The Phoenix Logistics Market – The Age and Completions Variables

Last summer, EA announced our exploration of Uber hexagons to enhance our analysis of logistics markets, focusing on Phoenix throughout the series.

In the latest installment, we explored how building trends in the Phoenix market dramatically evolved over time, particularly concerning average size and clearance height. It is therefore logical to examine market growth and the concentration of logistics construction over the past 20 years. To do this, we can utilize the Year Built attribute from the EA building database to create a heatmap that represents building age, calculated from the current year back to the year built.

Based on our understanding of the residential markets, we might expect sprawl to radiate outward from a central point, influenced by various factors. However, in Phoenix, we observe that the market is expanding east and west from a central vertical axis. That axis starts in central Phoenix along the I-10 and runs north up to the North Mountain area and south to the southern mountains. The buildings along this axis have an average age between 30 to 60 years.

Moving west of 35^th Street and east from this centerline, the average building age stabilizes between 20 to 30 years. By the time you visually reach north and west of Goodyear and South and east of Gilbert, the average age put nearly all construction in the “new” category. Anyone closely watching construction in the U.S. logistics market has seen remarkable growth in Phoenix and thus would not find this surprising.

The part of the Phoenix map that complicates the overall heatmap is the I-10 corridor. A closer examination of the hexagons along this corridor shows some moderation of the age caused by infill construction and new buildings where older buildings once stood. To illustrate this, we created a map that shows only the buildings built in the past 15 years and those that will be completed in the coming year.

This map indicates significant construction along I-10, and when combined with existing buildings in the corridor, the lighter shading reflects the average age of both new and old buildings.

In the past 15 years, the vast amount of square footage has been added to the Phoenix market in three main pockets: near Luke Airforce Base, the stretch south of the I-10 corridor from the Goodyear Airport through Estrella, and around Mesa Gateway Airport.

When measuring by decade, development in Phoenix was at its peak, as in many markets, in the 1980s in terms of the number of buildings being constructed. But examining the graph based on square footage being constructed in each decade, we see a reversal of this trend; buildings constructed in the past 20 years are significantly larger than those built in previous decades (on average). In fact, the current cycle appears to be the most aggressive yet when it comes to adding space to this market.

The heatmap and graphs tell us that future construction will continue to be influenced by highway access and proximity to airports capable of accommodating air freight, which are critical factors in build or buy strategies.

An additional factor that follows with age is how older buildings tend to contain their building owner as compared to the more modern set of buildings. Older buildings tend to have a higher occupancy rate among their owners, while newer construction, particularly those built since 2010, show a higher rate of rental occupancy, indicating they were likely built on speculation. As the market softens, buildings currently in the pipeline may have difficulty finding tenants without a strategy adjustment.

The heatmaps of age and construction are telling us a lot about the investment strategy undertaken in Phoenix. They tell us about the sprawl and infill of the market and taken with owner/rents statistics, tell us that we need to be mindful of the risks of this market in the event of economic downturn or overbuilding on speculative developments.