A Strong Commercial Presence in Phoenix

Sarah Richardson

Founder and CEO, Tru Realty

Just as it is with many other aspects of the economy in Phoenix, the commercial real estate industry continues on an upward trajectory in 2019. Although this may come as a surprise to some, with many retail stores closing their doors across the country, however, the need for commercial and industrial property in Phoenix continues to steadily rise.

As the fifth-most-populous city in the United States, the landscape of greater Phoenix and all it has to offer continually expand to serve its population. According to recent Census data, from 2017-2018, Phoenix welcomed more new residents than any other city in the country, meaning significant growth opportunities for the area. The prospect of a new job and a positive economic climate continue to drive population growth in greater Phoenix. Population, job and economic growth are key building blocks in explaining why the commercial real estate market continues to grow in 2019.

Part of the reason for this smart, steady increase in demand is the fact that developers have resisted the temptation to overbuild commercial real estate properties in Phoenix. According to the Real Estate Market Outlook for 2019 published by CBRE research, new industrial supply has been consistently below

1.0 million sq. ft. since 2010, resulting in a healthy supply and demand balance, which is a significant shift from nearly 12 million sq. ft. of space that overwhelmed the market in 2007. Also, net absorption has outpaced new supply since 2010, pushing down vacancy for industrial properties from its recessionary peak of 16.1% to 6.6% in Q4 2018. Market-wide, vacancy is at the lowest rate since 2005. Recently, though, developers have increased production to keep pace with this strong demand. Currently, 6.1 million sq. ft. are underway with the majority of this new space concentrated in the Southwest Valley, Airport area, and Southeast Valley.

Office leasing and developers have experienced similar growth. CBRE research found that job growth in office properties has boosted office demand, which outpaced new supply in 2018. Much like industrial properties, net absorption for office space has outpaced new supply since 2011, further pushing down vacancy from its recessionary peak of 26.2% to 15.2% in Q4 2018. In addition to robust demand, moderate levels of new construction resulted in another healthy year of net absorption during 2018, totaling 2.5 million sq. ft. While slightly down from 2017, net absorption closed 2018 above the market’s long-term average annual net absorption of 1.9 million sq. ft.

Phoenix residents will continue to see area growth in commercial property with the announcement from the Mayo Clinic in 2018 to start a $648 million-dollar expansion project that will essentially double the size of the current campus by 2023. This project will bring roughly 2,000 jobs to the area, continuing the cycle of growth for the Phoenix market. Amazon also had a large leasing development project come to a close. The building is a 569,301-square-foot fulfillment center, part of 10 West Logistics Center, a 1.3 million-square-foot, master-planned bulk distribution park developed by New York Life Real Estate Investors.

With population and job growth trending upward, it seems as if there’s no slowing down the steady rise of commercial property growth in Phoenix.