Value-add investment opportunities continue to bubble up in the Phoenix commercial real estate market. As discussed in the past few months in the R.O.I. Properties Arizona Real Estate blog, the overall trend is price discovery, and closing in on investor and owner expectations. As those gaps close, we are seeing more deals come together. Multifamily activity, in particular, is becoming more balanced. We are still not out of the woods in either multifamily or office, because that will take time, but the increasing number of transactions are starting to provide guidance.
On the industrial side, Phoenix continues to be a national leader in development, but the volume and type of activity is very submarket specific and impossible to paint with a broad brush. After a three-year surge in industrial development across Greater Phoenix—including more than 35 million SF in the past 12 months—each submarket is reacting a little differently to conditions, depending upon how much product and land is available. Three examples to illustrate the current dynamic:
- In the West Valley, the market reached the point of overdevelopment, and much of this is being delivered on a spec (without a tenant) basis. Although a lot of industrial product has been built, there is still open and vacant land along the I-10, the 101, and the 303.
- Activity at the Sky Harbor International Airport submarket—where there is very little land available for development and very few excess properties—continues to be hot. The latest example: Dallas-based Dalfen Industrial added to its industrial holdings in Arizona with the acquisition of a nearly 110,000-square-foot building southwest of the airport for $18.6 million in cash.
- The other notably active market—the North Valley—is driven primarily by the area around the TSMC semiconductor plant, including vendors and other support infrastructure. With recent good news for TSMC—including positive quality test runs of its semiconductor production and an announcement of $6.6 billion in additional CHIPS Act funds—this should remain a high-potential growth market.
Buying and Selling in the Current Phoenix CRE Market
Thanks to property owners becoming more realistic in their pricing, buyers in the multifamily and office markets have access to more value-add opportunities than any time since the market peak. Retail is the asset class of choice right now, with a lot of people chasing those deals, but value can be found in circumstances where rent levels are below market. Industrial is performing well, but decision making needs to be strategic in order to tap into value: What are the vacancy rates within the specific submarket? How much product is coming on line? How much of it is on a spec basis without tenants?
With a market in flux—and buyers on the hunt for value—sellers need to be realistic and objective about those same factors. How do you maximize your value appeal in a market when some products are being heavily discounted, while others are gaining attention and traction?
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