2013 will be remembered as a strong year of recovery for the Deer Valley industrial real estate market. That market is shaped by two important influences: the airport, which is the third busiest general aviation airport in the nation, with 350,000 takeoffs and landings each year; and the manufacturing industry surrounding the airport, which continues to fuel one of the strongest commercial real estate submarkets in the Phoenix Metro Area.
The table below summarizes how Deer Valley’s industrial market has continued to recover in 2013. While no new buildings were completed in 2013, there were several under construction at year end, marking a breakout for new construction that we have not seen since the recession began in 2009. There was also a large decrease in total sales dollars from 2012, which was due to several larger buildings being sold in 2012. Average lease rates for 2013 show only a minor increase year-over-year, but continue to increase on a quarterly basis as demand has grown and vacancy rates continue to decline.
Looking further at vacancies and absorption for 2013, there was a positive net absorption of over 300,000 square feet for the year,reducing the vacancy rate from 8.8% at the end of 2012 to 6.2% at the year end of 2013. That 6.2% vacancy is back to 2006-2007 levels. And as the chart below shows, vacancy has been reduced by more than 50% over the past three years!
Sales of industrial properties have also improved significantly. The average price per square foot year-over-year above increased 18% for industrial buildings sold in 2013 over the previous year. However, looking at the chart below at 2013 on a quarterly basis, average sales per square foot increased a whopping 50% during 2013! And the number of transactions in the fourth quarter was the highest of the year,containing 15 of the 44 sales closed for the year. A big contributor to this is improvement is due to foreclosures having decreased dramatically and not affecting market values like they have in recent years.
With the recovery continuing in 2013, what can we expect for 2014? The trends all point to a healthier market, with market values coming into line with replacement values and lease rates continuing to recover. With vacancy rates low and the economy improving in many areas, commercial real estate is returning to a balance of supply and demand as we emerge from the recovery phase of this cycle. New development will be one of the noticeable changes to look for, something we have not seen over the past five years. Finally, if our friends in Washington can work together, for a change, I believe our economy can show significant gains in 2014and break free of the slow recovery of recent years.
About Craig Trbovich
Craig Trbovich is a commercial real estate broker with Commercial Properties, Inc. (CPI), and applies over 25 years of experience as a CPA and real estate investor to help his clients in the Deer Valley Market achieve their real estate goals. Craig can be reached at 480-522-2799 and ctrbovich@cpiaz.com.
About Commercial Properties Inc./CORFAC International
CPI is a CORFAC International affiliate, full-service Brokerage and Property Management firm for all product types. Headquartered in Tempe, the company has more than 50 brokers and occupies two offices locally. Currently, CPI’s listings include more than 55.5 million square feet for sale/lease, and 130 projects under property management, totaling more than 4.5 million square feet. Please visit our web site at www.cpiaz.com.
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