Phoenix Industrial Market Update: Balancing Supply, Small-Bay Demand, and Smart Opportunities Ahead

By David Bean, Vice President of Sales & Leasing | The Leroy Breinholt Team at Commercial Properties, Inc./CORFAC International

Over the past several years, the Greater Phoenix industrial market grew at an unprecedented pace, delivering more than 136 million square feet of new inventory in just five years. While that massive wave of construction temporarily pushed vacancy rates higher, the Valley has done a remarkable job absorbing the space.

Now, the market is settling into a much healthier, more balanced position. Rapid speculative building is slowing, tenant demand is catching up, and Phoenix continues to stand out as one of the most dynamic industrial hubs in the nation.

A Tale of Three Size Segments

One message I constantly emphasize to clients is that not all industrial product types are performing the same way. The market is divided clearly into three main categories:

• Big-Box Distribution (Over 500,000 SF): Large-scale distribution facilities continue to see steady demand from major regional logistics providers, national retailers, and third-party logistics companies serving the expanding Southwest population.
• Mid-Sized Speculative (100,000 to 500,000 SF): This middle segment saw heavy speculative development during the recent construction boom and represents the biggest current market challenge as remaining space works through absorption.
• Small-Bay Industrial (Under 100,000 SF): Small-bay, multi-tenant properties remain our most bullish sector. Because recent developments focused heavily on bulk logistics, very little small-bay supply was built. As a result, vacancy remains exceptionally low, rental rates are strong, and tenant demand from local suppliers, contractors, and service companies is consistent.

Catalysts Driving Growth Across the Valley

Major economic investments continue to anchor long-term demand across Greater Phoenix. Megaprojects from advanced manufacturers like TSMC and LG Energy Solutions do more than fill massive footprints. They create a broad ecosystem of suppliers, vendors, transportation operators, and local service businesses needing space throughout the metro area.

Development activity remains concentrated in proven growth corridors:

• Core Submarkets: Glendale, Goodyear, Deer Valley, Chandler, and Gilbert.
• Key Infrastructure Routes: Loop 303, Interstate 10, Northern Parkway, and the Phoenix-Mesa Gateway Airport area.

Power availability has become just as critical as highway access, particularly for advanced manufacturing and data center operators.

Investor Outlook and Strategic Opportunities

Higher interest rates and rising construction costs have naturally curbed new speculative groundbreakings. Far from a negative, this slowdown is giving existing inventory the necessary runway to be absorbed, maintaining overall market stability.

For owners, investors, and occupiers evaluating strategies today, key focus areas include:

1. Small-Bay Acquisitions: Targeting well-located small-bay multi-tenant assets in supply-constrained areas, particularly across the Northwest and Southwest Valley.
2. Value-Add Repositioning: Upgrading older, second-generation industrial buildings with modern power, loading, and functional improvements to meet contemporary tenant specs.

The Bottom Line

While the hyper-growth phase of recent years has moderated, the Phoenix industrial market remains fundamentally sound. For investors, owners, and tenants who understand submarket dynamics and product-specific trends, there are significant opportunities ahead.

Connect with Us

Looking to discuss specific property valuations, review current Valley inventory, or explore commercial site selection? Reach out to David Bean and The Leroy Breinholt Team at Commercial Properties, Inc./CORFAC International.