Phoenix solidifies its reputation as the nation’s industrial powerhouse, with 32.6 million square feet of industrial space under construction and a thriving medical office market driving commercial real estate demand, according to LGE Design Build’s newly released Q4/Q1 Construction Delivery Outlook report.  

“Phoenix continues to lead as a dynamic hub for industrial development, medical office growth and innovative mixed-use projects,” said Blake Wells, vice president of preconstruction at LGE Design Build. “While challenges such as labor shortages and global supply chain disruptions persist, we’re seeing encouraging signs of stabilization in material costs and renewed confidence driven by economic shifts. The construction landscape in 2025 offers a promising balance of opportunity and resilience, with the Phoenix market positioned for long-term success through strategic planning and adaptive solutions.”

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A summary of the report’s other key findings include:

Phoenix Industrial Market Demand

Greater Phoenix’s commercial real estate market reflects a dynamic blend of growth and challenges across sectors as it continues to adapt to shifting demands and an ever-changing economic climate. Other notables:

  • The Valley delivered 6 million square feet of industrial space in Q4 alone—the highest in the nation—and continues to expand its inventory rapidly.
  • Medical office space is thriving, with the city leading the nation in leasing activity. This is fueled by population growth, particularly in areas like Queen Creek and north Phoenix.
  • A “flight to quality” in the office market is driving demand for premium spaces in Tempe and Scottsdale, while older Class-B and C buildings face persistent vacancies unless redeveloped or repurposed.
  • Retail has undergone significant evolution post-pandemic, with a focus on food-oriented spaces and mixed-use areas.

Construction Labor

Between November 2023 and November 2024, construction jobs grew in 65% of U.S. metro areas, but Phoenix saw a decline. Other notables:

  • Phoenix’s construction job count fell from 175,900 to 172,200, a loss of 3,700 jobs or a 3% decrease—the fourth-largest nationwide. This was possibly due to the completion of larger projects such as Taiwan Semiconductor Manufacturing Company. However, construction labor in Phoenix is predicted to rebound in 2025 due to an expected increase in project bidding.

Material Costs

Material costs steadied in Q4 2024 due to increased confidence after the Federal Reserve lowered interest rates in September. This stability comes as demand for materials is expected to grow, especially for public infrastructure projects throughout 2025. Other notables:

  • Labor shortages are driving wages up, which adds to project costs and delays. This is especially true in areas with large public investments, where competition for workers is increasing.
  • Lumber prices vary by region, with the Midwest enjoying lower costs due to local timber, its closeness to Canadian suppliers and steady construction activity.
  • While material prices are stable for now, rising demand, worker shortages and new regulations could drive costs higher. Careful planning and flexible sourcing will be key as the market evolves.

Supply Chain

Global events and natural disasters continue to challenge the supply chain, yet signs of recovery and stabilization are emerging. Other notables:

  • The Panama Canal, a key shipping route, has seen relief from delays due to improved rainfall and a new water recycling lock, though drought risks remain a global issue. In British Columbia, wildfires fueled by drought have threatened lumber production, while similar conditions in Europe and South America have strained agriculture and transportation.
  • Hurricanes Helene and Milton compounded challenges, causing significant infrastructure damage in the U.S., particularly in Florida, disrupting construction material supplies and increasing costs. Despite these setbacks, the supply chain has demonstrated resilience.
  • Economic trends provide additional relief. Interest rates are at their lowest since 2021, stabilizing material costs, though housing affordability remains limited. Meanwhile, construction material providers are positioned for growth, with infrastructure development expected to drive a 5% annual expansion through 2028.

To view the full Construction Delivery Outlook report, click here. For more, visit LGEDesignBuild.com.