Q1 2025 Phoenix Retail Market Report
Market Overview
Despite a slight increase in space availability due to the pick-up in store closures over the last 18 months, the Phoenix retail market’s fundamental constraints persist as summer approaches. The market boasts strong demographics, continued income growth, and low unemployment, fueling robust underlying tenant demand. These strong demand factors, along with a modest building pipeline, have kept availability low in comparison to previous years in the valley. With the recent bankruptcies by national brands and the closures of certain small-business tenants, whom were operating on thin profit margins, the availability rate has reached 5.1% as of Q1 2025. This is an increase in comparison to the 4.3% rate from late 2023. These factors have left several spaces vacant that have yet to fully backfilled. Despite this increased rate, local market participants have reported healthy tenant retention and elevated competition for space.
- Despite a projected slowdown in economic and consumer growth which may lead the availability rate and rent growth to moderate further, property performance is unlikely to decline significantly.
- One downside risk to this projection is a worse-than-expected affect from tariffs, which could have an effect on underlying tenant demand.
Rents | Vacancy | Construction
An increase in closures has opened up opportunities for other retailers to expand.
A shortage of new construction over the last ten years has been a key factor behind the Valley’s constrained market environment. During the latest period of economic growth, developers prioritized other types of real estate, especially in Phoenix, which experienced severe impacts from the Global Financial Crisis. In the past year, only 670,000 square feet of new retail space has been completed—significantly lower than the 10 million square feet delivered annually between 2006 and 2008. While the volume of space under construction has climbed to 2.3 million square feet, exceeding the pre-pandemic norm, only 30% of it is currently available for lease. This limited availability has helped reduce supply-side pressures. Large speculative retail spaces are uncommon, and developers typically secure commitments from anchor and junior anchor tenants before starting construction, with much of the smaller retail space also preleased.
After several years of rapid gains, rent growth in the Phoenix retail market is beginning to stabilize. Over the past year, the average asking rent increased by 3.1%, placing the Valley outside the top 10 U.S. markets for retail rent growth for the first time since Q2 2021. Even so, Phoenix remains ahead of the national average, which saw a more modest 1.7% rise.
Top Retail Leases Q1 2025
| Tenant Name | Leased SF |
| Slick City | 44,506 |
| Ross Dress for Less | 30,187 |
| PetSmart | 22,503 |
Source: CoStar Group
By the Numbers
- Sales Volume: $411M
- Rent Growth: 3.7%
- Vacancy Rate: 4.6%
- Cap Rate: 6.8%
- Market Asking Rent Per SF: $25.64
- SF Under Construction: 2.7M
- SF Delivered: 276K
- SF Absorbed: 314K | Source: CoStar Group
Sales
Investment activity began to pick up momentum in 2024, a trend that extended into early 2025. Approximately $2.0 billion in assets changed hands over the past year, surpassing the $1.7 billion recorded for all of 2023. Sales in the first quarter of 2025 were over 10% higher than the same timeframe the previous year, pushing the annual transaction volume above the five-year average seen before the pandemic. Regarding pricing, unanchored or non-grocery anchored strip centers typically trade at cap rates between 7% and 8%, although top-tier properties have seen rates dip into the 6% range.
Looking ahead, analysts are keeping an eye on over $600 million in CMBS loans tied to retail properties in Phoenix that are set to mature by 2026. As these low-interest loans come due in a higher-rate climate, some property owners may struggle to secure new financing, potentially leading them to list their assets for sale. However, due to the overall strength and limited availability in the market, a significant wave of distressed sales is not anticipated in the near term.
