Q2 2025 Phoenix Industrial Market Report
Key Findings
- After a steep rise since early 2023, the industrial vacancy rate in Phoenix has stabilized at 12.1% in Q2 2025. While this suggests early signs of market recovery, it remains the highest rate since the Great Recession, primarily due to a wave of speculative construction.
- Leasing activity has picked up, with volumes now 33% above pre-pandemic norms (2017–2019), driven by continued expansion from logistics, construction, and retail users. However, demand, despite being resilient, has not been strong enough to fully absorb the 23.1 million SF of net new industrial space.
- Vacancy pressures are disproportionately affecting large industrial buildings (100,000+ SF), where vacancy has exceeded 16%, with an additional 9 million SF of unleased space under construction. In contrast, small bay product (<50,000 SF) has held up better, with vacancy at 5%, although that too is slowly rising.
By the Numbers
- Sales Volume: $1.1B
- Average Sale Price Per SF: $180
- Cap Rate: 6.6%
- Vacancy Rate: 12.6%
- Rent Growth: 2.4%
- Average Market Asking Rent Per SF: $13.60
- SF Under Construction: 20.8M
- SF Delivered: 2.9M
- SF Absorbed: 2.9M | Q2 2025 | Source: CoStar Group, Inc.
Phoenix Demographics
- Unemployment Rate: 3.7%
- Current Population: 5,248,990
- Households: 1,995,189
- Median Household Income: $89, 497
Phoenix stands as a leading high-growth market in the Southwestern U.S., fueled by favorable demographics, affordable living, attractive weather, and a business-friendly climate. Maricopa County, home to 90% of the metro’s population, consistently ranks among the nation’s fastest-growing counties, with Phoenix recently adding nearly 85,000 residents, outpacing other major Sun Belt metros. This surge is driven in part by significant in-migration from California and the Midwest, attracted by lower housing costs, job opportunities, and quality of life. Advanced manufacturing, aerospace, defense, and medical device industries are thriving, supported by robust logistics infrastructure and proximity to Southern California ports and the U.S.-Mexico border. Large-scale distribution deals, such as Amazon’s million-square-foot leases, highlight Phoenix’s role in national supply chains. Low disaster risk, efficient transportation networks, and a stable power grid further enhance its appeal, while Arizona State University provides a steady talent pipeline, cementing Phoenix’s position as a dynamic hub for population and economic growth.
Market Performance
Phoenix’s industrial market showed early signs of stabilization in Q2 2025 after a prolonged period of supply-driven vacancy increases. The overall vacancy rate leveled off at 12.1%, halting its upward climb due to a slowdown in construction activity paired with healthy, albeit moderating, tenant demand. Over the past year, net absorption totaled 13.4 million SF, placing Phoenix fourth nationally. However, this robust leasing activity was not sufficient to offset the 23.3 million SF in deliveries, keeping vacancy at a 15-year high and average rent growth subdued at 2.3% year-over-year. Vacancy pressures remained most acute in large-format buildings (100,000+ SF) —where rates surpassed 16%—while small bay spaces (<50,000 SF) held stronger at 5% vacancy. The market is now contending with 22.1 million SF under construction, half of which is speculative, setting the stage for further upward vacancy pressure in the near term.
Performance By Industrial Type
Source: CoStar Group, Inc.
| Vacancy Rate | SF Under Construction | Asking Rent Per SF | |
| Logistics | 14.4% | 13,171,297 | $13.01 |
| Specialized | 5.5% | 8,340,223 | $14.12 |
| Flex | 8.0% | 632,616 | $19.16 |
Phoenix Industrial Supply & Demand Dynamics
Source: CoStar Group, Inc.
Construction
Phoenix Properties Under Construction
Source: CoStar Group, Inc.
The market had 20.8 million square feet of space under construction in Q2, representing 4.4% of total inventory— one of the highest levels nationally. Roughly 50% of this pipeline was speculative, with development heavily concentrated in large-format buildings over 100,000 square feet, particularly in the West Valley and near the Phoenix-Mesa Gateway Airport, contributing to persistent upward pressure on vacancy.
Construction Starts (SF)
Source: CoStar Group, Inc.
Under Construction (SF)
Source: CoStar Group, Inc.
Sales Activity
Phoenix’s industrial investment market remained highly active, with sales momentum accelerating significantly. Transaction volume in the first half of the year outpaced the same period in 2024 by over 45%, driven by strong institutional demand for both large-scale logistics assets and well-located small to mid-bay properties. Notable Q2 deals included EQT Exeter’s $128.2 million acquisition of a fully leased Class A distribution center in Sarival Logistics Center at a 5.75% cap rate, and MIG Real Estate’s $46.75 million purchase of the Seventy5 Business Park, reflecting a strategic investor shift toward infill assets with NOI growth potential.
Sales Volume & Price Per SF
Source: CoStar Group, Inc.
