Q2 2012 Phoenix, Arizona Industrial Submarket Trends

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Q2 2012 Phoenix, Arizona Industrial Submarket Trends

West Valley

  • With a large stock of available land and excellent transportation access to Southern California and its ports, Phoenix’s western suburbs emerged in recent years as a hotbed of industrial development.
  • Areas with active development profiles in the recent past include a number of towns south of I-10, such as Buckeye, Goodyear, and Tolleson, as well as areas of west/southwest Phoenix. Activity has favored large warehouse/distribution facilities, often by national developers.
  • E-commerce. A 400,000-square-foot fulfillment center for Amazon.com completed in late 2011 at Buckeye Road and S. 67th Avenue. Including a 2011 commitment to more than 1.2 million square feet at Fowler Distribution Center, Amazon now occupies some 4 million square feet of Phoenix area industrial space.
  • Sold. As described in Special Real Estate Factors, Amazon’s 1.26-million-square-foot southwest Phoenix distribution center was acquired by Industrial Income Trust for $90.28 million in August, the Phoenix Business Journal reported at the time.
  • Another major sale. Not far away, Industrial Income Trust and partner paid Tratt Properties LLC and partners $105.1 million ($87 psf) in May for the 1.21-million-square-foot Riverside Industrial Center distribution center on W. Mojave Street in southwest Phoenix, Reis reports. This property also is fully occupied by Amazon.com.
  • In addition, the 377,303-square-foot Riverside Industrial Center Phase 1, also fully occupied, sold at the same time for $26.6 million ($70 psf). ITT Cactus Distribution Center LLC and Industrial Income Trust were the buyers. KTR Capital Partners was the seller. Home Depot is the tenant.
  • A perfect storm. One substantial warehouse/distribution project was reported under construction in the West Valley per the date of this report (see below). Several other major endeavors are lining up. “Growing demand and limited construction have resulted in the perfect storm for development,” an Alter executive informed Commercial Property Executive.
  • Trammell Crow Company and joint venture partner Clarion Partners are developing the 603,900-square-foot spec first phase of the $27 million Coldwater Depot Logistics Center along I-10 at 127th Avenue in Avondale, according to industry sources. Arizona Builder’s Exchange reports a May 2012 groundbreaking date. Reis puts the entire planned two-phase project at 1 million square feet.
  • A late September 2012 groundbreaking is cited for Seefried Properties’ 592,000-square-foot speculative Estrella Logistics Center at W. Buckeye Road and 63rd Avenue in southwest Phoenix, according to industry sources. Reis expects completion in April 2013.
  • “In the Southwest submarket, home to Buckeye Logistics Center [see below], demand is extremely high, with the vacancy rate for spaces over 500,000 square feet having plummeted into the low single digit range,” Commercial Property Executive reported during the quarter.
  • More spec. Citing a shortage of large blocks of space, The Alter Group is planning a $36 million, 605,700-square-foot speculative warehouse/ distribution facility for its Buckeye Logistics Center, Commercial Property Executive reports.
  • More. Buckeye Logistics Center currently consists of 1.7 million square feet in three buildings. The park can accommodate up to 3.1 million square feet of development.
  • Another from Alter. In March, Alter announced its partnership with John F. Long Properties LLLP for the development of three business campuses, including the 300-acre Copperwing Business Park in Glendale “for manufacturing and light industrial users,” Business Wire reported at the time.
  • “Additional speculative developments are expected to be announced in the coming months,” notes Cushman & Wakefield’s second-quarter report.
  • A 600,000-square-foot distribution center for Dick’s Sporting Goods Inc. is under way in Goodyear.
  • A 260,000-square-foot manufacturing facility completed in June for MiTek at 7890 W. Lincoln Street, Tolleson. Merit Partners was the builder. The landlord is FR/CAL 3 Tolleson Buckeye LLC, according to the Phoenix Business Journal.
  • Other current activity includes the 20,000-square-foot Building 1 Flex/R&D project under construction at Northern Gateway Commerce Park for completion in September.
  • Reis reports massive amounts of space in planning and proposal stages at the Palm Valley 303 business park in Goodyear. The park could support 10.8 million square feet of warehouse/distribution space, along with a major Flex/R&D component.
  • Second-quarter leases as reported by Cushman & Wakefield include a 237,176-square-foot warehouse/distribution space deal by Exel at 7210 W. Van Buren Street in southwest Phoenix.
  • Consolidated Grain & Barge leased 155,794 square feet of warehouse/ distribution space during the quarter at 2225 S. 75th Avenue in southwest Phoenix.

East Valley

  • Located in the metro southeast, the submarkets of the East Valley have developed substantial Flex/R&D space inventory over the years. Warehouse/distribution also plays a significant role here. Reis covers two East Valley submarkets—Mesa/Chandler and Tempe.

