Article originally posted on AZ Big Media on Oct 26 2026

Despite slowing absorption, the Valley’s industrial sector continues to attract tenants, fueled by advanced manufacturing, data centers and growing demand for smaller industrial spaces.

Metro Phoenix’s industrial market is entering the final stretch of 2026 with rising rents, tightening large-building availability and a growing construction pipeline, signaling continued confidence in one of Arizona’s most important commercial real estate sectors.

According to JLL‘s Q3 2026 Phoenix Industrial Market Overview, the Valley recorded 3.2 million square feet of net absorption during the third quarter, down from 6.3 million square feet in the previous quarter. However, the slowdown reflects a shortage of available large industrial buildings rather than weakening tenant demand.

Year-to-date net absorption reached 16 million square feet, approaching the 17 million square feet absorbed during all of 2025, with one quarter remaining.

Meanwhile, the overall industrial vacancy rate held near 9.5%, a significant improvement from 13.2% a year earlier.

“Metro Phoenix has been rapidly working through its inventory of available large-box space, and while scaled occupiers continue to view the market favorably, they are facing fewer existing options, requiring them to plan further ahead in their leasing and investment decisions,” said JLL Executive Managing Director John Lydon.

Smaller industrial spaces drive demand

One of the biggest developments in Phoenix’s industrial market is the shift toward mid-sized and smaller industrial buildings.

According to JLL, mid-bay properties ranging from 100,000 to 350,000 square feet accounted for approximately 3 million square feet of net absorption during the third quarter — representing 96% of the market’s total absorption.

Mid-bay leasing also surged to 3.7 million square feet, more than double the average of the previous four quarters.

That demand is helping reshape the market as large industrial buildings become increasingly difficult to find.

The changing mix of available space has also pushed average asking rents to a new cycle high of $1.01 per square foot per month, up from 94 cents in the second quarter.

The Southeast Valley commanded the highest regional average asking rent at $1.11 per square foot, compared with 93 cents in the West Valley.

West Valley remains an industrial powerhouse

The West Valley continued to dominate Phoenix industrial activity, recording more than 5 million square feet of total leasing volume during the third quarter.

Among the largest transactions was a confidential third-party logistics company leasing approximately 1.15 million square feet at VT303 North in the Northwest Valley.

Other significant leases included Atkinson Industries taking 391,639 square feet at Majestic 303 and Southland Industries leasing 317,077 square feet at Park Algodon.

The West Valley also accounted for approximately 10.6 million square feet of year-to-date net absorption, representing roughly two-thirds of the metro area’s total.

With 11 million square feet under construction, the West Valley accounts for approximately 55% of Phoenix’s industrial development pipeline.

The Southeast Valley also demonstrated healthy activity, with more than 3 million square feet of total leasing volume. Notable transactions included a 250,000-square-foot renewal by Logistics Insight and a 204,337-square-foot new lease by Brinkman Construction in Gilbert.

Manufacturing and data centers reshape industrial demand

Perhaps the most significant long-term trend identified in JLL’s report is the growing influence of advanced manufacturing and data center development.

These industries accounted for 47.2% of industrial square footage leased in Phoenix during the first nine months of 2026, up dramatically from 20.1% in 2025.

Between January 2025 and September 2026, advanced manufacturing and data center support companies signed 96 leases totaling approximately 15.6 million square feet.

Much of that activity has been concentrated along the Loop 303 corridor, where large-scale data center construction and semiconductor manufacturing are generating demand for logistics, electrical equipment, cooling systems and specialized suppliers.

The continued expansion of Taiwan Semiconductor Manufacturing Co. in north Phoenix is also creating opportunities for companies supporting the semiconductor industry.

According to JLL, some semiconductor suppliers are purchasing facilities rather than leasing them to establish permanent operations near major manufacturing investments.

Construction pipeline expands to 20 million square feet

After several years of declining construction activity, Phoenix’s industrial development pipeline is expanding again.

JLL reported approximately 20 million square feet under construction at the end of the third quarter, up from 18.3 million square feet in the previous quarter.

Importantly, 51.7% of that space is already pre-committed, compared with 38.2% in the second quarter. That indicates developers are increasingly building for identified users rather than relying entirely on speculative demand.

Construction starts totaled 11.1 million square feet through the first nine months of 2026, outpacing the approximately 6.9 million square feet completed during the same period.

The expanding pipeline includes major West Valley logistics facilities and industrial projects supporting Arizona’s growing manufacturing economy.

“New construction will help meet some of our future demand, and we may see more build-to-suit activity from companies looking for customized space,” Lydon said.

What’s next for Phoenix industrial real estate?

Despite quarterly fluctuations, JLL’s research suggests Phoenix’s industrial sector has established a significantly stronger demand baseline than before the pandemic.

Between 2018 and early 2020, the market averaged approximately 1.8 million square feet of quarterly net absorption. Since the beginning of 2023, that average has climbed to 3.7 million square feet — more than double the pre-pandemic pace.

Looking ahead, JLL expects industrial absorption to increase through the remainder of 2026 and into 2027 as pre-leased developments are completed and tenants gain access to additional large-block inventory.

Vacancy could remain relatively stable or increase modestly as new buildings enter the market, depending on how quickly smaller industrial spaces are absorbed.

For Phoenix, the outlook remains positive, supported by manufacturing expansion, nearshoring, semiconductor investment and the region’s growing importance as a logistics and technology hub.

“But Phoenix’s growth story has also expanded beyond the largest occupiers, and that is reflected in stronger activity across mid-bay and smaller-format space,” Lydon said. “The diversification is creating a healthier, more balanced metro Phoenix industrial sector and is a very positive indicator for sustained momentum among all users and product types.”