Tucson Industrial Market Update

The Tucson industrial real estate market continues to shift as vacancy trends, macroeconomic pressures from tariffs, and submarket dynamics reshape demand. Current industrial vacancy stands at 8%, up from 7.2% last year, and projections show continued upward pressure through 2026, most likely climbing above 10%. 

Vacancy Trends

Vacancy rates have risen steadily since 2023 and are expected to surpass 10% in 2026 as sublease space burns off and large bays return to the market. This is particularly evident in the 20,000 SF+ segment, where new speculative development is increasing supply.

IOS Remains the bright spot. Industrial Outdoor Storage (IOS) continues to be the strongest sector of Tucson’s industrial market. With limited supply and persistent demand from contractors, logistics groups, and service-based users, IOS assets remain competitive and command strong pricing relative to traditional warehouse space.

Geographic Strength and Weakness

The north of Prince Road and I-10 corridor remains Tucson’s strongest geographic submarket, benefiting from less crime, interstate access and stable tenant demand.

By contrast, rising crime in the Grant & I-10, Park & Ajo and Aviation areas is pushing tenants to seek alternatives in Vail, Marana, Airport and Contractor’s Way markets. These emerging areas are absorbing demand that might otherwise have located in the urban core, supporting higher stability in those submarkets.

Large-Bay Market Dynamics

Large-bay speculative development (20,000+ SF) is showing more activity than last year, but competition is putting downward pressure on lease rates for existing product. As vacancy builds, we’re seeing lease rate compression in this segment, with landlords increasingly competing on pricing on 20,000 SF + class b industrial buildings to attract tenants.

Tariff Uncertainty and Lease Terms

One of the biggest headwinds in 2025 has been tariff-related uncertainty. Fluctuating trade policy has left many occupiers hesitant to commit to long-term leases, preferring shorter 1–3 year deals until economic conditions stabilize. Renewals are increasingly short-term, and long-term build-to-suit commitments are being deferred.

This hesitancy impacts speculative construction and investor underwriting, as developers face difficulty securing tenants willing to sign longer leases and unpredictable materials costs that would typically anchor financing.

Construction Costs and Capital Markets

The good news: construction costs have plateaued after several years of rapid escalation, giving tenants and developers more predictable budgeting.

The challenge: sustained higher interest rates are stressing owners who purchased at all-time highs. With rent growth flattening and NNN expenses climbing, many of these acquisitions are underperforming initial projections. Some distress is beginning to surface, particularly among leveraged buyers in secondary submarkets.

Outlook for 2026Looking forward, Tucson’s industrial market is likely to see:

• Vacancy above 10%, driven by the return of sublease space and new speculative construction.
• Plateaus in rental rates and property values, with the potential for compression in higher-crime areas.
• Continued strength in IOS and in submarkets north of Prince/I-10, Vail, Marana, and Contractor’s Way.
• Ongoing shorter lease commitments until tariff and interest rate conditions stabilize.

The market remains fundamentally healthy and balanced, but both tenants and landlords should prepare for a more competitive environment heading into 2026.