Industrial demand is on the rise. 

The national industrial vacancy rate fell 10 basis points in the second quarter, which suggests that demand is beginning to outpace new supply. Things are following suit in Phoenix, where industrial vacancy is down 50 basis points quarter-over-quarter and 220 basis points year-over-year. 

But where specifically does the demand lie? Is it with big-box spaces, small-bay projects or a mix of both? And what does all of this mean for Phoenix? 

All of this will be discussed at Bisnow’s Phoenix Industrial and Manufacturing Outlook event Sept. 30 at the Embassy Suites Phoenix Biltmore. Hear industry experts break down navigating investment opportunities, new industrial demand drivers, the tenant experience and more. Register here. 

LGE Design Build Regional Vice President Grant Blunt will speak at the event, and Bisnow sat down with him to learn more about where Phoenix industrial is headed. 

Bisnow: How would you describe the state of the Phoenix industrial market? Reports show vacancy is on a downward trajectory. Do you think that will continue, and what do you think is driving this? 

Blunt: Vacancy's been coming down all year, in the low double digits, down from the midteens a year ago, and I think that holds through the back half of 2026. The market is working through the spec oversupply we built between 2022 and 2024. Developers pulled back on new starts, absorption is now running more than double last year's pace, and that combination is what's driving vacancy down. One caveat, though: Bulk logistics over 500K SF is still oversupplied, holding a higher-teens-percentage vacancy, so it depends which box you're talking about.

Bisnow: What projects is LGE working on in the area, and what are your plans for the future? 

Blunt: We've got a full plate. We have Ten85 Logistics Park in Buckeye at 3.8M SF; Park Algodon in Phoenix, which is moving into Phase 2 to complete at 1.4M SF; an industrial park; three jobs going at once in Tempe; and, on the smaller end, two niche flex and storage projects in Scottsdale, which is exactly the kind of project the panel I will be speaking on is about. 

We are also working on the Loop Business Park in Scottsdale, which is well underway, with 267K SF of small-bay product. Small-bay projects, in particular, are where we see the opportunity heading, especially in the East Valley.

Bisnow: You're speaking on a panel titled Beyond the Box: Cold Storage, Flex, Small-Bay and Outdoor Storage in the Phoenix Industrial Market. What can you tell me about these particular niches and how are they performing? 

Blunt: All four are outperforming the big box, just for different reasons. Small-bay and flex are running around 4% vacancy, compared to over 7% for large bay. Cold storage is scarce because it's expensive to build, not because demand is soft. 

Outdoor storage is quietly becoming its own asset class as infill land near freight corridors gets harder to find. Bottom line: Buyers and tenants are paying up for space that fits how they actually operate, not the standard spec box.

Bisnow: What are some of the top things developers need to know about the Phoenix industrial market right now? 

Blunt: Big-box isn't dead. We are just seeing fewer spec builds. Small-bay and infill are where the money is, with vacancy near 4% and not enough zoned land to meet growing demand. Labor and materials are tightening as data center investment pulls trades and resources off standard industrial work. Meanwhile, niche products, like cold storage and outdoor storage, aren't a side bet anymore. They are their own asset class now. 

Bisnow: What do you hope is the main takeaway from this event? 

Blunt: That the box isn't the whole story anymore. Big bulk distribution still matters, but it's not where the growth is. The developers and builders who figure out how to deliver space that actually fits how tenants operate are the ones who'll be busy the next five years.

This article was produced in collaboration between LGE Design Build and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.