Phoenix Industrial Real Estate: What’s Really Driving the Boom, and What Other U.S. Markets Can Learn

Phoenix keeps showing up at the top of national industrial rankings — what’s your on-the-ground perspective on the momentum the area is experiencing, and what do the headlines miss?

Phoenix has become a very logical alternative for groups from California, and beyond, who have learned how to use Arizona as an inland port. If freight comes into Long Beach or the Port of Los Angeles, you can take it two hours to the Inland Empire, or you can take it six hours to Phoenix. In Phoenix, your rent is lower, your insurance is lower, your labor cost is lower, and your access to labor can often be stronger. The cost and quality of doing business is meaningfully different.

Then you add the logistics piece. We have an incredibly robust transportation system that links us by road, rail, and air. We also have strong proximity to Mexico.

All of these benefits have created a snowball effect. One company successfully relocates to Arizona, then a supplier or customer comes to visit them and says, “This is great.” Then they move here, and the network grows.

You’ve seen Phoenix go through a few different cycles. What feels genuinely different about the demand you’re seeing right now versus a few years ago?

Phoenix used to be more of a one-trick pony, based on residential growth. We still have residential, but we’ve added so much more. We have TSMC (Taiwan Semiconductor Manufacturing Company), LG Battery, Intel, and all of the suppliers, advanced manufacturing companies, and related support entities that follow. That creates a more durable economy than what Phoenix had in past cycles.

Owner-user demand is also unlike anything I’ve seen. A tremendous amount of improvements go into today’s industrial spaces; especially those projects that are 500,000 square feet and up. These aren’t simple warehouse users anymore. They have advanced systems and expensive equipment packages, and they want to own that building and its build-out value. When you see a user like Burlington taking 2 million square feet as an owner-user, that tells you something.

Phoenix isn’t one market — it’s really several. If you had to pick one area of the Valley where you have the most conviction over the next three years, where is it and what do you see there that others might not?

The West Valley, especially big-box industrial. The East Valley has also transformed. It got oversupplied but it is recovering. But the West Valley is where you can still do the large-format buildings. The 500,000-square-foot-and-up opportunities are the story there.

Tell me about a site you walked away from that most people in your position probably would have moved forward on. What did you see that gave you pause?

There are a lot of sites that look good at first, especially if they’re near a freeway or the land basis looks attractive. But in Phoenix, the real questions today revolve around utilities, timing, and what it actually costs to make the site usable. A cheap piece of land can become very expensive if the infrastructure solution is bad.

What are the key site selection criteria you evaluate when looking at a potential industrial development site today that weren’t on your radar a couple of years ago?

Infrastructure is the priority, and probably the most challenging item on our due diligence list. Not that long ago, you could assume utilities were in place or could be accomplished in a fairly straightforward way. A lot of the land was farmland with co-ops or utility structures already in place. The old model was that utilities come to your land, and you pay tap fees to connect. That has changed. Now, you often have to bring infrastructure to your property, and costs can run into the millions very quickly. The question isn’t just, “Can we get utilities?” It’s, “How much does it cost, and how long will it take?”

We’ve seen developers buy sites and then realize the utility solution is wildly more expensive than they thought. In some cases, they end up selling the site because the deal no longer works. And those weren’t always out-of-town developers. Some were local.

Getting a project approved and out of the ground quickly can make or break a deal. Where does your firm have an advantage in that process, and how did you build it?

It comes down to local knowledge and relationships. We have been operating in Arizona for decades and have mutually respectful relationships with everything from utilities and municipalities to attorneys, contractors, and subcontractors. That matters a lot when you’re trying to move quickly and stay on budget.

When you’re deciding whether to build speculatively today — whether for e-commerce warehouse users, logistics tenants, and build-to-suit clients, etc. — who’s the actual target, and has that picture changed from a few years ago?

We’re still building for logistics companies, manufacturers, 3PLs, and distribution users, but the mix has changed. The TSMC-type users get the headlines, but the real impact is broader than that. It’s all of the groups that support the whole system.

Retailers are also still active, and online sales continue to support distribution demand. But their buildings have to do more now. They have robotics, conveyors, and higher power needs.

The market went through a reset. We had Covid, then overbuilding, then interest rates moved up, construction costs moved up, financing costs moved up. It was one hit after another. But the users that are active today are impactful, and are moving Arizona’s industrial market forward rapidly.

There’s a lot of talk about the semiconductor boom and what it means for Phoenix real estate. From where you sit, what’s the actual impact — who is it bringing in, and what are they actually looking for?

The impact of the semiconductor boom is real — not only for industrial but also for office, housing, retail, and so much more. These mega-projects (TSMC is the obvious example) have the power to create a city within a city.

Companies coming in for advanced manufacturing have different needs than a typical warehouse tenant. What are the things developers most often get wrong when they try to serve that market?

