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CoStar Market Insights: Phoenix Among Fastest-Growing Industrial Markets in U.S.

Demand Fueled by e-commerce, California
April 10, 2018
Many are now saying the best way to conduct business in parts of California is to set up shop in neighboring Arizona.

An increasing amount of companies are buying into that theory as they seek to lower business costs, particularly those in industrial sectors driven by warehousing and distribution. About 35 million consumers can be reached within a day’s truck haul from Phoenix, including those in Southern California markets Los Angeles and San Diego. The corporate tax rate in Arizona is 4.9 percent, substantially lower than California’s 8.84 percent. Currently, the average industrial rent in Phoenix is $7.70 per square foot, a fraction of the average rent in Los Angeles, which is $12.24, and San Diego’s $14.64.

Like the nation as a whole, e-commerce and third-party logistic providers are fueling demand for logistics space in Phoenix. After recently executing several large leases, Amazon currently has the largest industrial footprint in the metro with nearly 5 million square feet. Online pet supplier has one of the biggest projects in the pipeline - an 800,000-square-foot distribution facility in Goodyear.

In anticipation of Phoenix’s growing logistics demand, commercial truck manufacturer Nikola Motors announced in January that it plans to relocate its headquarters to Buckeye. The move will include a $1 billion capital investment and create thousands of jobs, the company said.

The rise of e-commerce and proximity to California has contributed to Phoenix becoming one of the fastest-growing industrial markets in the nation. From 2013- 2017, about 30 million square feet of industrial space delivered, expanding inventory by roughly 10 percent.

In that same time, more than 38 million square feet was absorbed, outpacing deliveries and compressing vacancies below their historical average. This trend has continued so far in 2018 - nearly 1 million square feet of new supply came online in the first quarter, while about 2 million square feet was absorbed. At the end of Q1 2018, approximately 6.3 million square feet of industrial space was under construction.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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