The opening years of the decade marked a time of change in Arizona’s economy. The COVID-19 pandemic dumped cold water on the office market as companies scrambled to write remote work policies. Retail locations suffered as people turned to delivery apps and online shopping for their purchases. The industrial sector, however, entered a renaissance as logistics companies, data center operators and advanced manufacturers invested heavily in the Valley, with TSMC’s $65 billion project being emblematic of this era.
Unlike other states, Arizona opened back up for business quickly as the pandemic began to wane. By the time calendars flipped to 2025, market fundamentals in these three categories reflected that head start.
Office, which experienced a succession of quarters with negative absorption, seems to have turned a corner in the Valley. According to CBRE’s Q4 2024 Phoenix Office Market Report, the end of last year saw the largest quarterly absorption since Q4 2019 at 571,219 square feet. As return-to-office mandates continue to roll out, CBRE says there is evidence that Phoenix is trending upwards, noting that it is tracking 48 tenants totaling 2.1 million square feet of activity, 1.6 million of which is in the proposal stage or in active lease negotiations.
“[Q4 2024] confirms Phoenix has withstood the trough in office leasing and sales, with confidence that the volume can return to pre-pandemic heights in 2025,” the report reads.
The Phoenix retail sector has recovered far more quickly than office, with Avison Young’s Q4 2024 Phoenix Retail Report showing that shopping center foot traffic has returned to 98% of its pre-pandemic levels. The direct vacancy rate is tight at 5.3%, indicating a competitive market where retailers are fighting over limited space — as evidenced by asking rents growing by $5.68 per square foot over four years.
2024 was a banner year for industrial as a market record was set for the largest amount of deliveries in a single year — 34.8 million square feet, according to Colliers Q4 2024 Industrial Report. But construction levels are at the lowest since 2021, with 19.3 million square feet being built. Smaller spaces are in most demand, causing developers to shift focus from big box construction.
“The sentiment of the Phoenix industrial market remains that this is a premier market for both users and investors,” the Colliers report reads. “As construction levels are declining, the market will continue to absorb the existing vacant inventory.”
With the first half of the decade in the rearview, what is to come on the road ahead? AZRE magazine is assembling 12 industry experts for the AZRE Forum on April 8 for a five-year forecast. To learn more, go to azbigmedia.com and click on Awards & Events.
Written by Kyle Backer