Limited new developments and healthy tenant activity drove industrial vacancy in Greater Phoenix down 10 basis points during fourth quarter to 9.7 percent at the end of 2025, according to a report released by Colliers.
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Fourth quarter 2025 marked the third consecutive period of decline in vacancy following seven straight quarters or rising vacancy that ended in early 2025. Year-end 9.7 percent vacancy reflected a 90-basis-point decline year-over-year. While total inventory continues expanding, both direct vacant space and available sublease space fell a bit from the previous quarter. Sublease inventory ended the year at 7.48 million square feet, which represents 1.6 percent of the total market inventory. Market-wide, existing buildings smaller than 100,000 square feet posted 6.0 percent vacancy with 11.2 million square feet available. This size category accounts for 25.3 percent of total market vacancy and totals 41.8 percent of the total market inventory. The Southeast submarket holds 48.2 percent of vacant space available in this size range.
Fourth quarter net absorption totaled 3.2 million square feet, bringing the annual 2025 total to 18.2 million square feet. This marked the strongest yearly performance in Greater Phoenix since 2022. During the past three years, the industrial market has absorbed 49.7 million. Amazon was the most active tenant during fourth quarter. The company leased 1.06 million square feet at CapRock West 202 and purchased Gateway Grand near Mesa Gateway Airport, expanding its presence in Greater Phoenix by 1.6 million square feet during fourth quarter.
New deliveries in fourth quarter continued a downward trend, adding just 2.4 million square feet of new inventory. This is a 68.4 percent decrease compared to fourth quarter 2024. The slowdown reflects healthier market balance that has allowed the market to absorb 34.8 million new square feet delivered during 2024. By year-end 2025, total new deliveries reached 15.9 million square feet, which was a 54.2 percent reduction from 2024. The Southwest submarket cluster holds 48.8 percent of fourth quarter deliveries, adding 1.2 million square feet. There are currently 10.6 million square feet under construction, marking the lowest level since third quarter 2020. The Northwest and Southeast submarkets together hold 73 percent of all construction currently underway. ViaWest Group broke ground on “ReDiscover”, a four-building industrial park that will contain 800,000 square feet. the project is located at the northeast corner of Interstate 17 and Loop 101 on the site of a former office building that was demised to make way for this new project.
Average rental rates for industrial space rose slightly in fourth quarter 2025, ending at $1.14 per square foot. After four consecutive quarters of rate decreases in Warehouse/Distribution properties, the fourth quarter brought a 1.2 percent increase in this category. The Northeast submarket posted the strongest year-over-year rental rate growth, increasing 2.88 percent to $1.49 per square foot.
Sales activity during fourth quarter 2025 demonstrated that Phoenix is one of the top destinations in the United States for institutional investor demand. For the second consecutive quarter, sales volume exceeded $1 billion, reaching $1.351 billion. While sales volume declined quarter-over-quarter (-7.8 percent) and year-over year (-28.2 percent), the fourth quarter still ranked as the fourth strongest in the past four years. Viewed on an annual basis, 2025 marked the strongest year since 2021, with total sales volume reaching $4.57 billion. Notably, all five to the top transactions of the quarter involved buildings that were constructed in the past three years. The Northwest cluster led the market last quarter, capturing 33.9 percent of the sales volume totaling $459 million. The average price per square foot in the cluster reached $185. The largest single-building transaction of the year took place in this area, with Walmart’s purchased of the 1.27-million-square-foot Luke Field Building C for $152.2 million.
Greater Phoenix continues to shine as one of the nation’s top-performing industrial markets. Strong tenant activity heading into 2026 indicates the market will remain a leading city for tenants and investors. The region’s industrial narrative has expanded beyond logistics and distribution to encompass semiconductors, high-tech manufacturing and precision engineering.
