Phoenix: The New Industrial Powerhouse
Phoenix has rapidly emerged as one of the top industrial markets in the U.S., thanks to its strategic location, pro-business climate, and robust population growth. Situated near major West Coast ports and offering easy access to key markets in California, Texas, and Mexico, Phoenix has become a prime destination for industrial users, particularly in e-commerce, logistics, and manufacturing.
Market Performance – Q4 2024
- Net Absorption: 4.5 million sq. ft.
- New Deliveries: 6.8 million sq. ft.
- Vacancy Rate: 3.7% (one of the lowest among large industrial markets)
- Average Asking Rent: $0.90 per sq. ft./month (Up 8% year-over-year)
- Under Construction: 15.2 million sq. ft.
Despite the high volume of new construction, Phoenix maintained a low vacancy rate of 3.7%, underscoring the continued strong demand for industrial space. Net absorption remained positive, driven by significant leasing activity from national and international tenants.
Key Drivers of Growth in Phoenix’s Industrial Sector
- Proximity to Key Markets
Phoenix’s location provides easy access to Southern California—one of the largest consumer markets in the U.S.—without the high costs and regulatory hurdles associated with doing business in California. This makes it an ideal hub for distribution centers and logistics operators. - Population Boom
With a population growth rate of 1.9% annually, Phoenix has become one of the fastest-growing metros in the U.S. This growth drives demand for goods and services, spurring the need for warehouse and distribution space. - Business-Friendly Policies
Arizona’s tax incentives and streamlined regulatory environment have attracted a wide range of industrial users, including manufacturers and tech companies. Major players such as Intel and TSMC have established large facilities in the region, boosting demand for nearby industrial space. - Infrastructure Development
Ongoing infrastructure improvements, such as the expansion of Interstate 11 and upgrades to the Phoenix-Mesa Gateway Airport, further enhance the city’s appeal as a logistics hub.
Major Submarkets in Phoenix
- Southwest Phoenix
This submarket continues to dominate in terms of both new construction and leasing activity, accounting for over 50% of new deliveries in 2024. The area’s large parcels of available land and excellent highway access make it a prime location for big-box industrial users. - Southeast Valley
With strong population growth in the surrounding residential areas, the Southeast Valley has seen increased demand for smaller industrial spaces catering to local businesses. Vacancy rates here remain among the lowest in the metro, at 2.9%. - West Valley
Known for large-scale logistics and distribution centers, the West Valley has attracted major tenants, including Amazon, FedEx, and Walmart. The region’s proximity to California markets and competitive rental rates make it an attractive alternative to more expensive West Coast locations.
Challenges in the Phoenix Industrial Market
While the Phoenix industrial sector shows no signs of slowing down, a few challenges could impact its trajectory:
- Rising Land and Construction Costs
As demand for industrial space continues to rise, so do land prices and construction costs. This could potentially limit future speculative development. - Labor Shortages
With unemployment hovering near historic lows, finding skilled labor for manufacturing and logistics operations remains a concern for employers. - Oversupply Risk
With over 15 million sq. ft. under construction, there’s a risk that supply could outpace demand in the near term, particularly if economic conditions soften.
Outlook for 2025
Looking ahead, Phoenix’s industrial market is expected to remain robust, driven by continued demand from logistics, e-commerce, and manufacturing tenants. Key trends to watch include:
- Increased Demand for Cold Storage
As consumer preferences shift toward fresh and frozen foods, cold storage facilities are expected to see significant growth. Developers in Phoenix have already started incorporating cold storage capabilities into new industrial projects. - Automation and Smart Warehouses
Tenants are increasingly adopting automation technologies to improve efficiency and mitigate labor shortages. Expect to see more “smart warehouses” with advanced robotics and IoT systems in the coming years. - Sustainability-Focused Developments
With growing pressure to reduce carbon footprints, developers are incorporating sustainable features such as solar panels, energy-efficient lighting, and water recycling systems into new industrial projects.
Investment Opportunities
For investors, Phoenix presents a compelling opportunity in the industrial space, particularly in emerging submarkets like Goodyear and Avondale. These areas offer attractive pricing compared to more established submarkets while benefiting from the city’s overall growth momentum.
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