The Phoenix construction market is seeing targeted growth across industrial, retail, healthcare and office improvements, as developers adapt to shifting demand and new tariff pressures, according to LGE Design Build’s newly released Q3 2025 Construction Delivery Outlook.
“Phoenix’s construction market remains active, but developers are moving forward with a sharper focus,” said Blake Wells, vice president of preconstruction at LGE Design Build. “With new tariffs and duties on the horizon, the pressure on budgets and schedules is real. Teams that plan strategically and coordinate early across projects will be best positioned for success through the rest of 2025.”
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Key insights from the quarterly report include:
Phoenix Market Demand
Phoenix’s construction market in Q3 2025 shows targeted activity across industrial, retail, healthcare and office sectors, with developers responding to long-term growth patterns rather than short-term speculation.
- Industrial construction remains active with 2.2 million square feet delivered and a robust 11.6 million square feet still under construction, though developers are shifting away from oversupplied fringe submarkets toward infill and logistics-adjacent sites.
- In the office sector, ground-up development is largely paused, but construction remains steady in the form of tenant improvements and repositioning projects, especially in high-demand areas like Tempe and Scottsdale, where sublease availability dropped to the lowest level since 2022.
- Healthcare construction is increasing modestly, with activity focused on off-campus outpatient facilities and smaller-scale medical office buildings embedded in retail corridors.
- Retail and mixed-use construction is gaining steam in the East and West Valleys, supported by population growth and tenant demand—over 1.24 million square feet is currently underway, much of it in high-growth communities like Gilbert, Queen Creek and Buckeye, where service-based and convenience retail are driving new development.
Construction Labor
After leading job growth in the first half of the year, Arizona’s construction sector has shown signs of cooling.
- In May 2025, statewide construction employment declined by 1,700 jobs, marking a 0.8% dip as the market adjusts to elevated interest rates and tempered demand.
- Despite the recent slowdown, long-term projections remain favorable, with statewide construction employment still on track for 3.3% growth compared to two years ago.
- Industrial development, particularly in warehousing and logistics, continues to anchor activity in Phoenix, though labor demand has become more selective as project financing tightens.
Supply Chain
U.S. supply chains are navigating a complex third quarter shaped by evolving tariff structures, seasonal logistics pressures and geopolitical instability abroad.
- While shipping networks have largely adapted to recent global disruptions, rising port fees, elevated container rates and ongoing conflict in the Middle East are testing freight resilience.
- Domestically, new Section 232 reviews—spanning copper, electronics and critical minerals—are introducing added uncertainty, particularly for construction-related materials.
- Although many tariffs remain under negotiation, U.S. manufacturers and importers are responding with strategic reshoring, inventory shifts and increased use of bonded warehouses to preserve timelines and mitigate cost risk.
Material Costs
Material costs are increasingly shaped by tariff-driven instability as Q3 progresses.
- The recent 50% tariffs on steel and aluminum and pending Section 232 reviews on copper, electronics and critical minerals are driving price hikes across key construction inputs.
- Copper imports surged in advance of potential duties, while drywall and gypsum pricing continue to rise due to both freight costs and constrained supply.
- Electrical components, particularly those reliant on Chinese inputs, remain elevated amid 30% IEEPA duties.
- Though some materials like flat glass and lumber remain stable for now, the broader risk environment is prompting many contractors to accelerate purchasing and lock in pricing before further changes take hold.
To view the full Construction Delivery Outlook report, click here. For more information, visit LGEDesignBuild.com.
