In a welcome signal for the Phoenix region’s economic recovery, industrial real estate development projects will continue to heat up over the next year and beyond with the hottest market in the West Valley, leading experts told the real estate community Friday.
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While retail construction is down because of COVID-19, a large consumer shift to e-commerce shopping has revved up demand for warehouses, distribution centers, manufacturing facilities, data centers, and more, they said at a virtual “breakfast” meeting of the nonprofit Valley Partnership, the voice of the real estate industry in the region.
Phoenix metro is benefiting greatly from the high demand, they said. One reason is its optimal location. About 35 million consumers live within one day’s driving time of the Valley.
“Amidst the pandemic, new industrial projects continue to be announced which demonstrates how the Valley is well-positioned to land major deals,” said Cheryl Lombard, CEO and president of the nonprofit organization that has been holding a series of free webinars to offer updates, guidance and information for businesses as they navigate the pandemic.
“Value added” benefits of the Valley
Three of the state’s leading experts in commercial real estate were featured speakers: Kevin Czerwinski, president and principal of Merit Partners; Jenna Borcherding, director of development for VanTrust Real Estate; and Tony Lydon, managing director of JLL.
All mentioned the many “value added” benefits that will continue to lure investors here. At the top of the list are more affordable housing and lower income taxes than other large markets.
“Many of our occupants and operators come to Arizona because they know we can save them 30 to 40 percent in operating costs than if they go to some of the higher tax, higher regulated states in the region; that’s a big advantage for us,” said Lydon, of JLL, a world leader in commercial real estate services.
Many other benefits include a large growing population base for potential workers, weather that rarely results in brownouts or blackouts, tax incentives for database centers, and less government red tape.
Phoenix metro could set record in 2021 for industrial construction
As a result, the metro region will see no slowdown in activity next year, Lydon and the others said.
The numbers back them up.
About 11.8 million square feet of industrial development is underway, which accounts for 3.2 percent of the market’s existing inventory, ranking Phoenix among the top 10 industrial markets for construction, according to CoStar, an international provider of information, analytics and online marketplaces for commercial real estate.
In fact, new supply is expected to set record highs in 2021, CoStar reports. Developers are on track to deliver an estimated 14.8 million square feet of industrial space this year, more than double the new supply that came on line last year.
Merit Partners ramping up projects
A chunk of that will come from Merit Partners, Arizona’s largest developer of industrial real estate.
The West Valley is home to 7.5 million square feet of Merit developments in build to suit and speculative projects with a value of about $650 million, said Czerwinski, who detailed the construction coming online this quarter and next year.
In August, Merit, which has built much of the Red Bull and White Claw facilities in Glendale, purchased a $1.5 billion piece of property for a logistics park development in the city. The industrial portion will be called Camelback 303.
Merit has five developments under construction that will amount to about 3.6 million square feet that will value about $500 million, much of it along the 303 corridor.
The West Valley’s major freeway corridors and interchanges make easy access to California and Mexico international ports for the state’s growing list of companies that are part of global supply chains.
Supportive city leaders in the West Valley have helped ensure projects are successful, said Czerwinski, who predicts much of the property in the region will be fully committed in the coming years.
Valley is still underbuilt
For now, there is still room to grow.
“We’ve had an incredible year and it’s not over yet,” said Lydon, who gave an overview of the market.
Currently, Phoenix has 350 million square feet of industrial base, with 150 million square feet in the West Valley including along the ever growing 303 freeway corridor.
Borcherding, of VanTrust Real Estate, a national developer of industrial and multifamily projects, said vacant land is one of the reasons her company has been expanding into the Phoenix market.
Van Trust has several projects planned for this year and next including large spec projects near the Loop 303 in Glendale.
Much of the company’s 31 million square feet of development has been in the Las Vegas region in recent years. But vacant land is getting harder to find there, she said.
“The good news for Phoenix is there aren’t a lot of parcels over 20 acres in north Vegas. That will bode well for us in the Valley,” Borcherding said.
The event, Rise of Logistics Efficiencies in the Valley–The Hottest Industrial Projects, was sponsored by the Arizona Commerce Authority.