Q4 2023: Phoenix Industrial Market Report

Conditions are shifting in the Phoenix industrial market as a wave of new construction overwhelms sturdy leasing activity. Developers completed a record 22 million square feet in the final two quarters of 2023, outpacing the second strongest two-quarter period on record by more than 25 percent. The surge caused vacancy to spike to 8.4 percent, erasing occupancy gains made during the pandemic era.

While leasing volume has shown signs of moderating, particularly for spaces larger than 350,000 square feet, the substantial supply pipeline remains the primary driver of higher vacancies. A total of 44.6 million square feet is currently under construction, which equates to 9.9 percent of the market’s total inventory. Meanwhile, about two-thirds of space now under construction remains unleased.

The Loop 303 corridor in Phoenix’s West Valley has been a construction hotspot. Since 2020, industrial developers have completed more than 25 million square feet within two miles of the recently upgraded highway as the area emerges as a prominent link in national supply chains. Proximity to the Ports of LA and Long Beach has provided steady tailwinds for distributed-related demand both over the long term and especially during the pandemic, when vacant industrial space was nearly nonexistent in Southern California.