The ever-evolving commercial real estate market is influenced by economic trends, changes in political and financial policy, and shifting investor sentiments. Real estate investment decisions and economic conditions have always been closely linked with economic growth, often fueling demand for property ownership, and in turn, price escalations. 

The key trends driving the future of commercial real estate (CRE) in Arizona include:

1. Technological advancements
2. Infrastructure investments
3. Evolving tenant preferences 

2025 will be a transformative year for the CRE market, and while there will always be challenges, opportunities are plentiful for those ready to adapt and innovate. Commercial real estate remains a preferred option for private and institutional investors, especially as they look for stability in times of economic unpredictability.

Let’s take a more in-depth look at these driving forces with a sector-by-sector analysis and examine how they will impact the future of CRE in Arizona:

Industrial sector

During the past two years, Phoenix-metro tenants have absorbed more than 15 million square feet of industrial space. Arizona continues to see high demand for industrial space, specifically for space under 100,000 square feet. One of the factors stoking the flame is the state’s strategic location. With access to major transportation routes and business-friendly policies, demand for warehouses and distribution spaces has skyrocketed. Arizona’s geographic positioning, coupled with staggering corporate investment has put the industrial sector in the spotlight. More specifically, the investment in Taiwan Semiconductor (TSMC) is stimulating massive expansion in the Phoenix-metro area with a proposed “city within a city,” that developers have named Halo Vista. The $65 billion investment aims to integrate manufacturing, residential, retail, hospitality, research facilities, and even an auto mall, with the potential of generating upwards of 90,000 jobs.

Office market

The office space sector is experiencing a revolution shaped by hybrid work models and the changing preferences of its tenants. Despite high vacancy rates, there’s a growing demand for Class A office spaces that provide modern amenities and flexible floor plans. Developers are focusing on opportunities that permit the repurposing of older buildings for other uses and reflect a strategic shift in property utilization.

Retail sector

While there are nationwide challenges for the retail sector, Arizona’s retail space demonstrates resilience. A growing population, boasting 400 in-migrants per day, and a boom in tourism contribute to vacancy rates remaining low and increasing rents. Developers are excited about mixed-use projects, combining retail with residential and entertainment spaces, satisfying modern consumer and tenant preferences.

Multifamily sector

In 2024, the Phoenix metro area saw the delivery of 70,000 new units, more than double the average annual rate. The driving forces behind the surge in development include job growth, immigration, and favorable rent-to-buy ratios. Although the expected number of units in 2025 and the rate of absorption may create a temporary oversupply, the market is expected to stabilize in the coming years.

MOB/Healthcare real estate sector

Arizona has always appealed to people seeking a place to retire. While there is an increase in young people moving to the state, the overall population is aging faster than the national population. As a result, we see a rise in senior living communities being developed and an increase in demand for medical office buildings (MOBs) and surgery centers. These trends continue to support resilience in the healthcare real estate sector. Proximity to more densely populated areas and hospital systems is prime for healthcare real estate investments, with the state’s top 10 hospitals located in the Phoenix metro area.

Why sustainability and technology integration matter

Sustainability and technological advances are becoming central to Arizona’s CRE environment. Developers are adopting green building practices and incorporating smart technologies to improve operational efficiency and tenant experience. This shift amplifies broader environmental, social, and governance (ESG) considerations, affecting investment and development strategies across the state.