Phoenix Industrial Investment Forecast
Phoenix Metro Area, 2018 Outlook
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Vibrant Economy Drives Speculative Construction, Pushes Rents to Cycle High

Developers focus on Phoenix as alternative shipping hub. Due to the metro’s relative proximity to the ports in LA and considerably lower costs compared with the Inland Empire, construction achieved a high this year with the majority of development taking place in the West Valley. The largest facility slated for delivery is the TEN project; its first phase, which will finish by midyear, contains 1.1 million square feet of speculative space near I-10 in Tolleson. The building is surrounded by other corporate distribution centers, such as those for QT and Target. Pet-related online retailer Chewy.com also established a presence this year with an 800,000-square-foot distribution center in Goodyear. Due to heightened completions, vacancy will log a slight increase this year after noting reductions in the previous four years. Despite the increase, demand remains strong as the metro’s vacancy has slid 260 basis points since 2014. Rents report a modest rise this year as a heightened amount of space becomes available, much of which is unleased.

Industrial space near urban core entices in-state buyers. Local and regional investors continue to direct their interest to Phoenix this year, lured by lower entry costs and first-year yields up to 200 basis points higher than nearby markets in Southern California. Warehouses in the East Valley, particularly Chandler and Tempe, serve as viable options to institutional investors looking to deploy capital into Class A space. Initial returns for these assets range in the mid-5 to mid-6 percent realm. Manufacturing facilities around Phoenix Sky Harbor International Airport and in the various industrial districts just south of Grand Canyon University changed hands to become owner-user assets this year due to relatively low entry costs. Cap rates for these spaces typically sit in the upper-7 to lower-8 percent band.