Phoenix Industrial Vacancy Posts Largest Drop in Four Years as Demand Rebounds

Phoenix's industrial market closed out 2025 with its strongest quarter in years, as vacancy rates posted a 90-basis-point decline in Q4 — the largest single-quarter drop the market has seen in over four years.

Absorption Surges to 4.4 Million Square Feet

The Valley recorded 4.4 million square feet of positive net absorption in Q4 2025, driven by logistics operators, retail-oriented distribution tenants, and the growing advanced manufacturing sector anchored by semiconductor supply chain activity. The overall industrial vacancy rate fell to 12.4%, down from 13.3% the previous quarter.

The rebound comes after a period of elevated vacancy caused by a wave of speculative construction. Nearly 90% of recent completions targeted buildings larger than 100,000 square feet, which pushed vacancy in that size segment to roughly 16% and weighed on asking rents throughout much of 2025.

New Development Signals Confidence

Despite the recent supply overhang, developers are moving forward with new projects targeting high-demand corridors. Trammell Crow Company broke ground on West 101 Logistics Center, a five-building, 1.09-million-square-foot industrial development in southwest Phoenix. The project is betting on continued demand from e-commerce and third-party logistics tenants drawn to the area's access to Interstate 10 and Loop 101.

The southwest Phoenix and Goodyear submarkets have emerged as the Valley's most active industrial corridors, benefiting from lower land costs and strong freeway connectivity to the broader Interstate 10 distribution network linking Phoenix to Los Angeles and Texas.

Office Market Also Improving

The industrial recovery is part of a broader improvement across Phoenix commercial real estate. The office sector saw its vacancy rate decrease 100 basis points in Q4 2025, closing the year at 26.5%. Class A assets captured the largest share of the improvement, with vacancy in that segment falling 70 basis points to 20.3%.

Premium submarkets including Tempe Town Lake, Scottsdale Quarter, and the Camelback Corridor are outperforming, as tenants gravitate toward amenity-rich, newer-vintage buildings. There are now 16 office buildings in the Valley commanding asking rents above $50 per square foot — all concentrated in the Camelback and Tempe submarkets.

Infrastructure Spending Adds Tailwind

A massive infrastructure push is adding to the Valley's appeal. The first projects funded under Proposition 479, the $7.8 billion transportation measure approved by Maricopa County voters in 2024, are now underway. Among them is a $129 million Loop 303 improvement adding direct freeway-to-freeway ramps at the I-17 interchange and widening Loop 303 to three lanes in each direction — a project that will directly benefit industrial users in the northwest Valley.

An I-10/Loop 101 interchange improvement in the West Valley is expected to break ground this spring, adding elevated HOV lanes and widening both freeways in one of the region's busiest freight corridors.

Outlook

With vacancy trending downward, infrastructure investment accelerating, and the semiconductor supply chain continuing to deepen its footprint across the north Valley, Phoenix's industrial market appears to be moving past its post-pandemic supply correction. Brokers surveyed in the latest Commercial Broker Sentiment Index rated market confidence at 62.7 out of 100 — moderately optimistic and the highest reading in over a year.