The VAC Brief: The Fed Eased, the 10-Year Didn't, and the Southwest Reloads

Key Takeaways

The Fed has held its target range at 3.50% to 3.75% for six months, but the 10-year Treasury, which prices most fixed-rate CRE debt, sits near 4.4%, roughly 75 basis points above its level when the first cut landed in September 2024 (FRED).
US industrial completions of 55.4M SF still outran absorption of 43.1M SF in Q1 2026, but the gap is closing as the 2023 construction wave empties; national vacancy held at 6.7% (CBRE).
Q1 2026 US industrial leasing rose 14% year over year to 249.8M SF, with the gains concentrated in big-box facilities above 1.2M SF (CBRE).
Phoenix industrial vacancy fell 80 basis points to 10.2% on 4.9M SF of net absorption, up about 200% year over year; Las Vegas vacancy declined to 8.8%, a second straight quarterly improvement (CBRE).
Phoenix had nearly 14M SF under construction at the end of Q1, up 38% from the prior quarter, and a 1.14M SF speculative cross-dock broke ground in Glendale in late May, even with vacancy still above 10% (CBRE, BusinessWire).

The Backdrop

The Fed has now sat at a target range of 3.50% to 3.75% for six straight months, its longest pause since this cutting cycle began (FRED). The overnight rate it controls is down 175 basis points (1.75 percentage points) from its 2024 peak. The rate that actually prices commercial real estate debt has gone the other way.

Most fixed-rate CRE loans key off the 10-year Treasury yield (the interest the government pays to borrow for a decade, and the benchmark lenders add their spread on top of), not the fed funds rate. When the Fed delivered its first cut in September 2024, the 10-year sat at 3.72%. As of late June it was around 4.4%, after touching 4.60% in May (FRED). So the borrowing benchmark that matters is roughly three-quarters of a percentage point higher than it was before the Fed eased at all.

Fed funds upper limit vs 10-year Treasury, Sept 2024 to June 2026

Source: FRED (DFEDTARU, DGS10)

The practical read for anyone underwriting today: stop waiting for the Fed to rescue your refinancing. The short end has already moved and the long end has not followed, because the bond market is pricing sticky inflation and heavy Treasury issuance, not the overnight rate. We underwrite to the curve we can see, not the one we wish for, and right now that curve says debt priced off a 4-handle 10-year is the operating reality, not a temporary detour back to 2021.

Asset Classes

Industrial spent 2024 and 2025 digesting the largest construction wave in the sector's history. The digestion is nearly done. In Q1 2026 US developers completed 55.4M SF, and while that still ran ahead of the 43.1M SF tenants absorbed, the two lines are converging from opposite directions: deliveries are falling as the 2023 speculative pipeline (space built without a signed tenant) empties out, and demand has rebounded year over year (CBRE).

US industrial: completions still outran demand in Q1 2026 (million SF)

Net absorption43.1

Completions55.4

Source: CBRE Q1 2026 US Industrial Figures

Vacancy held at 6.7% nationally, with availability (space being actively marketed, including sublease and space not yet empty) at 9.2% (CBRE). The leasing mix is the tell. Total leasing rose 14% year over year to 249.8M SF, and the gains were concentrated in mega big-box facilities above 1.2M SF, the large distribution buildings occupiers sign when they are planning for growth rather than trimming. Smaller formats were softer (CBRE).

We read this as the front edge of a supply cliff. Very little new big-box space is breaking ground, so the best located large boxes will tighten first while the broader market still shows availability in the high single digits. That is a stock-picker's market, not a rising-tide one. Submarket, clear height, and dock ratios will separate the rent growth from the giveaways.

Our Backyard

The Southwest industrial markets that got labeled oversupplied in 2025 are quietly tightening, and the Q1 data is now hard to argue with.

Phoenix opened 2026 with 4.9M SF of net absorption, up roughly 200% year over year, and vacancy fell 80 basis points to 10.2% (CBRE). Deliveries were just 1.4M SF, the lightest quarter since early 2019. Las Vegas told the same story at smaller scale: vacancy declined to 8.8%, a second straight quarterly improvement, on 1.7M SF of absorption (CBRE).

Industrial vacancy, Q1 2026: Southwest still above the national rate

US6.70%

Las Vegas8.80%

Phoenix10.20%

Source: CBRE Q1 2026 Industrial Figures

Here is where we get cautious. With vacancy still in the high 8s in Las Vegas and above 10% in Phoenix, the development industry is already re-loading. Phoenix had nearly 14M SF under construction at quarter end, up 38% from the prior quarter, and in late May Lovett Industrial and Peakline broke ground on North Park Logistics Center, a 1.14M SF speculative cross-dock building (docks on two sides for faster throughput) in Glendale, with no tenant signed and delivery slated for 2027 (BusinessWire).

We like the Southwest's long-run demand story as much as anyone, and we operate here for a reason. But starting seven-figure-square-foot speculative boxes into a market still working off its last wave is how the 2024 vacancy spike happened in the first place. Absorption is real and improving. It is not yet strong enough to justify treating 2027 like 2021. Discipline on basis (the price per foot you pay going in) and on starting buildings vacant is the line we hold on our own deals.

