Future Cities

Retail Markets in Focus: Phoenix

Phoenix is the inaugural Retail Market in Focus, a new series by CBRE Research spotlighting North American retail markets with strong metrics and unique characteristics that attract occupiers and investors.

March 24, 2022 5 Minute Read


Demographic Strength

This Southwest market of almost 4.9 million people ranks second among the top 20 U.S. metros for population growth (8.1%) over the past five years, trailing only Dallas. Another 6.2% in population growth is forecast by 2025—the third highest rate among the top 20 metros. On an absolute basis, Phoenix had the second-highest total of net migration over the past five years, just behind Dallas. More than 80% the market’s population growth is from in-migration, the highest rate in the nation.

Figure 1: Phoenix's Favorable Demographic Strength

Source: Oxford Economics, CBRE Research, Q1 2022.

Leasing Strength

Available retail space in Phoenix has been absorbed at a 1.6% annual rate over the past two years, compared with the 0.6% average for all markets tracked by CBRE Research. Phoenix’s retail availability rate has tightened by 2.1 percentage points over the same period, compared with the national average of just 58 basis points (bps), for the biggest reduction in available space among major markets. High levels of absorption and low levels of availability are expected to continue.

Strong real estate fundamentals should lead to rising rents. Forecasts call for a 3.7% annual increase in rent over the next two years, compared with a 2.2% national average, Prime retail demand is outpacing supply with stiff competition among retailers entering the market.

On the supply side, Phoenix is one of the top five markets for new retail development over the past two years, according to CBRE Econometric Advisors. Phoenix is forecast to be one of the top three markets for new development over the next two years, which should help accommodate increased demand for prime space.

Figure 2 : Phoenix's Favorable Leasing Strength

Source: CBRE EA, CBRE Research, Q1 2022.

Figure 3: Markets With Largest Percentage Point Decrease in Retail Availability Over Past Two Years


Source: CBRE EA, CBRE Research, Q1 2022.

Investment Sales Strength 

Phoenix saw a 29% year-over-year increase in retail real estate investment volume last year to a record $2.1 billion, the second highest growth rate among the nation’s top 20 markets.

Cap rates for prime retail assets fell by 25 to 50 bps last year to between 5.5% and 6.5%, while Class B assets traded at rates of between 6.5% and 7.5%.Phoenix’s retail investment market boasts both high liquidity and stability. Real Capital Analytics ranks it 12th of the 53 markets it scores for liquidity. That ranking is expected to improve in coming years as investor demand outpaces for-sale offerings.

Figure 4: Phoenix's Strong Investment Sales Volume Growth


Source: Real Capital Analytics, CBRE Research, Q1 2022.

Spotlight Submarket: Scottsdale

Neighboring Scottsdale, with a population of 250,000, boasts an average retail asking rent that is almost 65% higher than that of Phoenix.

Despite its higher rents, Scottsdale’s retail availability rate fell by 1.6 percentage points last year to just 4.3%. Leading brands like Cartier, Gucci, Dior and Burberry have their Greater Phoenix locations in Scottsdale.

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