Economy: Phoenix Economy Continues to Expand
In Q3 2026, the Phoenix Metro reported an employment level of 2.5 million, after adding 24,000 jobs over the last year. While the unemployment rate ticked up from 3.9% to 4.4% during that timeframe—and exceeded the national average of 4.2%—the increase was largely attributed to expanded labor force participation, rather than job losses. A key driver of this trend has been the Metro’s strong wage growth, with the median household income rising by 4.6% year-over-year (YOY) to $98,500. Phoenix’s population also grew at four times the rate of the national average, however, the 0.8% YOY increase marked a slowdown from previous quarters. Annual GDP growth, meanwhile, accelerated up from 2.4% in Q3 2025 to 2.7% in Q3 2026, underscoring the Metro’s positive economic momentum.
Supply: Vacancy Falls by Largest Margin Since Mid-2022
Phoenix’s overall industrial vacancy rate fell by its largest margin in over four years, posting a 300 basis point (bps) decline YOY to 10.3% in Q3 2026. Both muted new supply and improving demand drove this compression. Just 9.0 million square feet (msf) was delivered over the last 12 months, representing a 68% reduction from the rolling 2022-2025 annual average (28.0 msf), while net absorption more-than-doubled the volume of completions at 20.5 msf during that same span. Tightening has been most pronounced among the market’s large-format (300,000+ sf) industrial buildings, which reported a vacancy rate of just 5.1%, compared to 14.6% in Q3 2025. While mid-box (100,000 sf to 250,000 sf) vacancy remained elevated at 19.7%, that segment has also exhibited a notable improvement with a 340 bps decline YOY.
Pricing: Asking Rents Rise for Three Consecutive Quarters
Direct and overall average triple net (NNN) asking rents increased quarter-over-quarter (QOQ) to $1.16 per square foot (psf) and $1.13 psf, respectively. Both rates have now risen for three consecutive quarters for the first time since Q1-Q3 2022, potentially signaling a return to steady growth amid declining vacancy. During the quarter, the Airport Area exhibited the strongest gains among major markets, with its overall asking rate increasing by 3.2% QOQ to $1.18 psf. Manufacturing properties led all asset classes across the Metro, posting a 2.3% increase to $1.15 psf, while the average warehouse/distribution asking rent rose 1.2% to $1.03 psf. High-technology and office service buildings, by contrast, both reported 0.2% declines QOQ to $1.31 and $1.37 psf, respectively.
Activity: Leasing Reaches Historic Level in the Southwest
Phoenix noted 8.3 msf of leasing activity in Q3 2026, pushing the year-to-date (YTD) total up to 23.7 msf—the third-strongest performance on record through the first three quarters of a year. The Southwest Valley major market has been particularly active with 4.8 msf of new leasing in Q3 and 14.4 msf YTD, the latter of which represents the area’s highest three-quarter span on record. Activity in the Southwest continues to be driven by large-scale transactions, particularly among logistics, manufacturing and construction tenants, with 13 deals over 100,000 sf taking place in Q3 alone. On the other side of the Valley, the Southeast major market has also exhibited notable improvement, as its 1.8 msf of new leasing in Q3 2026 marked its second-strongest quarter in the last four years. Although leasing activity in the Airport Area has remained below Southwest and Southeast levels, its 951,741 sf of leasing in Q3 was also significant, as it represented the major market’s strongest quarter since Q1 2022. Across the market, warehouse/distribution buildings have continued to account for the lion’s share of leasing activity, recording 7.1 msf during Q3 and 20.3 msf YTD.
Absorption: Southeast Valley Leads Q3 Net Absorption
Industrial net absorption across the Phoenix Metro totaled 4.0 msf in Q3 and 13.6 msf YTD in 2026, already surpassing the full-year totals from 2023 (13.2 msf) and 2025 (12.5 msf). While the Southwest Valley noted the strongest net absorption among major markets YTD, with 9.8 msf through the first three quarters of 2026, Q3 was largely characterized by strength elsewhere in the Metro. The Southeast Valley led the overall market in net absorption for the first time since mid-2017, registering 1.8 msf in Q3 2026—its 25th consecutive positive quarter as well as its fourth-highest on record. The Airport Area major market also posted its strongest quarter since at least 2000, with 428,652 sf of net absorption during Q3. However, looking ahead to Q4, the Southwest Valley is expected to regain its status as the Metro’s leading major market. While the total volume of move-outs remains to be seen, there are over 4.3 msf of signed leases that are scheduled to commence in the Southwest this upcoming quarter, which represents nearly 75% of the market-wide total of 5.8 msf.
Construction: Active Pipeline Jumps Up to Two-Year High
At the end of Q3 2026, the volume of industrial space under construction reached 20.5 msf, marking an 11.0-msf-increase from the end of 2025 (9.5 msf) and the highest level since mid-2024. Both speculative and build-to-suit (BTS) construction more-than doubled over that timespan, rising to 13.4 msf and 7.1 msf, respectively. The overall jump in groundbreakings, particularly for new speculative projects, suggests developers are beginning to regain confidence in tenant demand and rent growth after a stretch of prolonged volatility through much of 2024 and 2025. This trend appears most evident in the Southwest Valley major market, where construction grew more than four-fold from 2.2 msf in Q4 2025 to 10.5 msf in Q3 2026.