Sources

FRED, 10-Year Treasury Constant Maturity Rate (DGS10 and WGS10YR): https://fred.stlouisfed.org/series/DGS10
FRED, Federal Funds Target Range Upper Limit (DFEDTARU): https://fred.stlouisfed.org/series/DFEDTARU
CBRE, Q1 2026 US Industrial & Logistics Figures: https://www.cbre.com/insights/figures/q1-2026-us-industrial-and-logistics-figures
CBRE, Las Vegas Industrial Figures Q1 2026: https://www.cbre.com/insights/figures/las-vegas-industrial-figures-q1-2026
CBRE, Phoenix Industrial Figures Q1 2026: https://www.cbre.com/insights/figures/phoenix-industrial-figures-q1-2026
BusinessWire, Lovett Industrial and Peakline break ground on North Park Logistics Center: https://www.businesswire.com/news/home/20260527466678/en/

Frequently Asked Questions

Why haven't Fed rate cuts made CRE borrowing cheaper?: Most fixed-rate commercial real estate loans price off the 10-year Treasury, not the fed funds rate the Fed controls. The Fed has cut 175 basis points since 2024, but the 10-year has climbed from 3.72% to about 4.4% as the bond market prices sticky inflation and heavy Treasury issuance (FRED). The benchmark that matters went up, not down.
Is the industrial oversupply finally over?: Nearly. US completions of 55.4M SF in Q1 2026 still exceeded the 43.1M SF tenants absorbed, but new deliveries are falling fast as the 2023 and 2024 speculative wave clears, and demand rebounded year over year. National vacancy held at 6.7% (CBRE). Expect the best located big boxes to tighten before the broader market does.
How are the Las Vegas and Phoenix industrial markets doing?: Both are tightening. Phoenix absorbed 4.9M SF in Q1 2026 with vacancy down to 10.2%, and Las Vegas vacancy fell to 8.8% on 1.7M SF absorbed, its second straight quarterly improvement (CBRE). Deliveries in both markets dropped sharply, with Phoenix posting its lightest quarter since early 2019.
What is VAC's stance on Southwest development right now?: Cautious on speculative starts. Phoenix already has nearly 14M SF under construction, up 38% in a quarter, and a 1.14M SF speculative building just broke ground in Glendale with no tenant signed, even though vacancy is still above 10% (CBRE, BusinessWire). Re-loading the pipeline too early is what produced the last vacancy spike.

Key Takeaways

The Fed has held its target range at 3.50% to 3.75% for six months, but the 10-year Treasury, which prices most fixed-rate CRE debt, sits near 4.4%, roughly 75 basis points above its level when the first cut landed in September 2024 (FRED).

US industrial completions of 55.4M SF still outran absorption of 43.1M SF in Q1 2026, but the gap is closing as the 2023 construction wave empties; national vacancy held at 6.7% (CBRE).

Q1 2026 US industrial leasing rose 14% year over year to 249.8M SF, with the gains concentrated in big-box facilities above 1.2M SF (CBRE).

Phoenix industrial vacancy fell 80 basis points to 10.2% on 4.9M SF of net absorption, up about 200% year over year; Las Vegas vacancy declined to 8.8%, a second straight quarterly improvement (CBRE).

Phoenix had nearly 14M SF under construction at the end of Q1, up 38% from the prior quarter, and a 1.14M SF speculative cross-dock broke ground in Glendale in late May, even with vacancy still above 10% (CBRE, BusinessWire).

The Backdrop

Asset Classes

Our Backyard

The Southwest industrial markets that got labeled oversupplied in 2025 are quietly tightening, and the Q1 data is now hard to argue with.

Frequently Asked Questions

Why haven't Fed rate cuts made CRE borrowing cheaper?

Most fixed-rate commercial real estate loans price off the 10-year Treasury, not the fed funds rate the Fed controls. The Fed has cut 175 basis points since 2024, but the 10-year has climbed from 3.72% to about 4.4% as the bond market prices sticky inflation and heavy Treasury issuance (FRED). The benchmark that matters went up, not down.

Is the industrial oversupply finally over?

Nearly. US completions of 55.4M SF in Q1 2026 still exceeded the 43.1M SF tenants absorbed, but new deliveries are falling fast as the 2023 and 2024 speculative wave clears, and demand rebounded year over year. National vacancy held at 6.7% (CBRE). Expect the best located big boxes to tighten before the broader market does.

How are the Las Vegas and Phoenix industrial markets doing?

Both are tightening. Phoenix absorbed 4.9M SF in Q1 2026 with vacancy down to 10.2%, and Las Vegas vacancy fell to 8.8% on 1.7M SF absorbed, its second straight quarterly improvement (CBRE). Deliveries in both markets dropped sharply, with Phoenix posting its lightest quarter since early 2019.

What is VAC's stance on Southwest development right now?

Cautious on speculative starts. Phoenix already has nearly 14M SF under construction, up 38% in a quarter, and a 1.14M SF speculative building just broke ground in Glendale with no tenant signed, even though vacancy is still above 10% (CBRE, BusinessWire). Re-loading the pipeline too early is what produced the last vacancy spike.