A Game Changer for the North Valley

We do not usually start our Commercial Real Estate blog with a science lesson but that is where we need to start this story:

A semiconductor is a substance that has specific electrical properties that enable it to serve as a foundation for computers and other electronic devices. It is typically a solid chemical element or compound that conducts electricity under certain conditions but not others. This makes it an ideal medium to control electrical current and everyday electrical appliances.  The shortage of “chips” is the latest thing that has disrupted our global supply chain. These chips are used in just about everything today and may have had you waiting for everything from a new car to a dishwasher.

TSMC is a semiconductor foundary company based in Hsinchu, Taiwan that started in 1987. Today TSMC has global operations spanning Asia, Europe, and North America. TSMC is the first foundry to provide 5-nanometer production capabilities, the most advanced semiconductor process technology for the production of computer chips available in the world.

In late 2020, TSMC acquired 1,129 acres of land off of the I-17 between Loop 303 and the Carefree Highway. The Global giant announced their intention to embark on a $12 billion dollar factory. Construction is underway on this project and the first operations are expected by 2024. TSMC has previously reported that they intend to build as many as six factories at this Arizona site over a 10 to 15 year span. Needless to say, this type of investment in a community sparks growth like a row of domino’s clicking by. The factory will create jobs, the jobs create people wanting to live in the area and this creates a need for retail amenities to support the rooftops. And now…well, let the race begin!!

To put this into perspective for you there were approximately $90 million worth of land transactions in this sub-market of Phoenix in calendar year 2019. The announcement of TSMC coming was made in late 2020. In 2021 land sales reached nearly a half billion dollars in the same sub-market.

Now, let’s talk about the affect this is having on the average small business just trying to lease a space in the North Valley right now. The current vacancy rates as we head into the 2nd quarter of 2022 are particularly low in the Deer Valley area. Looking at the Industrial property market in the Deer Valley Pinnacle Peak area the vacancy rates are just over 2%, and the retail vacancy rates in Deer Valley are 1.7%. So the properties to choose from are very limited, they move quickly and they are leasing at market rates.

We were recently conducting a search for a fitness related client in the Deer Valley area. The client would be happy leasing a “flex” industrial space or a retail space. They were looking for about 5000 SF. The available properties are very limited to begin with. An added challenge we encountered within that “Flex/Industrial” market was that some properties are ONLY being leased to semi-conductor related industries.

A couple of large pieces of land in Deer Valley were designated as supplier sites for TSMC by the city of Phoenix. Mack Real Estate Group bought those sites and has plans to develop Mack Innovation Park there, which will include about 4 million square feet of buildings. Mack is also planning some speculative industrial projects on the site that will begin construction this year.

The company has plans for a four-building spec project on the non-contiguous parcel on the southeast corner of Seventh Avenue and Pinnacle Peak Road, which will begin construction in spring of 2022. That project will bring about 550,000 square feet of space. On the western side of the larger parcel owned by Mack, on 19th Avenue and Pinnacle Peak Road, the company is planning a three-building spec project that will total 350,000 square feet of space, Craig Henig, executive director of Mack in Phoenix, said at the recent groundbreaking of Sunlit Chemical’s project. Adjacent to Mack’s property, Minnesota-based Opus Group bought a 30-acre parcel of vacant industrial land at 19th Avenue and Happy Valley Road for $16.8 million. The developer has proposed a two-building project, totaling 290,000 square feet.

The moral of the story? Even in this red hot Phoenix market there are a couple of spots in the valley that are white hot. They are betting on the spiraling demand that sparked from the new kid moving into the neighborhood!