex, and office service center, he said.
"Manufacturing (occupancy) indicates strong growth in business and production of goods for consumers," Wentworth said. "This leasing took place throughout the Valley, showing overall growth rather than expansion of just a few companies."
Industrial occupancy has increased "tremendously" this year across the Valley, said Jerry McCormick, first vice president of CB Richard Ellis.
"The Scottsdale market is just going crazy with all these condominium office and industrial users trying to buy facilities because the interest rates are still so low," he said. "They’re trying to make the deals even faster, so that they don’t miss out on the low rates. It’s not just the big investors who you see buying product. It’s a lot of the local people who own their own business, who don’t want to pay rent and they see the opportunity to finally own their own building."
The south East Valley’s industrial market at first was slower to recover than other parts of the Valley because of the high-tech slump that only recently began showing signs of recovery, McCormick said.
"There were so many people who put everything on hold, and then all of a sudden this last six months to a year everybody has said we’ve been waiting long enough and we need to do something, whether it’s to double our space or grow into a little bit bigger facility," he said. "I think we’ll see very soon a lot of the concessions (such as free rent) being reduced dramatically."
Among users, demand for industrial space has been across the board, including "everything from distribution to manufacturing companies," McCormick said. Those companies are also hiring more people, he said.
"There are at least two companies that are hiring as many as 30 to 40 people a month," he said. "That’s in our high-tech, southeast market in Chandler."
Industrial construction is also on the rise with more than 600,000 square feet completed during the first half of the year, Wentworth said.
"Over half of the completions year to date have been in the south East Valley," he said. "There’s between 850,000 square feet and 900,000 square feet that’s under construction in the Valley, and a little over 200,000 square feet of that is in the south East Valley. As for what’s proposed, it’s about 2.2 million square feet valleywide, and almost 700,000 square feet would be in the south East Valley."
Dover Industrial Park, a 65-acre industrial, office and commercial park in Mesa, has seen an increase in industrial activity this year, said Joe Isbell, the designated broker for Daedalus Real Estate Advisors, which is the park’s developer. The park is located at the northeast corner of Greenfield and McDowell roads.
"We have quite a bit of activity relative to land that is under contract, and we have a 25,000-square-foot speculative building that we’ve been getting a fair amount of interest in as well," he said. "We’ve probably got two to three different proposals out on build-to-suit projects in the park."
Of the 65 acres, 20 acres have been sold, nearly 20 acres is under contract and another six acres will house build-to-suit developments, Isbell said.
The park’s tenants include Kennedy Design/Build, Aliant Tech Systems, Communication Services; DROBOT; Hunter’s and Trans-Matic. Dover Associates, LLC purchased the park in 1999 from the Boeing Company.
"It’s shaping up to be a very good year out there for us," Isbell said. "Several of the (industrial projects) we’re looking at are expansions of existing businesses, and therefore needing increased space."