Warehouses Grow in the Desert as Phoenix Logistics Corridor Expands

The addition of millions of square feet of industrial real estate has made Arizona’s Loop 303 area one of the fastest-growing distribution markets in the U.S.

August 10, 2022 | The Wall Street Journal

A 1 million-square-foot distribution center being developed by real-estate firm Clarius Partners and private-investment firm Cresset Partners near the Loop 303 freeway in Glendale, Ariz., that has been leased by sports apparel manufacturer Puma.

A new warehouse corridor is forming along a desert-lined freeway just outside Phoenix as companies seek alternative paths for distribution into the U.S. away from congested and costly coastal gateways. Retailers Dick’s Sporting Goods Inc., Recreational Equipment Inc. and online pet-supplies store Chewy Inc. are among those taking up space in the burgeoning logistics hub along Loop 303, an anchor for what has become one of the fastest-growing markets for industrial real estate in the U.S.

Companies through the second quarter had leased a net total of 16 million square feet of industrial space in the Phoenix area, according to real-estate services firm CBRE Group
Inc., which tracks a measure known as net absorption, calculated as the amount of new space leased minus the space vacated. That put the Arizona city behind only Chicago and the Dallas- Fort Worth region as the country’s busiest sites for new logistics activity this year.

Another 19.8 million square feet of industrial space is under construction in a Phoenix region that includes the Loop 303 corridor.

The growing logistics activity comes as many retailers and manufacturers are looking to reconfigure their supply chains, both to get closer to the big U.S. consumer markets and to get around the bottlenecks at traditional freight hubs like Southern California’s Inland Empire region.

Phoenix is more than 300 miles from that massive distribution region, and a long freight haul from the ports of Los Angeles and Long Beach. But developers say California’s tight warehousing market, where the vacancy rate has fallen below 1%, and rising leasing rents are changing some of the economic calculations of distribution.

“When you weigh the cost of transportation and trucking, versus the delay of goods coming into the port, it became feasible for retailers to look at putting stuff on a truck and trucking it over to Phoenix, where you have ample space to be able to develop these really big, large logistics facilities,” said Nick Parrish, managing director at private-investment firm Cresset Partners LLC, which is developing industrial buildings in the area.

Logistics operators have been searching for new distribution channels beyond the big traditional hubs to help circumvent supply-chain snarls and major backlogs at the biggest U.S. ports. That has led to growing warehouse construction in areas such as Houston, Salt Lake City and the Upstate region of South Carolina.

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