Arizona Commercial Real Estate: A Look at the Latest Trends

Nick Miner, CCIM
Orion Investment Real Estate

Arizona has been one of the hottest commercial real estate markets in the country even with the recent changes in the capital markets. Arizona’s continued population growth, strong economy, and a favorable business climate, contributes to the strong demand for commercial property.

Here are some of the latest trends in the Arizona commercial real estate market:

  • Strong demand for industrial space: The industrial sector is one of the hottest segments in Arizona. There is approximately 49M square feet under construction and to be delivered in 2023; over half of it is preleased. Our overall market for industrial space is approaching 450M square feet. Lease rates are still significantly less than the Inland Empire/LA County industrial which is why we continue to be a strong market for relocation.
  • Retail rents continue upward climb: Since the Great Recession, speculative retail development has been limited. The Phoenix retail market is under 5% vacant and we are seeing increasing rental rates. The new projects like Village at Prasada are leasing well and are hitting new market highs for rental rates given the current construction costs.
  • Office market continues its ecommerce moment: Since the pandemic, WFA (“Work From Anywhere”) has forced this segment to reevaluate and reengineer. This is every similar situation to when e-commerce was going to be the “death” of retail. There are a lot of similarities happening right now in the office segment. There is definitely a bifurcated market as well. For example, the new office properties at The Grove have set a new high for market rental rates. Being part of a “mixed-use” development and location are going to be the key for this segment going forward.

As an expert in the field, I believe that the following factors will continue to drive growth in the Arizona commercial real estate market:

  • The state’s growing population: Arizona is one of the fastest-growing states in the country, and this population growth is expected to continue. This will continue to create demand for new commercial space, as businesses and organizations relocate or expand in the state.
  • The state’s strong economy: Arizona has a strong economy, with low unemployment and a growing business sector. This economic strength will continue to attract businesses to the state.
  • The state’s favorable business climate: Arizona has a favorable business climate, with low taxes and a business-friendly regulatory environment. We still see several companies locating from our neighbors to the west for this very reason.

The Arizona commercial real estate market is strong, and it is poised for continued growth for many years to come with limited headwinds.