Nuveen Drops $23 Million on Offices With Eyes on Industrial

Another aging office park in Tempe is getting a new life as an industrial property.

Sky Harbor Innovation Park, a 19-acre office complex near Phoenix Sky Harbor International Airport, just sold to Nuveen Real Estate affiliate USCIF Sky Harbor LLC for $23.2 million, the Phoenix Business Journal reported.

The Opus Group offloaded the 19-acre site at 1920 West University Drive after proposing to raze the existing office park and turn it into a roughly 300,000-square-foot industrial development across three buildings. Two of the structures will be 109,870 square feet and the third would be 78,500 square feet. About 60,000 square feet of office space across the project would be maintained. The Tempe Development Review Commission recommended approval of the project in September, and it does not need to go before the City Council for further review.

“The project is in the process of combining all of the subject lots through a subdivision plat, and they are in the building permit review process,” Savannah Harrelson-Driskill, public information officer for the City of Tempe, told the Business Journal. “All approvals are administrative, so there will not be a City Council hearing for this one.” Whether Nuveen plans to change the scope of the project remains to be seen.

The plans for Sky Harbor Innovation Park are the latest office-to-industrial play in metro Phoenix, where obsolete office campuses are increasingly worth more as logistics or manufacturing sites than as workplaces. Tempe, with its freeway access and proximity to Phoenix Sky Harbor International Airport, has become one of the most notable venues for that shift.

Just south of the Nuveen site, Lincoln Property Company recently broke ground on Sky Harbor Logistics, a 255,000-square-foot industrial redevelopment at 1515 West 14th Street. The property was originally built as industrial space in 1977 before being converted into offices in 2018. Now, the nearly 220,000-square-foot office structure is headed for demolition to make way for two new logistics buildings, expected to be 128,105 square feet and 127,661 square feet and slated for delivery next year.

Panattoni Development is making a similar bet nearby at the former State Farm campus at 2750 South Priest Drive. The developer plans to replace aging office buildings with more than 354,837 square feet of warehouse, industrial and manufacturing space and 88,714 square feet of offices across five buildings. Panattoni acquired the site last month for $37.5 million after an earlier multifamily proposal for the property fizzled.

The conversions are beginning to shrink Greater Phoenix’s office inventory. First-quarter office vacancy in metro Phoenix fell to 23.5 percent from 24.5 percent quarter over quarter, driven in large part by office demolitions and redevelopment activity, per Newmark data cited by the Business Journal. Since 2020, Newmark has tracked more than 8 million square feet of office space across the region that has been designated for conversion into other uses, including nearly 5.7 million square feet earmarked for industrial redevelopment.

— Chris Malone Méndez