Phoenix retail market report
Q2 2025
Leasing activity in the Phoenix retail market is being driven by pent-up demand rather than weak fundamentals. Strong population growth and low vacancy rates have limited retailer expansion, but closures of national chains have created opportunities for larger tenants. Experiential, health, wellness, and fitness retailers are filling these spaces, resulting in a notable increase in leasing activity that suggests sustained momentum amid strong tenant competition.
Recent slight rent growth signals a shift toward sustainable market fundamentals. Increased space availability from retail closures and controlled construction is helping the market rebalance without significant price drops. Despite economic challenges, Phoenix's low 5.1% vacancy rate and new supply suggest stable rent growth. Landlords in high-demand areas continue to see healthy leasing spreads, supporting ongoing, albeit slower, rent appreciation.
The near-full recovery in foot traffic is noteworthy, especially with the rise of e-commerce. Instead of making brick-and-mortar stores obsolete, the pandemic has reshaped retail expectations, prompting retailers to adopt omnichannel models. Phoenix's high engagement levels make it a prime location for testing innovative retail formats. As visitation rises and consumer behavior stabilizes, retailers are expected to invest more in storefronts to enhance brand presence and multi-channel engagement.
Big-box vacancies pent-up demand
For much of the past two years, Phoenix's slow net absorption was due to constrained supply rather than weak tenant demand. With limited options, particularly for large-format users, many retailers were unable to expand. However, this quarter saw a shift as bankruptcies and store consolidations opened up significant big-box retail space. This led to nearly 1 million square feet of positive net absorption—the highest since 2022—along with major lease signings, including IKEA’s 75,000-square-foot showroom on Cactus Rd.
Rent growth stabilizes amid tight conditions
Rent growth in the Phoenix retail market is moderating but remains strong, with a current average asking rent of $25.53 per square foot, reflecting a 3.7% year-over-year increase. While this growth is slower than post-pandemic gains, it exceeds national trends and highlights strong local demand driven by a resilient labor market, rising incomes, and population growth, allowing landlords to maintain pricing power despite increased space availability.
Brick-and-mortar foot traffic nears full recovery
Phoenix is seeing a strong return to pre-pandemic retail engagement, with shopping center visits at 95% of historic levels. While not a complete recovery, this marks a significant milestone for a market that has outperformed national trends in employment and population growth. Physical retail is evolving, and consumers are once again embracing in-person experiences. For retailers considering expansion, Phoenix offers a dense, economically active consumer base and a continued interest in physical shopping environments.
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