The surge in e-commerce has helped make Southern California’s industrial markets the hottest in the country, and now overflowing demand in the region has helped boost metros nearby. One, in particular, has reaped the dividends handsomely.
That’s according to Yardi Matrix’s April 2021 Industrial National Report, which notes that Phoenix has been the biggest beneficiary of Southern California’s industrial demand boom. Exponential growth in online buying has led to hefty import gains in the region’s ports, with the Port of Los Angeles setting a new record for volume every month. Those imports need somewhere to go, driving rents for nearby logistics and warehousing skyward; as a result, industrial rents in the Inland Empire (up 8.2% year over year) and Los Angeles (6.9%) have seen the highest annual growth in the country.
Industrial tenants looking for similar convenience without similar pricing have zeroed in on the Valley of the Sun. Phoenix, less than a day’s drive from the ports of Los Angeles and Long Beach with less expensive rents than the Inland Empire, has found itself in high demand from several major players, from international powerhouses like Amazon and Red Bull to nascent local companies like zero-emission vehicle manufacturer Nikola. Notably, Gatorade, under the PepsiCo umbrella, broke ground on a 750,000-square-foot warehouse in March, more than doubling its footprint in the Tolleson Corporate Park in the metro’s west side.
Want more news, topics and trends?
Get perspectives on the mortgage industry from thought leaders by subscribing to Scotsman Guide’s free digital editions.
It’s not just warehousing that’s booming in Phoenix, though. Taiwan Semiconductor paid Arizona $89 million for an enormous tract of land on the north side of the city, earmarked as the site of a new manufacturing mega-complex that could include as many as six factories for the company. The first phase of that buildout is estimated at a whopping 3.8 million square feet.
So has Phoenix’s recent run of industrial attention escalated the city’s industrial rents like those in Southern California? Not quite yet, according to Yardi.
Average rents only grew 3.4% over the past 12 months in Phoenix, thanks to a healthy pipeline of new industrial space. Nearly 14.0 million square feet are currently under construction in Arizona’s capital, representing 5.4% of stock. Just four markets — Dallas, Chicago, Houston and the Inland Empire — among the top industrial metros tracked by Yardi currently have more square footage being built.
Still, industrial investors are upbeat about Phoenix’s prospects. The city has seen $396 million in industrial transactions in the first quarter; only Los Angeles, New Jersey, the Inland Empire and Chicago have seen more in the year thus far. Furthermore, Phoenix industrial assets are selling for an average of $140 per square foot, double the average price buyers paid for in the city during the first quarter of 2016.