East Valley: Mesa/Chandler

  • Flex/R&D. For 4.3 million square feet of Flex/R&D space, second-quarter vacancy in Mesa/Chandler was exceedingly high at 29.3%. With demand reviving, however, the rate was down 40 basis points from the quarter before and was down 190 year-over-year.
  • Total first half 2012 net absorption was 13,000 square feet following 174,000 last year. The total for the second quarter of 2012 alone was 18,000 square feet.
  • Rent growth remains weak. At $9.94 psf and $8.43 psf, second-quarter asking and effective Flex/R&D averages were down 0.3% and 0.4% for the quarter, following a slightly less weak performance the quarter preceding.
  • No Flex/R&D or warehouse/distribution space was under construction in Mesa/Chandler per the date of this report.
  • A 260,700-square-foot build-to-suit warehouse/distribution facility for Crescent Crown Distributing completed construction in January at 1640 W. Broadway, Mesa.
  • The 1.3-million-square-foot first phase of the First Solar manufacturing complex began construction in August 2011 at S. Signal Butte and E. Elliot roads, Mesa, at the former GM proving ground site. Jones Lang LaSalle expects completion during second quarter. Reis reports a total planned project size of 5.3 million square feet in four phases.
  • Data centers. Data center development has become a significant trend (see Special Real Estate Factors). In Chandler, CyrusOne LLC broke ground in May for a 1-million-square-foot speculative data center within the Continuum master-planned development, the Arizona Republic reported at the time. Plans include a 90,000-square-foot spec office space component. The project’s first phase is scheduled to complete in early 2013.
  • More. Reis reports an additional 2.8 million square feet of Flex/R&D space proposed for the Continuum development.
  • Among significant projects in the pipeline is The Rockefeller Group’s proposed North Gateway project in Gilbert. Plans call for 1.3 million square feet of Flex/R&D space.
  • Plans for Chandler Crossroads, another Rockefeller Group project, call for 556,000 square feet of warehouse/distribution space in two buildings along with a 260,000-square-foot Flex/R&D facility.
  • Warehouse/distribution. Second-quarter vacancy in this 14.4-million- square-foot sector was 13.7%, down 10 basis points for the quarter and year-over-year.
  • First half 2012 net absorption was positive 25,000 square feet. The total for the second quarter was positive 9,000 square feet. Last year’s total was negative 147,000 square feet.
  • Second-quarter mean asking and effective lease rates were $6.29 psf and $5.65 psf, up 0.2% and 0.4% for the quarter.

East Valley: Tempe

  • Warehouse/distribution. Second-quarter vacancy in this 20.5-million- square-foot submarket was 16.2%, down 10 and 20 basis points from a quarter earlier and year-over-year.
  • Net absorption for the first half of 2012 was 108,000 square feet alongside no new supply. The total for second quarter alone was 23,000 square feet.
  • Second-quarter mean asking and effective lease rates were $5.85 psf and $5.24 psf, up 0.5% and 1.0% for the quarter, following similar gains the quarter before.
  • Two projects for Intel were under construction in this submarket per the date of this report. In addition to 1 million square feet of manufacturing space at the Fab 42 semiconductor plant in Chandler, Reis reports a 285,000-square-foot Flex/R&D building under way at the same site. Both projects are expected to deliver in 2013.
  • A new construction boom? “Is the East Valley on the cusp of another commercial and industrial building boom?,” the Phoenix Business Journal queried in an August 2012 report. “A few projects in Tempe could be a sign of exactly that.”
  • The East Valley Tribune (EVT) reports two additional buildings with a combined total of 316,000 square feet under way at Elliot Business Park. These will be “the first speculative warehouses in the East Valley since 2008.” “The buildings will complete a complex of 1 million square feet that’s been under development since 1999 by Phoenix-based Transpacific Development Southwest,” reports EVT. “The company decided to construct new warehouses because of a tight supply in the East Valley,” according to a Transpacific executive.
  • Second-quarter leases include Clear Energy Systems’ for 157,992 square feet of “high-tech” space at 7825 N. Hardy Drive, Tempe, reports Cushman & Wakefield.
  • Flex/R&D. For 8.2 million square feet of Flex/R&D space, second-quarter vacancy in Tempe was 18.2%, unchanged from the quarter before, up 100 basis points since the second quarter of 2011.
  • Net absorption for the first half of 2012 was positive 3,000 square feet. The second-quarter total was positive 4,000 square feet.
  • At $9.90 psf and $8.79 psf, asking and effective Flex/R&D averages were up 0.1% and 0.7% for the quarter, following gains of 1.3% and 1.4% the quarter before. Large losses were sustained in 2011 and 2010.


  • Quarter-end vacancy in the 34.6-million-square-foot Airport warehouse/distribution submarket remained high at 19.8%. Rates a quarter and four quarters earlier were 20.0% and 20.8%.
  • Demand has been strong to date in 2012. Net absorption for the first half of the year was 309,000 square feet. The total for the second quarter alone was 57,000 square feet.
  • At $4.25 psf and $3.79 psf, second-quarter asking and effective average lease rates were up 0.5% each from the quarter before and were up 1.0% and 1.6% year-to-date.
  • No space of any type completed construction in this submarket in 2011 or year-to-date in 2012.
  • Cushman & Wakefield reports a second-quarter groundbreaking for the 80,000-square-foot Allred Riverpoint spec “high-tech” project at 4025 S. 32nd Street, south of the airport. The building was reported 100% available per report date. A rental rate of $16.20 psf is cited.
  • The 336,665-square-foot warehouse that constitutes the second phase of Lincoln Commerce Park on S. 11th Avenue sold in April for $26.1 million ($78 psf), Reis reports. Cornerstone Real Estate Advisors and Lincoln Property Company were buyer and seller. The property was 18% vacant at sale date.
  • Duggan Realty Advisors LLC has acquired a 16,000-square-foot data center used by Sprint Nextel Corporation near 40th Street and Southern Avenue, south of the airport, the Phoenix Business Journal reported in July. Bernard White LLC sold the property for $1.5 million.
  • More. Duggan “is rebuilding its national portfolio of data centers after selling off its first round of commercial real estate assets” and “is looking at other possible high-tech real estate acquisitions in the Valley.”