The industrial sector has leveled out after years of positive activity even during the recession. In the past several years, the sector performed better than other sectors in Metro Phoenix due to high demand and low inventory. After an impressive first quarter of this year with 1.3 million SF absorbed, the second and now third quarter of 2013 have not followed suit. Vacancy has ticked higher this quarter and last primarily due to large deliveries of distribution space, over 3.9 million SF this year, and obsolete space that continues to plague the market. At least 25% of the industrial inventory in Phoenix can be considered obsolete, while some areas, such as the Sky Harbor submarket, are looking at an even higher percentage of untenantable space. This leaves room for new development that is currently needed to meet demand, and can adapt to the new needs of the changing market. In the Southwest Valley, shovel ready sites are awaiting the possibility of large users moving into the market, either from leaving less hospitable markets, or from the change e-commerce continues to have on the industrial and retail markets. As the traditional shopping experience evolves, larger warehouses to support online shopping will increase the amount of big box spaces needed. However, in preparing for these possibilities, and as larger tenants have hit the Phoenix market, these big box spaces have skewed the real picture of vacancy in the valley; smaller freestanding buildings, 10,000-50,000 SF, continue to be in higher demand. Despite the lull seen in the last two quarters as users and investors proceed cautiously due to economic uncertainty, the long term prospects for the Phoenix industrial market look positive.
