What you need to know
- Phoenix is still expanding. Semiconductor manufacturing combined with AI-related projects has brought in new employers, bringing in more workers and pushing the demand for housing higher.
- Industrial has the firmest near-term footing of all CRE segments. Tenants absorbed space faster than developers completed it.
- The recent flood of new apartments is winding down. More people are actively renting, pushing tenant demand high enough.
- Office buyers are actively buying buildings that can be repositioned/converted, or bought at a basis that justifies major upgrades.
- Housing development in the West Valley and East Valley (farther from the established core) is also establishing new opportunity centers.
Private Capital Investors provides capital for eligible Arizona transactions.
We’re direct lenders specializing in commercial real estate. Tell us about your project, and we’ll help you find the most suitable loan structure and terms.
Spotlight on Phoenix
Arizona had a big-ticket investment year overall.
The state secured commitments for 26,225 projected jobs and more than $109B in investment.
This surge in capital-intensive projects translated into a healthier commercial real estate industry, with the most traction in Phoenix. The numbers below show where:
| Sector | 2026 findings at a glance |
| Industrial | 9.1M sq ft absorbed in H1 against 3.3M sq ft delivered. Direct vacancy fell to 8.7% |
| Industrial | Construction rose to roughly 15.5M–15.6M sq ft |
| Office | H1 net absorption reached 834,548 sq ft Office sales rose 52.2% to $818M |
| Multifamily | Q2 absorption reached 5,692 units, above 4,073 deliveries Construction pipeline fell to 20,030 units |
| Retail | Construction pipeline fell 31%, but rents rose 5.9% year over year |
Loop 303 and the West Valley have become industrial investment hotspots
Demand for large-scale industrial and data center space in Phoenix outstripped new construction.
In early 2026, businesses leased 9.1 million sq ft of industrial space, but developers only completed 3.3 million square feet.
That put demand at nearly triple the new supply; overall vacancy dropped to 8.7% as a result.
The West Valley — specifically along the Loop 303 highway corridor — is shaping up to be the main growth engine because it has enough large tracts of open land to accommodate warehouses and power-heavy infrastructure.
AI companies are competing with traditional logistics for space.
One example: AI infrastructure firm Fluidstack (among many others like it) leased 1.14 million sq ft at Luke Field.
In response, developers have been building heavily in Phoenix’s Northwest and Southwest submarkets. These two submarkets now account for 83% of all industrial construction in the Phoenix metro area.
Shovel-ready land commanded a premium, while raw land without roads/utilities or city zoning approvals sold for less than expected (a 310-acre Buckeye sold at $9,000 per acre) because they will cost buyers millions of dollars and years of bureaucratic effort to get ready.
Speed to market seemed to be the primary site-selection filter for tech and logistics tenants. They looked for high-capacity power and water access, with entitlements already cleared.
How did Arizona agricultural and development land perform?
Water security drove land values in Arizona for the most part of the last two years, largely because Active Management Areas and Irrigation Non-Expansion Areas determine how much groundwater a landowner can legally pump.
| Greater Yuma | Cropland prices were stable to slightly higher
Yuma Mesa showed signs of price growth (though transaction activity had slowed) |
| Central and southeast Arizona | Agricultural land values were stable. Light transaction activity |
| Farmland near Phoenix | Activity slowed amid high rates and water concerns |
| Cochise and Graham counties | Activity cooled in Cochise and Graham counties due to groundwater concerns and expanding regulation |
| Phoenix and Pinal AMAs | The state’s Ag-to-Urban program allowed eligible irrigated-farm owners to exchange groundwater pumping rights for credits that can support the assured-water-supply process |
As this information from agricultural lending and financial services cooperative AgWest indicates, farmland near expanding cities carried a high premium in 2025-2026 because housing developers and industrial users bought the land (and its associated water rights) in anticipation of population growth.
But the state’s Ag-to-Urban program could very soon change land dynamics here.
Under the program, farmers can voluntarily agree to permanently stop pumping groundwater for crops, and in exchange, the state grants them water savings credits tied to that land.
Farmers can then sell those water credits to homebuilders, who can then use them to legally qualify for construction permits. (For context, Arizona strictly regulates groundwater for housing developments; developers must prove a 100-year “Assured Water Supply” before building).
The program is still very new, and the complex process of relinquishing rights and transferring credits means few deals have closed yet, so it hasn’t visibly changed land prices.
Arizona commercial land values depend on entitlement and infrastructure
Land basis (the total cost to buy a piece of land and get it ready to build on) comes down to four critical factors:
- Does the land already have utilities connected or nearby?
- Is the land legally zoned and permitted by local governments?
- Is the property connected to freight train lines (crucial for manufacturing and heavy industrial transport)?
- Is the land close to major highway corridors and labor pools/business hubs?
