Economy: Output Accelerates Amid Sustained Job Growth
In Q2 2026, the Phoenix Metro reported an employment level of 2.5 million, after adding 20,500 jobs over the last year. While the unemployment rate ticked up from 3.8% to 4.0% during that timeframe, it remained below the national average of 4.2% and ranked third-lowest among major U.S. metros with total employment of at least 2 million jobs. Continued wage growth encouraged new entrants into the labor force, with the median household income increasing by 3.8% year-over-year (YOY) to $97,400. Population growth also more-than doubled the national average, however, the 0.8% YOY increase marked a deceleration from previous quarters. Annual GDP growth, meanwhile, accelerated up from 2.0% in Q2 2025 to 3.5% in Q2 2026, underscoring the Metro's positive economic momentum.
Supply: Reduced Deliveries Help Facilitate Vacancy Decline
Tepid levels of new completions paved the way for vacancy to decline by 240 basis points (bps) YOY to a nine-quarter low of 10.8% in Q2 2026. Just 8.4 million square feet (msf) of space was delivered in the past 12 months, marking a 71% decline from the rolling 2022-2024 annual average of 29.1 msf. Meanwhile, net absorption reached 17.5 msf over the last year, more-than-doubling the volume of completions, and greatly improving the Metro's demand-to-supply balance. This trend is especially evident in the Southwest Valley major market, where an eight-year low, 3.2 msf annual delivery slate helped pull vacancy down by 660 bps YOY to 9.3%. The Southeast Valley also reported a notable improvement, with vacancy decreasing by 70 bps YOY to 16.4%. In contrast, Phoenix's three remaining major industrial markets reported YOY vacancy increases ranging from 10 bps to 460 bps.
Pricing: Market Dynamics Suggest Growth Is Returning
Direct and overall average triple net (NNN) asking rents increased quarter-over-quarter (QOQ) to $1.15 per square foot (psf) and $1.12 psf, respectively, as vacancy tightened by a significant margin. While both remained below their Q2 2025 levels, the market's improving demand-to-supply balance suggests vacancy will continue to compress through the near-term, and in turn, support further rent growth. All five of Phoenix's major industrial markets reported QOQ rent increases in Q2, ranging from 0.8% in the Northwest Valley to 6.6% in the Southeast Valley, with the latter marking the area's strongest pace in nearly four years. Among property types, High Technology and Warehouse/Distribution facilities led the market's growth, posting QOQ asking rent gains of 6.2% and 4.1%, respectively.
Activity: Leasing Velocity Continues To Improve
Leasing activity totaled 7.7 msf in Q2 2026, increasing by 2.1% QOQ and 9.1% YOY. This total exceeded the 2014-2019 quarterly average of 5.3 msf by 45%, highlighting the market's resilience despite recent macroeconomic uncertainty. The Southwest Valley major market continued to capture the greatest volume of leasing activity, recording more than 4.7 msf during the quarter and bringing the year-to-date (YTD) total to 9.5 msf, which marked area's strongest six-month span since Q1-Q2 2022. Consistent with recent quarters, leasing in the Southwest was driven by several large-scale transactions, including 12 of the Metro's 20 largest new deals signed during Q2. Elsewhere, the Southeast Valley also contributed significantly to Phoenix's positive momentum, with leasing activity rising by 28% QOQ to 1.6 msf. The Southeast has led the Metro in lease transaction count this year, with roughly 200 new deals executed — nearly double the number recorded in the Southwest Valley. This disparity in leasing volume reflects larger requirements in the Southwest, where the average lease size was 94,423 SF, compared with 14,298 SF in the Southeast.
Absorption: First-Half Absorption Doubles 2025 Level
Industrial net absorption across Phoenix totaled 6.1 msf in Q2 and 9.4 msf YTD in 2026, representing a 114% increase over the first half of 2025. In Q2, market-wide net absorption was primarily driven by users occupying large spaces in the Southwest Valley major market, which recorded 12 new move-ins of 100,000 sf or larger. This trend contributed to the Southwest's net absorption increasing to 5.1 msf, which is roughly 86% higher than the trailing three-year quarterly average of 2.7 msf. While larger deals were less of a factor in the Southeast Valley, the area observed the greatest QOQ improvement among Phoenix's five major industrial markets, with absorption increasing more than ten-fold to 1.2 msf. Absorption in the Southeast has additionally been positive for 24 consecutive quarters, suggesting lower move-out risk among existing tenants relative to the rest of the Metro. Across the market, warehouse/distribution spaces continue to capture the bulk of space demand, with its 6.1 msf of absorption accounting for 96% of the Metro Phoenix total in Q2.
Construction: BTS Facilities Enlarge Pipeline From Recent Lows
The total volume of industrial space under construction increased by 5.6 msf QOQ, reaching 16.0 msf in Q2. While this marked the largest uptick in groundbreakings since Q3 2022, the pipeline remains well below the 30.0 msf quarterly average from 2022-2025, indicating developers are still taking a measured approach to new projects amid elevated vacancy and limited rent growth. This trend is further reflected in the declining share of speculative projects within the overall construction pipeline, which reached the lowest level since at least 2022 at 59%. On the other hand, built-to-suit activity is increasing as large occupiers seek newer-built facilities while finding fewer existing options across the market that meet their size and operational needs.
