Kidder Matthews: Phoenix Industrial Update – 4th Qtr. 2025

Phoenix Industrial

Phoenix, AZ (January 15, 2026) – Phoenix’s industrial market closed 2025 still expanding, but with developers and occupiers recalibrating to a more balanced environment. Construction activity totaled 16 million square feet for the year, while direct net absorption was 2.4 million square feet, signaling continued tenant demand even as deliveries fell 54% from 2024 and the pipeline tightened. Underpinning the market is Arizona’s outsized momentum in semiconductors, aerospace, and AI—anchored by major capital commitments and job growth—which continues to redirect where leasing concentrates, how quickly new product is absorbed, and why second-generation space is taking longer to move as the market heads into 2026.

Market Highlights

  • Construction activity totaled 16m sf.
  • Direct net absorption reached 2.4m sf.
  • Deliveries decreased 54% from 2024.

Market Drivers

  • Arizona experienced a transformative year in 2025, marked by major wins across key industries such as semiconductors, aerospace, and AI, alongside robust job growth throughout the Valley. The state now ranks No. 1 nationally for semiconductors, with more than 60 industry expansions since 2020. This surge has been fueled by significant investments, including Amkor’s $7B advanced packaging campus, Busch Vacuum Solutions’ new Tempe service center, and the continued growth of TSMC. Leasing activity reflected this momentum, totaling 27M SF in 2025 and generating 14M SF of direct net absorption, with TSMC-driven demand sparking major deals in Glendale, Deer Valley, and Goodyear. North Chandler/Gilbert also posted strong absorption of 1.1M SF, driven by advanced manufacturing and logistics needs for warehouse, distribution, and fulfillment space.
  • Market fundamentals shifted as vacancy rates for 4Q25 rose slightly to 13.5%, a 20 bps increase year-over-year, while total availability declined by 70 bps to 14.9%. The construction pipeline contracted sharply as developers prioritized absorbing existing inventory, resulting in 15.8M SF of industrial space delivered a 54% YOY decline. Direct average asking rates for spaces 10K SF and above climbed to $1.19 PSF NNN in 4Q25, up 6% from $1.13 PSF NNN the previous year. These trends underscore Arizona’s evolving industrial landscape, where semiconductor-driven growth and advanced manufacturing continue to reshape demand and development strategies statewide.

Economic Review

  • Arizona’s technology and innovation, advanced manufacturing, and aerospace sectors continue to thrive. In 2025, the Arizona Commerce Authority and its economic partners secured 90 competitive projects, committing to 27,749 jobs and more than $34B in capital investment.

Near-Term Outlook

  • Entering 2026, expect newer product to continue to lease at a decent pace; in opposite expect that 2nd generation space will sit longer than what conditions were like in 2023-2024.
  • Actual rental rates are expected to stabilize, though elevated concessions will likely persist in markets like Mesa Gateway.

The information in this report was composed by the Kidder Mathews Research Group.
Data sources: CoStar, AZ Office of Economic Opportunity, PBJ

Kidder Mathews Vice President of Research Gary Baragona, 415.229.8888