Strong absorption, lots of activity in the Gilbert submarket
The Gilbert submarket, situated at the far end of the Southeast Valley, is the fifth-largest submarket in Metro Phoenix. Despite its modest inventory of 16.5 million square feet, Gilbert recorded 815,336 square feet of positive absorption in 2015, easily outpacing submarkets more than twice its size. While 52 percent of the submarket’s absorption gains were concentrated in build-to-suit or owner-built facilities, another 34 percent came from smaller move-ins of less than 20,000 square feet. This healthy mix of large, institutional users and small, local tenants has given developers confidence to move forward with additional projects, with over 560,000 square feet of speculative space expected to deliver in 2016.
Vacancy still falling despite speculative deliveries
For the first time since the first quarter of 2008, total vacancy in the Phoenix industrial market has fallen below 10 percent. After remaining flat for several quarters due to large blocks of vacant space being added with speculative deliveries, vacancy fell to 9.9 percent in the fourth quarter of 2015, decreasing 60 basis points from one year prior. Strong absorption gains of approximately 5.8 million square feet in 2015, specifically in new design-builds and second-generation space, proved to be more than enough to outpace the nearly 5.1 million square feet of space added to the market.
Owner-built facilities becoming more prominent than build-to-suit
As the market tightens and rents continue increasing, users have begun to shift away from build-to-suits, instead opting to purchase land and build their own facilities. Of the 1.8 million square feet of design-builds delivered this year, 51 percent were build-to-suit facilities owned by a third party investor or developer. Conversely, the remaining properties under construction do not include any build-to-suit projects, but rather 1.6 million square feet of owner-built space. Users have also taken advantage of existing facilities, resulting in a slight increase of industrial owner-user sales between 2014 and 2015.
Learn more. Download our full Q3 industrial reports:
- Industrial Insight Q4 2015 Phoenix
- Industrial Statistics Q4 2015 Phoenix
- Industrial Development Dashboard Q4 2015
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