Inland Empire vs Las Vegas vs Phoenix
Now that we are in full swing of supply disruption and adjustment, I thought it timely to give all executives a comprehensive market analysis of the key markets that serve the Southwest and West Coast populations.
The TLDR (too long didn't read) update, the markets are near parity in lease rates. The IE is bottoming, Las Vegas activity is modest and Phoenix still delivering new product into a market with substantial vacancy which should lead to continued softening.
Rent & Pricing Dynamics * Inland Empire industrial rents have crashed 33% from peak to $1.10/SF making it the cheapest among Southwest markets, while Las Vegas and Phoenix both plateaued at $1.12/SF with Phoenix offering $10-15/SF in tenant improvements compared to Las Vegas's $8-12/SF and Inland Empire's minimal $3-5/SF packages.
Vacancy & Availability Trends * Industrial vacancy rates reveal a tale of three markets: Inland Empire tightened to 6.3% (down 50bps) signaling landlord leverage returning, Las Vegas rose to 9.1% (up 50bps) maintaining moderate tenant favor, while Phoenix spiked to 11.2% (up 60bps) creating maximum tenant negotiating power with availability rates of 10.1%, 10.8%, and 13.2% respectively.
Construction & Supply Pipeline * Construction pipelines tell the future story: Inland Empire's 10.8M SF under construction represents a 12-year low and 74% decline from peak, Las Vegas shows disciplined 5.6M SF development maintaining supply balance, while Phoenix's massive 12.6M SF pipeline promises continued oversupply with new deliveries of 2.0M SF, 1.3M SF, and 7.4M SF respectively in Q1.
Absorption & Demand * Net absorption performance showcases market strength disparities: Inland Empire led with robust 4.8M SF demonstrating strong tenant demand, Phoenix followed with solid 4.1M SF but still trailing its massive supply additions, while Las Vegas lagged significantly at just 296K SF reflecting economic headwinds in the gaming-dependent market.
Large-Block Availability * Big-box space availability varies dramatically across markets: Inland Empire offers 65 blocks over 500K SF totaling 26.6M SF despite tightening conditions, Phoenix provides 15+ buildings over 500K SF with 11.5M SF available for expansion-minded tenants, while Las Vegas shows limited large-block inventory constraining growth opportunities.
Market Timing & Strategy * Optimal leasing strategies reflect underlying market conditions: Inland Empire favors 3-5 year terms with minimal 1-3 month free rent concessions as landlord leverage returns, Las Vegas supports 5-7 year commitments with 6-9 months free rent in a balanced tenant market, while Phoenix's oversupply justifies 7-10 year terms capturing 9-12 months free rent during peak tenant leverage conditions.
And for those who love tables as much as I do for making comparisons and drawing meaning. The following help summarize where we stand.
Podcast Interview
If you are a 3PL or the warehouse operations expert for your company, you are going to enjoy this interview with Mike Meyer of Lully. He finds the optimization and efficiency that your warehouse management system (WMS) can't. He does this without changing your equipment or process. This can set the stage to lower labor needs during peak season, to increase service levels, decrease pick times, and realize the profit that you had hoped for when you designed your warehouse operations. This can help set the state not only for profitability but for scale and growth. You'll find the episode links below. Let me know if you would like me to introduce you to Mike for an initial evaluation of your operation.
Podcast Episode link YouTube Episode link
Looking Forward
Now what action can you take to make your next decision as informed and prudent as possible? Reach out to us so we can better understand your vision, customers and present challenges, and let's work together to create the next best step!
Best Regards,
Justin
Justin Smith, SIOR MBA, MRED, MCR, MSCM Candidate Senior Vice President | Principal Lee & Associates | Irvine
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