Phoenix Industrial Market Report 2026: Vacancy, Rents & What's Driving Demand

Executive Summary: A Market in Transition

Greater Phoenix's industrial market is navigating a transition from the breakneck expansion of 2021–2023 into a more balanced environment. Vacancy has risen from its cyclical low of roughly 4% in 2022 to a range of 9.7%–13.5% at the end of 2025, depending on the brokerage and methodology. Yet leasing activity remains robust: Q4 2025 net absorption totaled 3.2 million square feet, contributing to an annual total of 18.2 million SF — the best yearly performance in Greater Phoenix since 2022, according to Colliers.

The headline narrative is one of digestion, not distress. The market is absorbing a historic wave of new construction while benefiting from structural tailwinds — semiconductor manufacturing, nearshoring logistics, and continued population growth — that few U.S. industrial markets can match.

Vacancy Rates: Reading the Divergence

One of the more confusing aspects of analyzing Phoenix industrial right now is the spread in reported vacancy rates across brokerages. At year-end 2025, Colliers pegged the market at 9.7% vacancy (down 10 bps quarter-over-quarter), while Cushman & Wakefield reported 12.4% (down 90 bps from the prior quarter), and Kidder Mathews cited approximately 13.5%.

The variance reflects differing market boundaries (metro Phoenix vs. Greater Phoenix), building-size thresholds, and whether sublease space is included. What matters more than the absolute number is the direction: all three firms reported vacancy declining in Q4 2025, a meaningful inflection after several quarters of upward drift.

Key takeaway: Vacancy is elevated relative to the sub-5% trough of 2022, but the Q4 inflection — driven by slowing deliveries and sustained absorption — suggests the market is past the cyclical peak in availability.

Rent Trends: Growth Moderating, Not Reversing

Direct asking lease rates reached $1.19 per square foot NNN on average, representing a 6% year-over-year increase according to Kidder Mathews. Colliers data shows average rents ending Q4 2025 at approximately $1.14 PSF. Rent growth is clearly moderating from the double-digit surges of 2022–2023, but it has not turned negative — a sign that fundamentals remain sound beneath the elevated vacancy.

That said, concessions are rising in select submarkets. Mesa Gateway, which saw heavy speculative construction, is experiencing elevated tenant improvement (TI) packages and free-rent periods on second-generation space. Newer Class A product continues to lease at asking rates; older inventory is feeling the pressure.

Submarket Breakdown: Where the Action Is

Greater Phoenix is not a single market — it's a collection of submarkets with sharply different dynamics. Here's how the key corridors are performing:

The Southeast Valley — particularly the Chandler and Gilbert corridor — remains the tightest submarket, with vacancy around 7.2% and strong absorption of 1.1 million SF driven by advanced manufacturing and logistics tenants. Sky Harbor/Airport maintains even tighter conditions (around 5.2% vacancy) but offers limited new supply.

The Southwest Valley (Goodyear, Buckeye) tells a different story. This is where the majority of new Class A construction has landed, with institutional-quality buildings along the I-10 and SR-303 corridors attracting tenants like Amazon, Home Depot, and UPS. Rates are lower ($0.79–$1.00 PSF NNN), but the product is new, large-format, and positioned for bulk distribution. The most notable Q1 2026 lease was Kenco's 641,906 SF deal in Goodyear.

Construction Pipeline: The Supply Wave Is Cresting

The single most important shift in the Phoenix industrial market is the contraction of the construction pipeline. Deliveries totaled 15.8 million SF in 2025, down 54% from 2024, as developers pulled back in response to elevated vacancy and rising construction costs. The pipeline has further narrowed to approximately 14.9 million SF under construction, with the majority concentrated in the western submarkets (Glendale, Goodyear, Tolleson).

This supply discipline is critical. With absorption running at 18+ million SF annually and deliveries declining, the math favors vacancy compression through 2026. Brokerages broadly agree: a continued slowdown in deliveries should allow vacancy to trend lower through the year, supporting improved fundamentals and a gradual reacceleration in rent growth.

Demand Drivers: Semiconductors, Nearshoring, and E-Commerce

Phoenix's industrial demand story is more diversified than most U.S. metros, anchored by three structural drivers:

1. TSMC and the Semiconductor Ecosystem

TSMC's Phase 1 fab in North Phoenix began production with a 4nm process in early 2025, ramping to 10,000 wafers per month with a target of 30,000. Apple was the first and largest customer, receiving "tens of millions" of Apple silicon chips from the facility in 2025. In January 2026, TSMC announced it would accelerate its second fab timeline, beginning equipment installation in Q3 2026 for 3nm production in 2027 — one year ahead of the original schedule.

The ripple effects on industrial demand are significant. TSMC-driven leasing activity has been concentrated in Glendale, Deer Valley, and Goodyear, with semiconductor supply chain firms (KoMiCo, Fujifilm, and others) taking space for cleanroom-adjacent logistics and component storage. Arizona now counts over 60 semiconductor expansion projects representing approximately $205 billion in announced investment through the end of the decade.

2. Big-Box Logistics and E-Commerce

Phoenix continues to see strong demand in big-box industrial space. Over the past 24 months, the market absorbed 9.5 million SF in buildings greater than 700,000 SF, driven by distribution, e-commerce, apparel, and food & beverage users. Notable Q4 2025 deals included Walmart's acquisition of a 1.27 million SF facility in Glendale for $152 million. Phoenix's position as a western distribution hub — with same-day reach to Southern California and next-day coverage across the Mountain West — continues to attract national logistics operators.

3. Nearshoring and California Migration

Companies relocating from California and the Midwest continue to be a meaningful demand source, drawn by Arizona's business-friendly regulatory environment, lower operating costs, abundant land, and available power capacity. This trend has been particularly visible in the aerospace and advanced manufacturing sectors.

Investment Sales & Cap Rate Outlook

Investment activity has been robust. In Q3 2025 alone, $1.6 billion in industrial sales volume was recorded in Phoenix, with $5.6 billion traded over the trailing twelve months — transaction activity accelerated 40% year-over-year through the first three quarters of 2025. Phoenix ranked among the top five largest U.S. markets for industrial sales volume in January 2026.

Cap rates for stabilized Phoenix industrial assets now sit in the mid- to high-5% range, reflecting improved yield stability and growing investor confidence that the vacancy peak is behind us. There is particularly strong buyer appetite for infill, small-bay properties with rent growth potential — the type of assets where vacancy remains in the low single digits.

2026 Outlook: Gradual Rebalancing

The Phoenix industrial market entering Q2 2026 is best characterized as a market in late-cycle digestion with improving trajectories. Here are the key dynamics to watch:

• Vacancy should continue to decline as deliveries slow and absorption holds. Most brokerages project vacancy compressing by 50–150 bps over the next 12 months.
• Rent growth will reaccelerate modestly — expect 2%–4% annual increases in 2026, concentrated in infill and Southeast Valley submarkets.
• Concessions will persist in oversupplied corridors, particularly Mesa Gateway and portions of the Southwest Valley, where landlords compete for tenants in newer speculative product.
• TSMC Phase 2 activity will be the single biggest demand catalyst, with equipment installation beginning Q3 2026 and a wave of supply chain leasing expected to follow.
• Investment volumes will remain elevated as institutional capital targets Phoenix for its long-term fundamentals: population growth, semiconductor investment, and distribution connectivity.

For CRE professionals evaluating Phoenix industrial — whether as brokers advising tenants, operators running facilities, lenders underwriting deals, or investors allocating capital — the market offers a differentiated combination of near-term value (elevated vacancy creating tenant optionality) and long-term structural demand that few U.S. metros can match.