Phoenix industrial market report
The Phoenix industrial market had another record quarter, with average NNN rental rates reaching a new all-time high at $9.24 psf, and more than 50 msf of new buildings under construction to end the quarter. Net absorption was down relative to Q2, but still very impressive at just under 5 msf. The Phoenix industrial market will continue its ascension place ranking as one of the top industrial markets in the country as the high level of activity carries on into Q4.
The total inventory of existing industrial and flex buildings of at least 50,000 sf in size grew to 252.2 msf. Active construction activity reached 51.2 msf by the end of the quarter, which is more than 20% of the amount of existing industrial space in the market.
The Phoenix industrial and flex market recorded 4,972,842 sf in positive net absorption in the quarter. Mesa, SW N of Buckeye Rd, and SW S of Buckeye Rd were the top three absorbing submarkets in Phoenix leading the way with a net loss in absorption during the quarter.
Direct asking rent
Average rental rates increased by $0.55 psf in Q3, reaching a new high of $9.24 psf. The rise in rental rates can be attributed to numerous factors including rising construction costs, ongoing inflation, and elevated demand for quality industrial space.
Total available space increased after a decline in the previous quarter, reaching 42.5 msf in total availabilities by the end of Q3. There was more than 6 msf of new industrial space delivered in Q3, which is a primary driver behind the increase in availability as many of those projects were not pre-leased prior to delivery.
The total vacancy rate recorded its first quarter-over-quarter increase since Q3 2020, as the total rate climbed from 5.3% to 5.6% through the course of Q3. This rise in vacancy can also largely be attributed to the number of speculative builds hitting the market in a short amount of time.
Investment sales came in at $532M as the capital markets recorded a relatively small number of transactions following Q2 which recorded approximately $1.1B in total sales volume. The average transaction price of $156 psf was lower than one might anticipate, but this is largely due to a lower volume of sales as institutional buyers begin sitting on the sidelines with virtually no forward sales due to increased cost of capital.
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