Phoenix Employment Edges Higher in June, and Industrial Prospecting Activity Indicates Future Job Growth

Article originally posted on CoStar on July 30, 2021

Industrial Leasing Outstripping Pre-Pandemic Average; Office Plays Catch-Up

While Phoenix employment typically contracts during the summer months, payrolls in the market expanded by 5,200 jobs, according to the latest data from the Bureau of Labor Statistics. The monthly job gain is up from the 2,400 jobs that were added in May, but June’s growth is down from more-impressive gains posted earlier in the year.

The market has added 38,800 jobs in the first half of 2021, and total employment is down about 54,200 jobs from the pre-pandemic peak in February 2020. Job gains over that time have been strongest in the trade, transportation and utilities sector, which includes retail and industrial positions. The latest economic forecast from Oxford Economics projects the market will recover all the jobs lost during the pandemic by the end of the year.

Employment growth is generating demand for physical space in the market. Office and industrial leasing volume have picked up over the past few quarters. Industrial leasing is well above pre-pandemic levels due to the increased reliance on online shopping and social distancing, in addition to rapid population growth. Tenants leased 6 million square feet in the second quarter, outstripping the average quarterly volume of 4.7 million square feet from 2017 to 2019.

Meanwhile, office leasing is still below pre-pandemic levels of activity, but it is improving. Office tenants committed to about 2 million square feet of space in the second quarter, up 65% from the same period last year. From 2017 to 2019, the average quarterly volume totaled 2.6 million square feet.

Job growth is expected to continue at a healthy pace based on the number of tenants looking to relocate and expand and who are actively searching for space in the market. Prospects looking to locate in Phoenix during the 2021 fiscal year were up 115% from the previous year, according to the Greater Phoenix Economic Council, a regional economic development organization. About 70% of the prospect activity is industrial-related firms, and 30% is office, which is a notable shift from before the pandemic when office-users represented about 60% of their prospects.

The organization assisted in the relocation of 45 companies to Phoenix during fiscal year 2021. The companies account for some of the largest planned build-to-suits, leases and occupancies over the past year. On the industrial side, that includes TSMC (3.8 million square feet and 1,900 jobs), The RealReal (593,600 square feet and 761 estimated jobs), HelloFresh (438,690 square feet and 750 estimated jobs), MLILY (643,800 square feet and 424 estimated jobs) and KeHE (470,000 square feet and 200 estimated jobs). Some of the largest office deals were PennyMac (74,625 square feet and 374 estimated jobs) and Robinhood (34,000 square feet and 182 estimated jobs).

This week, Kore Power announced plans to build a 1 million-square-foot manufacturing facility in Buckeye, where it expects to add 3,000 jobs. The battery cell maker landed on the West Valley after concluding a nationwide two-year search. Jobs announcements like these will draw more out-of-state interest to Phoenix and fuel demand for real estate.