Abstract
The Phoenix market finished Q3 with 4.9M SF of net absorption, the most space absorbed on a quarterly basis so far this year.
The vacancy rate for the Phoenix market closed the third quarter at 12.7% . This is a 20-basis point decrease quarter-over-quarter.
Overall, deals continue to get signed varying across new leases and renewals.
Phoenix
ECONOMY
The economy is sending mixed and distorted signals, including stalling job growth exacerbated by labor supply constraints; nominal retail sales growth distorted by inflation and spending pulled forward to avoid tariffed goods; and AI-concentrated business investment.
The near-term economic outlook is contingent on the impact of tariffs on company margins and related potential hiring impacts, as well as retail sales, a key industrial demand driver.
The federal government shutdown will impact economic growth if it continues and includes significant federal layoffs instead of furloughs, impact private sector contractors, and impair business, consumer, and financial market confidence..
CONSTRUCTON
The Phoenix industrial market saw nearly 4.8 million square feet (M SF) delivered in Q3 2025 bringing the year-to-date (YTD) total to 14.3M SF. This is a decrease of 47% from the square footage delivered by the same time in 2024.
Supply under construction saw a slight jump over Q2 with 20.5M SF in the pipeline at Q3 2025. However, this is down by 23.2% from the 26.7M SF reported in Q3 2024. Looking ahead, developers are looking for the next opportunity with bigger deals moving forward and land is being tied up for future projects.
MARKET CONDITIONS
The vacancy rate for the Phoenix market closed the third quarter at 12.7%. While above the long-term average of 9.3%, this is a 20-basis point (bp) decrease quarter-over-quarter (QOQ). Still up 220 bps from Q3 2024, the lack of construction starts and shrinking pipeline will help offset additional vacancy increases.
There was a 20-bp dip in sublease space QOQ bringing vacant available sublease space to just under 6.0M SF for Q3 2025. This accounts for 1.2% of the overall vacancy rate. Most of this space is warehouse/distribution space in the 25,000-75,000 SF range.
The Phoenix market finished Q3 with 4.9M SF of net absorption, the most space absorbed on a quarterly basis so far this year, bringing the YTD total to 11.5M SF. This is up 66% QOQ and up 6.3% over this point YTD 2024.
Overall, deals continue to get signed varying across new leases and renewals. There has been some user velocity with users in the larger space (400,000 SF and above). Due to some of the larger buildings being lease or sold developers are moving rapidly toward breaking ground on new 1.0M SF speculative projects.
Rates are very subjective by submarket but overall remain relatively flat. Occupancy is still a priority for landlords. Landlords continue to focus on leasing up vacancy and providing tenants with creative terms with the goal of filling those vacancies. There continues to be some user demand for infill locations with functional space.
It is likely that in 2025, rents will remain flat in most submarkets as vacancy stays high. More than ever before, rates are becoming increasingly more specific on a case-by-case basis, stressing the importance of market intelligence and understanding what deals are anomalies, and what is a true market trend.
Statistics reflect all industrial buildings of all sizes.
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