Q2 2025 Phoenix Retail Market Report
Market Overview
The Phoenix retail market remains fundamentally tight despite a recent uptick in space availability over the past 18 months, with availability reaching a current rate of 5.0%, up from 4.2% in late 2023. This increase is largely due to bankruptcies of national brands and closures of some small businesses. However, strong demographics, continued income growth, and low unemployment are fueling robust tenant demand, leading to accelerated leasing activity with decade-high quarterly volumes.
The lack of new construction over the past decade has significantly contributed to the market’s tightness, with only about 900,000 SF delivered in the past 12 months, down from a 2.1 million SF average between 2015 and 2019. While the construction pipeline has grown to 2.1 million SF, only 30% is available for lease, keeping supply-side pressure limited. This is particularly true in rapidly growing suburban areas like Buckeye, Surprise, and Queen Creek, where most new supply is concentrated.
Availability Rate
Source: CoStar Group
Rents | Vacancy | Construction
Despite an increase in recent quarters, the market’s availability rate remains below historic highs.
In Q2 2025, the market experienced a normalization in rent growth, with the average asking rent increasing 4.0% over the past 12 months. This level continues to outpace the national average despite being outside the top 10 strongest markets for the first time since Q2 2021. Landlords maintain pricing power, evidenced by 3% annual escalations and rents for high-quality shop space ranging from $35/SF to $45/SF NNN.
The overall market vacancy rate was 4.5% in Q2 2025, and the availability rate reached 5.0% due to a few store closures. Construction remains limited, with only 900,000 SF delivered over the past 12 months. Just 30% of the 2.1 million SF currently under construction is available for lease, primarily located in growing suburban areas like Buckeye and Queen Creek, where new major projects like Verrado Marketplace and Buckeye Commons are underway. This modest pipeline is expected to continue supporting property fundamentals and rent growth.
Leasing Activity
Source: CoStar Group
By the Numbers
- Sales Volume: $571M
- Rent Growth: 3.8%
- Vacancy Rate: 4.6%
- Cap Rate: 6.9%
- Market Asking Rent Per SF: $25.90
- SF Under Construction: 2.1M
- SF Delivered: 870K
- SF Absorbed: 1M | Q2 2025 | Source: CoStar Group
Sales
Private individual investors are the primary buyers for Phoenix retail properties priced between $1 million and $5 million, often acquiring single-tenant triple-net lease properties and small strip centers. The acquisitions are frequently purchased with cash for tax or estate planning purposes rather than just yield. This drives lower cap rates for these assets, which have recently increased by approximately 125 basis points from early 2022 lows to a 5-6% range, influenced by factors like location and tenant credit. For example, in February 2025, a new Dutch Bros location was purchased for $2.7 million with a 5.2% cap rate on a 15-year triple net lease.
Looking ahead, over $600 million in CMBS loans for Phoenix retail are still set to expire by 2026. While maturing low-rate loans in a high-rate environment could lead to refinancing difficulties and potential asset sales, distressed sales are expected to remain limited given the market’s fundamental tightness.
Phoenix Retail Sales Volume & Price Per SF
Source: CoStar Group
