As we move past the first quarter of 2022, many wonder where the economy may be going while asking themselves, “Will Arizona continue to grow?” Experts say, “Yes!” as Phoenix’s growth is expected to continue and “Watch out!” as the country’s rate of inflation threatens the economy. The benefit to this exponential growth is the opportunity for more jobs and additional industrial development. This growth may leave some developers with a “Buzz” thinking “To infinity and beyond!”
PHOENIX CAPITAL INDUSTRIAL MARKET
For the past two years, industrial investment in the Phoenix market has sky-rocketed, setting records over the prior years. Many are California-based investors that still perceive the market to be relatively affordable.
The targeted areas are in the far west and east parts of the valley and have been driven by 1031 exchange deals. Many investors have also turned in the direction of land purchase with new builds.
One notable, larger transaction during the past year, involved BentallGreenOak, a global real estate investment management advisor. They purchased a 1.3-million-SF industrial building from Lincoln Property Company for $186 million ($148/SF). The building is located along the 303 freeway and is being occupied solely by Walmart.
With Phoenix’s consistent growth, both economically and in population, buyer competition has caused a consistent increase in pricing. The average price is $150/SF, which is more than 30% above the market’s previous peak in earlier years.
THE ECONOMY – INFLATION AND JOB GROWTH
The consumer price index, this month, shows that inflation has reached 8.5%, the largest year-over-year escalation since 1981. Reports also state that the wage levels are only up 6%, during the same time period, which reduces the consumer buying power.
Although the White House is blaming the increase in inflation on the Russian war, many experts have stated that the acute increase has been steadily climbing over the last few months and is a result of government spending including the stimulus program and the regulatory war on American energy production.
Reports indicate that, as of March, unemployment was lower than it had been since 1969. In January, there were 11.3 million job openings as companies were desperate to find workers. This imbalance has boosted wages. While the increase in wages has helped many households, it still falls 2.5% short of the current consumer price index. The Federal Reserve is hoping to help curve the ever-escalating household expenses with its increase in interest rates.
Despite the fact that inflation is on the rise, investors and developers are still adding to their portfolios. Many economists warn that the sharp increase in inflation may result in a possible recession by the end of next year as the Federal Reserve increases interest rates in an attempt to calm the economy. If you have any questions about the commercial real estate capital market or the economy, please do not hesitate to contact us.