Colliers in Arizona reports the Metro Phoenix industrial market set a series of records in 2021, making it the most active year in the area’s history. Net absorption in 2021 was 80% higher than 2020, construction levels hit a historic peak in fourth quarter, and vacancy rates dropped to their lowest levels ever in the final months of the year. In addition, investment sales reached their historic high level during fourth quarter.
The industrial market’s dynamic activity can be attributed to a number of factors, one of the largest being the Valley’s historic low unemployment. Metro Phoenix unemployment fell to 2.8% at the end of November. As of November 2021, Phoenix had approximately 18,300 more people in the labor force than in February 2020 (pre pandemic).
The Metro Phoenix industrial market added 15.2 million square feet of new industrial space during 2021, but managed to decrease vacancy 260 basis points during the year. Every submarket posted decreased vacancy both quarter-over-quarter and year-over-year. The largest decreases were experienced in the Southwest and Southeast submarkets.
Rental rates increased 9.8% during 2021 and 3.1% during fourth quarter, which are the largest quarterly and annual increases in Phoenix industrial market history. Fourth quarter, like each preceding quarter of 2021, set a new record for construction levels in the industrial market. And in investment, fourth quarter was the top-producing single quarter for investment sales in Phoenix history; investment sales volume during fourth quarter topped $2.7 billion, bringing 2021 sales total to $4.9 billion. Large blocks of space are in such high demand that only 16 existing buildings offer options for tenants seeking 150,000 square feet. A mere nine options offer available blocks of more than 300,000 square feet.
The 2022 outlook for Metro Phoenix industrial remains strong. While some may speculate whether the market is becoming overbuilt, it is important to notice that during 2021 we added 15.2 million new square feet, but absorbed more than 24 million. Vacancy has dramatically decreased and the tenant pipeline remains extremely robust. More investors and employers are looking at Phoenix because of the healthy, sustainable growth, as well as robust and strong labor force.
