— Phillip Hernandez, Research Director, Colliers —
The Phoenix industrial market showed resilience throughout 2024. Arizona ranked fifth in net migration as of October, with 62,533 new residents — 52.8 percent of whom relocated from California. This influx of residents has positively impacted the labor market, growing Phoenix’s workforce by 42,900 employees by November, a 1.7 percent increase from the previous year.
Investor interest in Phoenix’s industrial sector also remains strong. Fourth-quarter sales volume reached $1.9 billion, a 74 percent increase compared to the previous quarter and a 91.8 percent year-over-year increase. This brought last year’s total sales volume to $4.3 billion, with average prices per square foot rising by 2 percent (to $204.20) compared to fourth-quarter 2023.
Vacancy Trends and Absorption
Despite strong investor activity, the Phoenix market is experiencing rising vacancy rates. New deliveries in the fourth quarter added 7.8 million square feet to the market, bringing total deliveries for 2024 to 34.8 million square feet. However, the vacancy rate increased to 10.6 percent, marking a year-over-year 390 basis points rise. This increase is largely attributed to the completion of vacant product. Net absorption reached 3.8 million square feet in the fourth quarter, contributing to a year-to-date total of 15.5 million square feet.
Rental Rates and Construction Activity
Rental rates in Phoenix saw a slight decline for the first time since 2017. This 0.22 percent drop caused industrial rents to end the fourth quarter at $1.12 per square foot. Despite this, rental rates increased by 5.9 percent year over year, with a 61.3 percent rise over the past three years. The slowdown in vacancy has led to more demand for move-in-ready spaces, prompting landlords to invest in speculative office and warehouse space.
In terms of construction, the Phoenix industrial market is seeing a shift toward smaller, more flexible buildings to meet tenant needs. As of fourth-quarter 2024, 19.3 million square feet of industrial product remained under construction, with significant ongoing projects in key submarkets. The completion of large-scale developments like the 1.7-million-square-foot Ross Stores distribution center in Buckeye highlights continued activity, particularly in logistics and distribution spaces. Additionally, speculative projects like the 2.4-million-square-foot Luke Field development in Glendale (while delivered vacant) are expected to meet demand as tenants seek modern, well-located industrial facilities.
Several notable projects are underway, including CapRock West 202 Phase II, an 824,040-square-foot development, as well as Mack Innovation Park Scottsdale Phase I, which totals 305,375 square feet. These developments are positioned to provide much-needed space in the growing industrial market, particularly in the Northwest and Southwest submarkets.
Looking ahead, Phoenix remains a prime location for industrial investment and development. Developers are shifting toward smaller, more flexible buildings that cater to tenant demands. As vacancy rates begin to tighten, rental rates are expected to stabilize and may increase again. Overall, Phoenix’s industrial market continues to position itself as a key player in the Southwest, benefiting from population growth and a thriving business environment.
— Phillip Hernandez, Research Director, Colliers. This article was originally published in the January 2025 issue of Western Real Estate Business.