— Scott Hintze and Marti Weinstein of Diversified Partners Commercial Real Estate —
Phoenix’s retail development market is seeing a surge in optimism as the city benefits from a growing economy and a shift in political leadership. With the new administration coming into power, the outlook for the Phoenix retail market has become increasingly positive, promising a wave of new projects and investment opportunities in the coming years.
The city’s rapid population growth, expanding infrastructure and bustling job market have positioned Phoenix as one of the most attractive cities in the U.S. for retail development. The new administration has brought a renewed focus on urban development, job creation and business-friendly policies, which is expected to help stimulate both demand for retail spaces and the construction of new commercial properties. Government support, including incentives for developers and tax breaks for businesses, is anticipated to foster a thriving retail sector that will benefit both local residents and national retailers looking to expand into the area.
Several projects we have been working on have seen unprecedented demand from tenants. We recently completed a 25,000-square-foot building across from Gilbert Mercy Hospital that includes a two-story Starbucks, the first in the market.
In addition to the economic and policy changes, Phoenix has become an increasingly sought-after location for national brands and retailers. The occupancy costs in Phoenix are still more attractive when compared to other major MSAs. With its expanding population — particularly among younger, more affluent individuals — the city has become a key target for businesses looking to capture the Southwest market. As consumer demand rises, retail centers across the city are seeing new tenants, from large-box stores to smaller boutique retailers, adding to the overall vibrancy of Phoenix’s commercial areas.
Phoenix is now the fifth-largest U.S. city, making the demand for unique entertainment venues and elevated dining experiences more relevant than ever. One of the projects we are merchandising is the Sydney in Scottsdale. It will be home to notable brands like Arizona’s first Hard Rock hotel, the Rustic, a first-class music venue out of Dallas, and Pickle & Social, a first-to-market pickleball venue with elevated food and beverage, among others.
Another key trend in the market is the expected slight decrease in cap rates. Phoenix currently has some of the best cap rates in the country, reflecting strong investor confidence in the market. However, increased demand and a growing sense of economic stability may cause rates to gradually decrease. This would reflect a shift toward a more competitive, yet still highly attractive investment environment. This trend signals greater opportunities for developers and investors looking to enter or expand in Phoenix’s retail sector.
All this being said, we are bullish on Phoenix and look forward to a bright future ahead.
— By Scott Hintze and Marti Weinstein, partners at Diversified Partners Commercial Real Estate. This article originally appeared in the January 2025 issue of Western Real Estate Business.