What's Happening?
The Tucson industrial market experienced a positive shift in the second quarter of 2026, with 48,651 square feet of positive net absorption, according to a report by CBRE. This marks a reversal from the 220,000 square feet of negative absorption in the first
quarter. Despite this improvement, the overall industrial vacancy rate increased to 9.0%, up from 8.8% in the previous quarter and significantly higher than the 4.4% recorded a year earlier. The market's vacancy rate has risen by 630 basis points since the second quarter of 2023, indicating a transition from tight conditions to more tenant options. Smaller industrial buildings remain in high demand, with a vacancy rate of only 2.3%, compared to 17.9% for larger spaces. Leasing activity has slowed, with a 57.1% decline from the first quarter.
Why It's Important?
The developments in Tucson's industrial market reflect broader economic trends and challenges. The increase in vacancy rates, despite positive absorption, suggests a market adjusting to new supply and economic conditions. Rising interest rates and national economic uncertainty are influencing market dynamics, with Tucson potentially benefiting from companies seeking lower operating costs compared to larger metropolitan areas like Phoenix. The continued investment in semiconductor and advanced manufacturing operations is expected to support long-term demand. However, the current period of adjustment indicates that the market needs further growth to absorb the new supply effectively.
What's Next?
Looking ahead, Tucson's industrial market is expected to continue adjusting to the new supply and economic conditions. The completion of ongoing construction projects, such as the Southeast warehouse-and-storage project, will add to the available space. The market may see increased interest from companies looking for cost-effective alternatives to larger cities. However, the elevated vacancy rates and modest leasing activity suggest that it will take time for the market to stabilize. Stakeholders will be closely monitoring economic indicators and interest rates, which could impact future development and leasing decisions.
