Abstract

• The Phoenix industrial market delivered 1.5M SF in Q2 2026, a decrease of 16.3% QOQ.

• Leasing activity reached 8.3M SF, down 7.1% QOQ and roughly flat YOY versus Q2 2025’s 8.3M SF.

• The Phoenix market recorded 6.4M SF of net absorption in Q2 2026, sustaining the strong momentum from Q1.

Phoenix

ECONOMY

• The economic tailwinds we noted in our first quarter market report were transformed into stronger second quarter employment growth and sustained retail spending.

• Looking forward, as we noted in our insight, “The Inverted Pyramid Economy”, economic growth is largely dependent on one sector, AI, making AI’s continued success a key factor in the economic success of the second half of this year and with it, demand for logistics space.

• Additional factors we are also watching for their potential impact on the economy and demand environment for logistics space include domestic manufacturing investment, real wage growth, retail sales, trade policy, financial market conditions, and geopolitics, among others.

CONSTRUCTION

• The Phoenix industrial market delivered 1.5 million square feet (M SF) in Q2 2026, a decrease of 16.3% quarter-over-quarter (QOQ) and 51.8% year-over-year (YOY) from Q2 2025. Total inventory reached 503.0M SF. The market currently has 19.7M SF under construction, roughly flat QOQ and down 3.8% YOY from Q2 2025’s 20.5M SF.

• The supply picture remains nuanced. Big-box availability is critically constrained with very few 1M SF+ buildings in the pipeline, one 750,000 SF option, and a handful of 400,000 SF blocks — while the sub-200,000 SF segment carries meaningful vacancy. Some landlords are showing increased willingness to subdivide larger footprints to accommodate demand. Construction starts totaled just 1.5M SF, down 33.9% QOQ and 76.1% YOY, with activity in big-box notably absent this quarter. Power availability continues to influence where new starts can occur, functioning as a de facto constraint on the pipeline.

MARKET CONDITIONS

• The overall vacancy rate closed Q2 2026 at 10.7%, down 100 basis points (bps) QOQ from 11.7% in Q1 2026, and down 210 bps YOY from 12.8% in Q2 2025. Vacancy is on a steady decline. The biggest availability remains concentrated in the sub-200,000 SF range.

• Overall net asking rents are holding steady at $13.27 per square foot (/SF) ($1.11/SF per month), up 0.9% QOQ and 5.4% YOY. Performance is bifurcated by size: landlords in the sub-200,000 SF segment are prioritizing occupancy and holding rates flat, while big-box landlords retain more leverage to push rents. That said, landlords broadly are avoiding aggressive rate increases — holding flat rather than risking deals — and continue to use concessions as the primary lever.

• The Phoenix market recorded 6.4M SF of net absorption in Q2 2026, sustaining the strong momentum from Q1. This represents a 3.3% decrease QOQ but a 92.6% jump YOY over Q2 2025’s 3.3M SF.

• Leasing activity reached 8.3M SF, down 7.1% QOQ and roughly flat YOY versus Q2 2025’s 8.3M SF. The quarter was driven predominantly by large-format demand, with 3PLs serving the data center industry emerging as the most active user group. Notable deals included DHL and Faith Technologies, the latter leasing two adjacent buildings totaling approximately 1M SF — a reflection of the market’s lack of single-block 1M SF options. Deal velocity in the 200,000–300,000 SF range remained slower, but demand was concentrated at the top of the size spectrum.

• Power availability has become a primary site selection driver, functioning as a competitive differentiator for both users and landlords. It is increasingly a race to secure adequate power supply, and users are being asked to quantify exact usage requirements upfront. This dynamic is influencing location decisions and constraining where new development can occur.

• The Phoenix industrial is cautiously optimistic going into the second half of the year. Demand is running ahead of last year’s pace and leasing interest remains active, even as the typical seasonal slowdown approaches. The key risk to monitor is that big-box demand has supported the overall market for the past several quarters — with large available blocks continuing to be absorbed, availability in that segment is tightening and the market will need to see new supply or a broadening of demand into mid-bay sizes to sustain current momentum.

Statistics reflect all industrial buildings of all sizes.

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