Phoenix’s robust industrial market is propelling the region to the forefront of the industry, driving both increased construction of industrial spaces and a surge in tenant improvement (TI) projects. The rise in TI projects, which entail making modifications to an existing building in order to tailor it to fit the business’s unique needs, highlights the growing demand for customized spaces to meet tenant-specific requirements.
In June 2023, the Phoenix metropolitan area boasted a substantial 58 million square feet of industrial space actively under construction, and the pace of development is expected to continue into 2024. While the influx of supply is promising for those in the industry, there are looming concerns that the demand may not be able to keep up with the supply and maintain its pace, especially as hesitancy grows due to uncertain economic forecasts. Currently, tenants are still moving to the Valley and occupying industrial space. However, there’s a growing trend of tenants leasing existing spaces versus pursuing a build-to-suit project. The main factor that influences this shift is the higher cost associated with financing a new build.
In addition to budget as a factor, a number of California-based companies are moving to Arizona and are eager to establish their operations as soon as possible. Pursuing a new build would not be a time-efficient solution for these businesses, so they often opt to search for an existing building that they can quickly modify to fit their current needs.
As the lending landscape continues to adapt to shifting market dynamics, the major topic of conversation within the commercial real estate industry revolves around repurposing existing spaces. While industrial TI activity is high, the team at LGE Design Build has also seen a surge in TI projects across diverse sectors, including hospitality, office, retail and healthcare.
These projects can vary widely in terms of scope, complexity, duration and cost, as well as can encompass a range of design and construction-related tasks. Common core elements of TI projects include space planning, interior design, demolition and build-out, electrical and lighting, plumbing and HVAC, flooring, cabinetry and fixtures, security and access control, brand integration, and furniture installation.
Throughout the project’s duration, extensive collaboration between stakeholders is the key to success. This collective effort ensures that the space seamlessly integrates functionality, accessibility, sustainability and compliance with lease agreements, all while creating a visually appealing, comfortable and welcoming environment.
In Phoenix’s dynamic real estate landscape, the convergence of industrial growth and TI projects reflects a rising demand for a more customized and tailored approach within the industry. As companies continue to pivot toward leasing and repurposing spaces, the need for innovative, agile, experienced and solutions-based partners becomes increasingly more apparent and necessary in order to continue to forge a resilient future.
Nathan Padron is director of tenant improvement at LGE Design Build, a leading design-build construction firm in the Southwest for close to 30 years.
Top photo courtesy of LGE Design Build
