Few markets better demonstrate the evolution of the modern Sun Belt than Phoenix. What began as a story of population growth and affordability has matured into one increasingly defined by advanced manufacturing, semiconductors, logistics, health care, and data infrastructure.
Greater Phoenix has emerged as the nation’s leading semiconductor investment market since 2020, with dozens of firms announcing expansions or relocations. The region now supports roughly 189,000 semiconductor-related jobs, while billions of dollars continue flowing into life sciences, health care, and data centers. Nearly 1.6 gigawatts of data center capacity is under construction, regional hospitals have announced at least $6 billion in capital investment since 2018, and the region’s bioscience pipeline represents $10 billion in potential investment. This is in addition to the record-setting commitment from a large semiconductor company of $265 billion across 10–12 fabrication plants, two packaging plants, and an R&D center, which puts 30 percent of its most advanced manufacturing capacity in the Arizona Valley. The flagship project has helped attract additional suppliers, logistics users, and technology firms to the region—as well as a wave of investment into nearby housing and retail—highlighted by Halo Vista’s planned 28-million-square-foot mixed-use campus.
Phoenix ranks fourth globally in data center operating capacity, rounding out its position as a major hub for advanced manufacturing and technology. Though Arizona paused new data center tax-exemption applications for a three-year period in June, and there is uncertainty around the ability to develop the infrastructure for required energy loads, planned capacity expansions through 2036 would only roughly double that of the region, which is on the lower end of the spectrum for markets where development is occurring.
The clearest winner in the frenzy of investment targeting Phoenix is the industrial sector. Data center–related industrial leasing is significant and growing, comprising 14.2 percent of leasing from 2022–2025. Data center investment has been off the charts as well, totaling $7.8 billion through August, which is more than double its prior peak of $3.1 billion in 2022, and accounts for 38 percent of Phoenix’s total investment sales volume so far. Year-to-date net absorption hit 13.6 million square feet in 2026, the fourth best year on record. Vacancy fell 300 basis points to 10.3 percent in Q3 2026. Bulk space (300,000+ square feet) is 5.1 percent vacant versus 32.5 percent at its 2022 peak, with 34 tenants chasing 10 available buildings. Mid-size boxes (100,000 to 250,000 square feet) are the soft spot, at 19.7 percent vacant, though even there, leasing activity exceeded 5.0 million square feet in three of the last four years, and has already eclipsed the 6.0-million-square-foot-mark year-to-date in 2026.
Though office has a longer recovery ahead of it, net absorption has been positive in seven of the last eight quarters, totaling 2.5 million square feet. Vacancy now sits at 25.1 percent, 260 basis points below its post-pandemic peak, aided by the 5.6 million square feet of redevelopment that has resulted in demolished or converted office product since 2020. Another 4.9 million square feet of proposals is likely to propel the office market recovery in the coming years.
Inflection is not just happening in the office sector. The multifamily housing market—like many of its Sun Belt peers—is working through a massive wave of deliveries at a time when net migration and population growth have slowed. Still, Phoenix’s population has grown by 2.8 percent (140,000)—a healthy clip—in the past two years. Affordability dynamics have been key in buttressing demand: the monthly cost of homeownership in Phoenix now exceeds a typical apartment rent by roughly $1,564 per month, nearly three times the pre-pandemic affordability gap, keeping would-be buyers in the renter pool. Year-to-date, Phoenix’s net absorption has exceeded 18,000 units, a historic record by a wide margin—a little over 14,000 units were absorbed over the same period in 2024. With 16,000 units in the pipeline, 62 percent lower than the recent peak, the downtrend in vacancy will continue. It is already down to 10.7 percent in Q3 2026 from its recent peak of 13.0 percent, and this decline remarkably happened in the span of four quarters. It’s likely that the recent inflection in rent growth foreshadows greater pressure ahead.
Office, industrial, and development site investment sales are all on track for record or near-record years in the Silicon Desert. Multifamily transactions remain more muted, but the prospects of rapidly improving NOI fundamentals may shift this dynamic in the near future. Phoenix is firmly in the top 10 markets for investors, reflecting a structural shift as much as a cyclical one.
Phoenix is distinguished by the scale at which growth is occurring. Population gains, semiconductor and advanced manufacturing investment, logistics expansion, and major infrastructure projects are not operating independently. They are reinforcing one another, transforming Phoenix from a high-growth Sun Belt market into one of the country’s most important centers of production, technology, and long-term capital investment.
—Cushman & Wakefield
