February 11, 2020

2019 Year End Industrial Market Report

2019 Year End Industrial Report
Grand over Gold!

On a national level, the expansion of the e-commerce industry continues to drive demand for infill logistics buildings and bulk distribution centers, bringing the industrial vacancy rate near its historic low. Consumer purchases online continue to gain share of total spending, and online spending trends in other parts of the world, such as China, the United Kingdom, and South Korea, suggest that there is further room for growth. And the recent “Phase 1” trade agreement with China will provide more protection for American companies’ intellectual property and stop requiring U.S. companies to share their technology as a cost of doing business in China. This should also start improving the weak manufacturing production of late, which declined from 2018 in each of the last six months of 2019.



In the Phoenix market, strong population and job growth in the Valley of the Sun are bolstering a rapidly growing consumer base in the region and generating industrial demand. With relatively few barriers to development, a flourishing local economy, and favorable demographics, new industrial supply has consistently poured into the market. The new section of Loop 202 opened recently, connecting the East and West Valleys, allowing transportation trucks to move products more efficiently by avoiding traffic in downtown Phoenix. New development is primarily tailored to the logistics segment, which accounts for the bulk of completions. Even with elevated levels of construction, strong demand has maintained a vacancy rate well below the market’s historical average.

Grand over Gold!


The Phoenix Metro economy has diversified beyond development and real estate since the Great Recession. With increases in warehousing and logistics finance, technology and education, any slowdown in the next year or two should have a lesser impact than in the past. A trend fueling this diversification is companies choosing to leave California for Arizona. According to AZ Big Media “You see all of the data and it’s clear that the Arizona economy is getting a boost from California, as companies big and small are exiting the Golden State for the better business environment in the Grand Canyon State.” Grand over Gold!



Demand has moderated from peak activity in 2017, where net absorption reached 11.1 million SF. Net absorption over the past 12 months totaled 6.4 million, which is still healthy and in line with the market’s historical average. Several large move-outs hindered more substantial net absorption in 2019. Ulta, Nestle, and Tesla each vacated more than 300,000 SF in 19Q2. However, expanding tenants have offset the impact. Companies are scouring the market for large blocks of available space. Construction levels remain elevated this year after last year’s deliveries reached their highest mark in a decade.

Net absorption, Net Deliveries and Vacancy


Vacancy Rate




After years of underperforming relative to the national benchmark, Phoenix rent growth rebounded and outpaced the U.S. average since the start of 2019. Nevertheless, Phoenix rent growth has started to decelerate from a high of 6.7% in 19Q2 to 5.4% year over year but remains well above the market’s historical average.


Market Rent Growth (YOY)




Following two years of heightened construction activity, momentum slowed in 2019. Net completions are expected to reach 6.7 million SF by year end, down from last year’s level.

Construction starts picked up in late 2019, though. Robust buyer and investor demand and moderate supply have motivated developers. Approximately 11.9 million SF is under construction, and 38% of the space is preleased. Several large projects will deliver next year, and net completions in 2020 are expected to reach a decade high.


Deliveries & Demolitions


Investors remain bullish on Phoenix’s industrial market, and transaction activity picked up in the second half of the year. Sales volume over the past 12 months totaled $2.9 billion, up from last year’s record level of activity. Intense buyer competition has put upward pressure on pricing. The average price of $110.00/SF is just below the U.S. Even with the rise in pricing, an average cap rate in the 6.5%–7% range remains attractive to investors.


Sales Volume & Market Sale Price Per SF


Population growth, a large and growing labor pool, the diversifying economy, an attractive cost of living and doing business, and a business-friendly regulatory environment have strengthened the Phoenix value proposition. These characteristics are attracting new residents and businesses to the region, making Phoenix one of the most dynamic metros in the country. Phoenix is the 11th-largest metro and the second-fastest growing MSA in the nation, adding more than 96,000 residents in 2018. During the same period, metro Phoenix ranked second for net migration, attracting 72,900 new people, for an average of 200 people moving to Phoenix daily. Despite its reputation as a retirement community, the median age in Phoenix is 36 years, below the U.S. median of 38 years. The millennial age group (20–34-year-olds) accounts for the largest share of the metro’s population, making Phoenix attractive to companies searching for a vibrant and young workforce.

Thanks to the large and growing labor pool, businesses are flocking to Phoenix. Companies looking to scale know that their current and future labor needs will be met with the outsized existing workforce and growing talent pipeline. All in all, a positive outlook for the Phoenix market.


Year Over Year Job Growth



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Since its inception, CPI has grown into a full-service brokerage and property management firm for all product types. Currently CPI’s listings include more than 55.5 million available square feet for sale or lease, and over 12 million square feet under management.

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Craig Trbovich, CPA
Commercial Real Estate Advisor
Commercial Properties, Inc.
Direct 480-522-2799
Mobile 602-549-4676



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About Craig
Craig Trbovich is a commercial real estate broker with Commercial Properties, Inc. in Scottsdale, Arizona, specializing commercial sales and landlord representation in the Phoenix Metro Area. He applies 35 years of experience as a CPA and an investor to help other owners and investors maximize their returns, bringing a strong financial and tax perspective to all aspects of commercial real estate ownership. His strengths include sales and leasing, as well as an in-depth knowledge of the development community and the local market.