Industrial activity across Phoenix is beginning to stabilize, though elevated vacancy continues to weigh on near-term performance. A surge of supply delivered since early 2023 pushed vacancy to cyclical highs, but the pace of increase has recently flattened as slowing completions align more closely with steady tenant demand. Vacancy reached 12.4% in Q4 2025, reflecting the outsized volume of large-format buildings across the metro.

Despite softer conditions, demand remains positive with 4.4 million square feet absorbed in Q4 2025, driven by logistics, retail-oriented occupiers, and advanced manufacturing users. Rent growth has moderated amid heightened competition, favoring infill and small-bay properties, while large-box assets face greater pressure. As construction slows, vacancy is expected to decline through 2026, aiding rent recovery.

 

Key Findings

• Industrial performance is beginning to stabilize as tenant demand merges with slower deliveries; yet, vacancy remains high at 12.4% due to the increase in supply over the past three years.
• Nearly 90% of recent construction has targeted buildings larger than 100,000 SF, pushing vacancy in this segment to roughly 16% and creating ongoing pressure on rents.
• Phoenix recorded approximately 18.9 million SF of net absorption and $5.4 billion in industrial sales over the past 12 months, highlighting its importance in logistics and supply chains.

 

Phoenix Industrial Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

Phoenix Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 3.7%
• Current Population: 5,265,820
• Households: 2,013,457
• Median Household Income: $91,327

 

The metro is aided by population growth, favorable demographics, and a pro-business environment that continue to position the metro as one of the top Southwest markets. Migration from California has been a key driver, fueled by lower housing costs and business-friendly policies, alongside continued inflows from the Midwest seeking climate advantages and employment opportunities. Overall economic momentum remains strong, led by large-scale industrial and advanced manufacturing investment. TSMC’s expanding semiconductor campus, along with related packaging, R&D, and supplier projects, has reinforced Phoenix’s role in national supply chains.

Top Phoenix Leases

Source: CoStar Group, Inc.

• BroadRange Logistics
• Schneider Electric
• Metso

 

Population, Labor Force, & Income Growth

Source: CoStar Group, Inc.

 

Phoenix Industrial Construction

Construction activity remains a crucial force in Phoenix’s industrial market, with one of the most aggressive development pipelines in the country continuing to pressure fundamentals. Over the past three years, nearly 87 million square feet has delivered, driving vacancy higher and slowing rent growth. An additional 17.7 million square feet is under construction, keeping near-term supply-side risk elevated. Development has been heavily concentrated in large-box facilities, particularly in submarkets like the West Valley and the Phoenix-Mesa Gateway Airport area. While deliveries have recently slowed, a renewed uptick in construction starts suggests supply will remain a headwind in the near term.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

Phoenix Industrial Sales

Industrial sales remain robust across Phoenix. Approximately $5.4 billion in assets traded over the past 12 months, with momentum accelerating as year-to-date volume outpaced the prior year by roughly 40%, including more than $1.0 billion in Q4 2025 sales. The metro has evolved into a more institutional market, supported by modernized inventory and Phoenix’s growing role in national supply chains. Investor demand remains strongest for newly-built, stabilized logistics facilities pricing in the mid- to high-5% cap rate range, while infill small- and mid-bay assets have also attracted capital due to their rent growth potential.

 

Phoenix Industrial Sales Volume

Source: CoStar Group, Inc.

By the Numbers

Q4 2025 | Source: CoStar Group, Inc.

• Sales Volume: $1B
• Price Per SF: $187
• Cap Rate: 6.6%
• Vacancy Rate: 12.4%
• Rent Growth: 4.2%
• Asking Rent Per SF: $12.99
• SF Under Construction: 17.7M
• SF Delivered: 5.7M
• SF Absorbed: 4.4M