Industrial Growth Surging in Mesa, Chandler, Gilbert, Tempe

 

Original Story via AZCentral.com

Parker Leavitt, The Republic | AZCentral.com

 

The $9.4 million sale of an industrial building in Chandler last month went unnoticed by many, but the seemingly-mundane transaction signals a bigger shift in momentum for the East Valley’s post-recession industrial landscape.

Warehouses, distribution centers and factories in the East Valley have filled up faster than anywhere else across metro Phoenix this year, keeping vacancy rates down and bringing a diverse array of jobs to the region.

Nearly two-thirds of the Phoenix area’s industrial growth took place in Tempe, Chandler, Gilbert, Mesa or Ahwatukee during the first half of 2015, according to data from real-estate broker Jones Lang LaSalle.

While the majority of industrial space overall remains in the West Valley, investors are taking notice of the East Valley’s growing appeal. The Chandler building, near Arizona Avenue and Elliot Road, was an unusual purchase for Cohen Asset Management, which typically invests on the other side of the region.

“Buyers … have broadened their scope to include not only our traditional, big-box West Valley space but also the southeast Valley, where activity trends more toward manufacturing and regional distribution,” said JLL Vice President Steve Larsen, who helped broker the deal. “That is the case with this project.”

The 104,000-square-foot Chandler building is leased to Phoenix Packaging Operations, which manufactures plastic packaging and related products.

Industrial doesn’t just mean smokestacks

The term “industrial” might conjure images of assembly lines and billowing smokestacks, but you won’t find many of those in the East Valley. The industrial spectrum stretches much broader and can include almost anything employment-related outside of retail shops and services.

Workers at Orbital ATK’s satellite factory in Gilbert, for example, don clean room suits while building high-tech devices that help scientists study climate change and weather patterns. Boeing employees in Mesa build Apache helicopters, and semiconductors are huge in Tempe and Chandler.

While there’s still an element of manual labor to industrial production, there are also plenty of positions for engineers, software developers and researchers — jobs that come with a comfortable salary.

In metro Phoenix, the average industrial engineer earns $88,000 a year, while production supervisors typically make around $55,000 a year, according to data from the Bureau of Labor Statistics. The average annual salary for software developers is nearly $100,000, according to BLS.

“I think a lot of times people have an impression of industrial buildings with the 20th century smokestack buildings,” Chandler Economic Development Director Micah Miranda said. “Modern industrial buildings are really high-tech facilities, and there are strong wages associated with them.”

Tempe leads for growth among Valley markets

With nearly 30 million square feet of industrial space, Tempe has the most in the East Valley and more than Gilbert and Mesa combined. The Tempe sub-market led the Valley in industrial growth with more than 500,000 square feet of space leased during the first half of 2015, according to data from JLL.

While the city has a robust food-manufacturing presence with Mission Foods (tortillas) and United Dairymen of Arizona (cheese), Tempe is more-recently attracting industrial tenants in technology sectors ranging from biomedical to aerospace to engineering, Economic Development Director Donna Kennedy said.

“Industrial has changed due to technology, and Tempe has an advantage in workforce because of Arizona State University,” Kennedy said. “We’re landlocked, and that helps us because of the transportation network, being surrounded by freeways.”

There are at least 200 manufacturing plants in Tempe alone, Kennedy said. A robust industrial presence helps a city build the supply-chain for other businesses and brings in revenue for the city, she said.

Vacancy rates are low, rent is high

East Valley cities boast some of the lowest industrial vacancy rates in metro Phoenix, with Mesa leading the way at just 4.7 percent, according to JLL. Tempe, Gilbert and Chandler are also below the overall Phoenix-area average of 10.7 percent.

All four southeast Valley cities also posted leasing rates above the regional average $0.45 per square foot, with Chandler a full 40 percent higher than metro Phoenix overall, according to JLL.

In Mesa, vacancy rates have dropped about 14 percent while rent has climbed more than 7 percent since 2012, according to Bill Jabjiniak, the city’s economic development director.

That combination is leading developers to build new industrial space at an accelerated pace, with more than 500,000 square feet completed in Chandler and Gilbert during the first half of 2015, according to JLL. In Mesa, a 213,000-square-foot complex is nearly finished at the former Motorola site at Dobson and Broadway roads, and another 345,000 square feet is under construction near Horne and the Superstition Freeway, Jabjiniak said.

Industrial developers have poured nearly $200 million in new construction and building improvements in Gilbert and Tempe alone over the last three years, according to city officials.

The amount of industrial space in Gilbert rose by about 15 percent between 2012 and 2015 after growing just 1 percent during the previous three-year period, Economic Development Director Dan Henderson said.

Education is a difference-maker

A well-educated workforce is one of the primary factors helping the East Valley attract new employers, particularly in industrial sectors that require engineers and other technology experts.

Roughly 40 percent of residents in Gilbert, Tempe and Chandler have a bachelor’s degree or higher, according to census data. Statewide, that figure is about 27 percent.

The region’s workforce pipeline also includes more than 137,000 students enrolled in East Valley universities and colleges, including ASU and Mesa Community College, which is the largest community college in Maricopa County.

Whereas the West Valley is more similar to Southern California’s Inland Empire, with more distribution centers and warehouses that are less labor-intensive, the East Valley is drawing heavier manufacturing, JLL broker Steve Larsen said.

Apartment construction boosts industrial growth

While the Valley isn’t seeing the pace of single-family home construction return to pre-recession levels, a surge in multi-family residential construction is filling more industrial space with lumber, steel and other building materials, Larsen said.

Midway through 2015, the construction industry accounted for 101,400 jobs in the Valley, an increase of about 5,000 from 2014 and the highest total since March 2009, according to JLL.

“We’re heavily dependent on the residential industry,” Larsen said. “We’re seeing a lot of suppliers to multi-family. That industry has been very hot.”

Mesa Mayor talks about downtownCHD Terminal_Tower