You can’t build basic warehouses anymore. A tenant might need footings for heavier equipment, a bigger door, more power, or more cooling. The building you build has to be functional and move-in ready for complex operations, without going so far that you overbuild for one specific user. We walk a fine line, developing sophisticated product while remaining flexible enough to appeal to the widest range of users.

We do this with things like spec office buildouts, full AC, and slabs that can support whatever the client might need to succeed operationally. This allows tenants to sign a lease and move in right away, which is what so many of them want. The amenities matter too, because today’s high-tech industrial buildings are also employment centers. We’ve taken lessons from office projects and applied them to industrial, adding barbeque areas and pickleball courts because companies are competing for labor. The building has to work for the operation and its employees.

How far out are you thinking when it comes to the semiconductor and advanced manufacturing story — and how does that horizon shape the land and development decisions you’re making now?

As a developer, three years out is a practical horizon for land, entitlements, capital, and leasing. But the semiconductor and advanced manufacturing story is much longer than that. Some of those projects are thinking generationally. That’s not how we might underwrite a deal, but we understand that some of our occupiers’ decisions are long-term.

You hear the word oversupply thrown around when people talk about Phoenix. In your view, where is that concern legitimate, and where is it being overstated by people who aren’t close to the market?

It depends on the submarket and the product type. The East Valley had very limited land left, and some parts got ahead of themselves. The broader market also had a period where speculative industrial development ran hard, then Covid changed behavior, then momentum froze. That created a tough environment.

Today, the attention is on the West Valley big-box story. There is tremendous demand for 500,000 square feet and up, and new product is getting preleased. That tells you a lot.

The thing that will keep the market balanced is infrastructure. Power, water, and sewer constraints are real. They may slow some things down, but that can also be healthy. It prevents the market from getting too far ahead of itself. It doesn’t mean we can’t overbuild, but it does mean the market has some guardrails.

What are the early signs that tell you a particular area is getting overbuilt — before it becomes obvious in the numbers?

If new product is getting preleased, which it is, that’s a very different market than one where buildings are delivering empty and sitting. I start paying attention when buildings start delivering without tenants and concessions start moving upward. If users have too many options, or don’t feel an urgency, the market might be getting ahead of itself.

When a building sits vacant longer than expected, what’s usually the real reason — and how do you diagnose it?

Sometimes it is that the market is slow, and sometimes it’s the actual building or site. That can be particularly true if a developer doesn’t put in the make-ready improvements that today’s users require. Many tenants don’t want to sign a lease and then wait around for a building to be made usable. If a tenant can sign a lease and occupy right away, that’s a big advantage.

Then there are the basic site issues. Location, truck maneuvering, site layout, access. A building can look fine on paper, but if the site is awkward, potential users will respond to that.

What’s the mistake you most commonly see when outside developers come into Phoenix thinking they understand the market — and how does it usually catch up with them?

A common mistake is thinking freeway proximity solves everything. People see an “affordable” piece of land near a freeway and think it will be a quick success. Phoenix looks simple from the outside because there’s land. But not all land is equal. The infrastructure and site planning are where people can get caught.

When you think about what could genuinely slow Phoenix down over the long term — not the short-term noise — what’s the thing that actually concerns you?

Power, water, and sewer are our biggest considerations. You can’t just wish those into place. Plants have to be built, lines have to be extended, and capacity has to be created. That takes time and is expensive, but if you can’t deliver those solutions, you can’t deliver a building. Phoenix is still in the path of demand. The question is how well the infrastructure can keep up.

Keeping projects on time and on budget has gotten harder. What does your team do to manage that — and what advantage does being a local firm give you there?

It comes back to relationships and repetition. Building at the pace we do in this region gives us an innate sense of what things should cost, how long an industrial project should take, and where the problems are likely to show up. We are constantly learning where we missed something and where we knocked it out of the park. Being global — but also local — helps because we’re not learning the market from scratch on every deal.

If you had fresh capital to deploy in Phoenix industrial real estate investing today, what’s the bet you’d make — and what would have to go wrong for that bet to not pay off?

West Valley big-box industrial. The demand is there, especially for 500,000 square feet and up. You have major users, owner-users, logistics companies, retailers, manufacturers, and suppliers all looking at that side of the market.

The thing that could go wrong is that demand slows or infrastructure becomes too difficult, too expensive, or too slow.

When you look back at this stretch of the Phoenix market in a few years, what do you think the defining story will be — and what are you doing right now because you believe that?

I think the defining story will be that Phoenix became one of the top industrial markets in the country, and that it happened very quickly through large users making long-term commitments.

I also think office will surprise people. It’s recovering, and we may even see spec office come back sooner than later. That ties back to Phoenix’s broader economic growth. The companies coming here don’t just need industrial space. They need a whole ecosystem.