The Phoenix area commercial real estate market had an excellent first quarter of the year, with multi-family and industrial leading the way. The population growth in the area continues to be a driving force in commercial real estate expansion, and that expansion is diverse across many industries. The current Coronavirus epidemic is expected to have an impact on the commercial real estate market, however that impact should vary dependent on the specific type of property. Some of those expected impacts are highlighted below, and the second quarter report which we will send in a few months will show how those impacts have panned out. Below is a breakdown by segment including retail, office space, industrial and multi-family.


The retail market has stayed relatively steady for the past several years as vacancy rates have crept lower and rents have risen modestly but steadily. Vacancy rates do remain several percentage points above the national average. We do anticipate that vacancy rates will increase for the next two quarters due to the fallout from the pandemic, however population growth in the area amounting to 100,000 new residents per year should push the retail market back to current levels closer to the holidays later this year. Average median income has also expanded in the Phoenix area by over 34% in the last 7 years, further bolstering the retail outlook. The retail stats are:

Vacancy Rate: 7% (6.9% last quarter and 3% higher than national average)

Average Rental Rate: $19.70 per square foot ($19.40 last quarter)

Average Sale Price Per Square Foot: $194 ($191 last quarter)

Average Cap Rate 7.12% (7.17% last quarter)


The Phoenix office market has continued a stunning run in which demand has outpaced supply for 9 straight years. Although the impact of the pandemic is expected to be felt temporarily in the office segment, it appears that the impact will be much less than that experienced by the retail market. The majority of the growth in the office segment has been driven by major corporate expansions and relocations. While there seemingly is new office buildings going up everywhere you look, new office construction is actually below historical averages.

The office stats are:

Vacancy Rate: 12.1% (up from 11.6% last quarter)

Average Rental Rate: $26.31 per square foot (up from $26.19 last quarter)

Average Sale Price Per Square Foot: $205 per square foot (unchanged from last quarter)

Average Cap Rate: 7.19% (7.14% last quarter)


The Phoenix industrial market was already growing rapidly prior to the epidemic, and it may be the one industry segment which actually gets stronger during the course of the epidemic as consumers switch from in-person retail purchases to online purchases. A vast majority of new industrial buildings in the Phoenix area are focused on logistics, which includes warehousing and distribution. Phoenix has turned into a logistics hub, with over 35 million people reachable within a 1 day drive. The other significant factor leading to growth in this segment is the relatively inexpensive industrial rental rates compared to neighboring California.

The industrial stats are:

Vacancy Rate: 7.2% (up from 6.9% last quarter)

Average Rental Rate: $8.49 per square foot (up from $8.36 last quarter)

Average Sale Price Per Square Foot: $111 per square foot (up from $109 last quarter)

Average Cap Rate: 6.32% (6.33% last quarter)


The multi-family market in Phoenix has enjoyed one of the most robust growth cycles in the entire nation, with rental price growth topping out at number 1 nationwide for several quarters in the last two years. This has been driven by sustained population growth, and also the inability of single-family home builders to keep up with demand. The multi-family segment is not immune from the impacts of the epidemic, and the record jobless claims means many people will have difficult in the near term leasing a new space. However, with housing being a fundamental need for the population, this segment of the industry is predicted to recover faster than any other segment.

The multi-family stats are:

Vacancy Rate: 6.6% (up from 6.4% last quarter)

Average Rental Rate: $1,164 per unit (up from $1,161 last quarter and $1,115 last year)

Average Sale Price Per Unit: $169,925 per unit (up from $166,514 last quarter)

Average Cap Rate: 5.01% (5.05% last quarter)

-Tom Wolf