Phoenix's industrial market appears to be sending mixed signals, with recent reports both downgrading and praising its standing. According to a report by CommercialSearch, Phoenix has slipped to third in the nation for industrial real estate under construction, with a total of 17.7 million square feet under development, as reported by AZBigMedia. The Valley, after seeing a significant increase in construction from less than 10 million square feet in early 2020 to almost 60 million by mid-2023, now trails behind Savannah, Georgia, and Dallas Fort Worth. Gary Anderson, executive director at Cushman and Wakefield, pointed out that the chances of finding tenants for industrial spaces in the West Valley are probably higher than in the East, acknowledging a potential overbuild in the Mesa-Gateway area.
However, while Phoenix's market may be pivoting toward advanced manufacturing, it's not been all slow-going for the region’s industrial scene. LGE Design Build indicates that Phoenix is still considered a national leader with 32.6 million square feet of industrial space under construction. "Phoenix continues to lead as a dynamic hub for industrial development, medical office growth and innovative mixed-use projects," said Blake Wells, vice president of preconstruction at LGE Design Build, facing challenges such as labor shortages and supply chain disruptions.
Moreover, the Valley led the nation in industrial space delivery in Q4 of the previous year, adding 6 million square feet to its inventory. The medical office space market also shows significant promise, leading the nation in leasing activity against the backdrop of Phoenix's population growth. Despite a decrease in Phoenix's construction job count by 3,700 jobs or a 3% decrease, it was seen by a loss of construction jobs, construction labor in Phoenix is expected to rebound this year due to an expected increase in project bidding.
Regarding the costs associated with construction, material costs appear to have stabilized towards the end of 2024, following the Federal Reserve's decision to lower interest rates in September. "Material costs steadied in Q4 2024 due to increased confidence after the Federal Reserve lowered interest rates in September," highlighted by LGE Design Build, with the caveat that lumber prices have varied by region and labor shortages are driving wages up, potentially impacting project costs and timelines.
Global supply chain challenges persist, as noted in the LGE Design Build report, but there are signs of recovery. The Panama Canal has seen improved traffic flow, and the resilience of the supply chain has been noted despite hurricanes Helene and Milton causing significant infrastructural damage. Overall, the construction material providers industry is forecasted to grow annually by 5% through 2028, suggesting a robust outlook for the wider construction sector, even in the face of recent hurdles.