Here’s our take on what some of the transactions in the last year mean for Arizona commercial land:
| Transaction | Land value | Our analysis |
| Queen Creek: 16.13 acres at Meridian and Germann roads | ~$432,000 per acre | This land commanded a strong price because it was “entitled,” meaning all regulatory approvals were ready. Developers were willing to pay a premium for time. Buying entitled land in the Southeast Valley allows them to skip years of bureaucratic delays.
|
| Mesa: 25 acres near Signal Butte and Pecos roads | $600,000 per acre | Location and the tech boom drove this price. The site sits right near the Phoenix-Mesa Gateway Airport, central in the semiconductor supply chain (bolstered by massive tech investments like Intel’s nearby footprint). Companies feeding the chip-manufacturing ecosystem are competing fiercely for space here. |
| Halo Vista: 130 acres in North Phoenix | ~$518,278 per acre | This deal was about the TSMC effect: thousands of high-tech workers are flooding the area as Taiwan Semiconductor builds its multi-billion-dollar chip fabs in North Phoenix. This land is primed for commercial-service use (retail, housing support, offices, and services) to support that new workforce. |
| Casa Grande: 25 rail-served acres | ~$270,000 per acre | Because it sits further south in Pinal County (along the I-10 corridor) away from the crowded Phoenix core, the land basis is much lower. The value largely came from rail access. For manufacturers or heavy distributors who need freight trains to move goods, it offers a budget-friendly alternative to congested infill sites closer to the city. |
The highest land prices tend to appear where zoning approval and infrastructure are already in place.
GI Partners paid $14.72 million for 5.43 acres in central Phoenix after the city approved data-centre use.
At roughly $2.71 million per acre, this was an exceptional infill sale. It shows how much buyers may pay for a small site when power capacity and permitted use remove major obstacles.
Even smaller but centrally located land parcels seem to be commanding higher price tags if they’re ready for immediate tech construction.
GI Partners paid $14.72 million for 5.43 acres in central Phoenix (effectively $2.71 million per acre) after the city approved the site for use as a data center. This was an extraordinarily high price for industrial land in Phoenix.
Caveat: There’s pushback against data centers in Arizona
Phoenix has become one of the top data center markets in North America, but the rapid rollout of AI-driven infrastructure has sparked strong resistance from residents and environmental groups, as well as from state and local politicians. That pushback centers on:
Water consumption and drought concerns
Data centers require massive cooling systems, which can consume millions of gallons of water daily. The problem is that surface water is shrinking in Arizona.
The state heavily relies on the Colorado River for its water supply.
Historic drought and federal supply cuts mean the state is legally getting significantly less water delivered through its canals than it used to.
Developers and farms historically relied on pumping groundwater, but state regulators are tightening rules to stop over-pumping.
There’s also concern around hidden water costs.
When a data center owner claims that their facility is water-efficient or uses air-cooling systems, they often only count the water used inside their building.
They don’t account for the water consumed when off-site power plants evaporate hundreds of thousands of gallons of Arizona’s water to generate electricity.
Thermoelectric plants boil water to create high-pressure steam that spins turbines and then use additional water in cooling towers to condense that steam back down.
Much of that water evaporates into the atmosphere.
This means that even if an AI data center uses zero gallons of water on-site for cooling, it still affects regional water resources through its energy demand.
Protesters say that this creates an unseen double hit on the state’s limited water supply.
Political pressure
State leaders have threatened legal action and campaigned heavily against unchecked data center expansion. The fight has already reached the courts.
Noise pollution
Data centers are being built closer to residential areas (infill developments), with their industrial HVAC units and backup diesel generators creating low-frequency hums that neighbors say intrude on their quality of life and disrupt local schools.
Urban heat island effect
High-density data centers can also raise localized ambient air temperatures by a few degrees according to recent studies, increasing air conditioning demands for surrounding homes.
The result
Groups in communities like Ahwatukee (South Phoenix), Goodyear, and Buckeye have held regular street protests and packed city council meetings to ask officials to block or delay rezoning requests.
Municipal governments are stepping back from automatically approving projects.
Some mega-developments have been blocked or forced to redesign after local planning commissions rejected necessary land rezoning requests due to community pressure.
Cities are increasingly demanding that data centers switch to dry/air-cooling systems (which use far less water) and prove they won’t strain municipal power grids before issuing permits.
What this means for commercial real estate
CRE investors who are interested in data center or heavy power assets need to factor longer entitlement timelines and higher community-mitigation costs into their underwriting.
It’s prudent to target industrial developments designed for closed-loop cooling and noise abatement.
Power-resilient sites with solar-plus-storage integration may also do well.
Every potential property deal must be strictly evaluated against four critical bottlenecks before investing:
| Risk drivers | Red flags (Avoid) | Target criteria (Seek) |
| Water Rights | Groundwater reliance without Assured Water Supply | Municipal supply or transferable Ag credits |
| Zoning | Unentitled raw parcel requiring rezoning | Fully entitled for industrial/tech use |
| Infrastructure | Long utility queues (2+ years) | Existing power, water, and road infrastructure |
| Submarket | Outer fringe with no rail or highway access | Loop 303, TSMC radius, or Mesa Gateway |
Bring your deal to Private Capital Investors
Let us know about the specifics of your project in Arizona. We can put together the right financing for you. Start here to lodge a loan request or call 972-865-6205.
