Arizona's right-to-work laws, lower operating costs, pleasant climate and attractive lifestyle make it a desirable business and investment destination.
Over the years, the Grand Canyon state has been climbing multiple economic rankings that situate it as one of the best places for business in the United States. Arizona ranks high in economic performance, talent attraction, quality of life, startup survival rates, and growth. Overall, it's the 15th best US state to do business in.
In addition, Arizona is the second fastest-growing state in the US, and is home to 5 of the 15 fastest-growing cities in America. A rapidly growing population is good news for entrepreneurs and investors due to the number of opportunities linked to expanding demographics.
Adding to its appeal are Arizona's position as the third richest state in the US, and a modest corporate tax structure.
More than 670,000 small businesses contribute to keeping the state's economy alive. Opportunities exist in every industry, although the sectors with the highest economic impact include:
- Real estate
- Finance and insurance
- Information services
- Retail and wholesale trade
- Corporate support and business management services
Several Arizona companies have made it to the Fortune 500 list, with operations in advanced manufacturing, real estate, mining, and online retail.
The state is also a hotbed for innovation in various tech-related industries, attracting venture capital and other forms of funding that helped establish a thriving startup community.
Office Market in Arizona
Office Space in Phoenix
Phoenix is home to more than 100,00 small businesses, plus a fair share of corporate headquarters, including Axon, GoDaddy, and Blue Cross Blue Shield.
This is one of the best startup cities in America, which has generated additional interest in office assets within the downtown Phoenix metro area.
Total office inventory in Phoenix amounts to 105 million square feet. Space is evenly split into Class A and Class B office properties, and it's generally considered a tenant-favorable market. The biggest sub-markets by size are the CBD, Deer Valley in North Phoenix, Scottsdale Airpark, and Tempe, the latter being among the most active in the entire metro area due to the growth of tech-related sectors.
Office occupiers in Phoenix show preference for Class A space, despite the rising costs associated with these assets. Average asking rates have been climbing for both direct leases and subleases, reaching $29 and $23 / psf respectively.
Vacancy rates have increased over the past 5 years, reaching averages of 21% for the metro area. It's expected that this trend will reverse itself in what concerns Class A offices, due to the ongoing flight to quality this market is experiencing.
As for office space investment sales volume, it's currently below the five-year average for these property types in Phoenix, with average prices of $160 / psf.
Office Space in Tucson
This market contains nearly 30 million square feet of office space, mostly concentrated in central and downtown Tucson and in the North / Oro Valley area.
The biggest users of office space are healthcare and medical companies. There's also demand for large office units for call center use, although space requirements have been reduced after the implementation of work-from-home models.
Vacancy rates average 9% and asking rates are holding stable in comparison to the five-year average.
Retail and Industrial Market in Arizona
Retail and Industrial Space in Phoenix
Phoenix is listed as one of the top 3 US markets for retail development, boosted by growing demographics and steady economic growth rates.
Absorption rates are above the national average, and growing investment volumes are the norm across the Phoenix metro area. In particular, Scottsdale is a highly sought-after location due to its reputation as a luxury retail destination.
Vacancy rates are tight in the CBD and Sky Harbor, and city-wide they average 6%, confirming the downward trend over the past five years.
Rental values continue increasing year after year, although the rises are not dramatic, since asking rents in most sub-markets fall in line with the metro average of $15 / psf. The exceptions are Scottsdale, Sky Harbor, and East Phoenix, where asking rents are above $20 / psf.
The Phoenix industrial market benefits from the strength of retail operations and a growing population. As a result, demand for warehousing and logistics space increases year after year. Typical tenants are companies involved in e-commerce, 3PL, food and beverage, and retail, in addition to electronic manufacturing companies.
Vacancy rates have fallen by 50% in five years, and currently average 4%, having even lower values in the most sought-after locations, such as Black Canyon, South Central Phoenix, and Scottsdale Airpark.
Retail and Industrial Space in Tucson
The main tenants in Tucson are companies involved in medical, fitness, and restaurant services. The latter, along with auto part stores, are more likely to pursue build-to-suit retail space, which currently accounts for a significant proportion of the citys construction pipeline. However, the rhythm of construction of build-to-suit units is expected to slow down in the future, due to increases in the cost of materials.
Five-year trends point at moderate asking rate increases, with most locations averaging rates in the mid to high $10s. Average vacancy rates are holding steady at 5-6%.
Industrial space in Tucson is in high demand due to the city's location near Mexico, Texas and California. Overall, there are nearly 45 million square feet of industrial space in the metro area, of which barely 3% available. Asking rates have been on an upward trend during the past five years, with current averages below $8 / psf.
Tax Breaks, Incentives and Business Support
Arizona-based businesses can obtain support with talent and workforce training, tax credits, and other financial incentives. Some programs worth noting include:
- The Quality Jobs scheme, which offers tax credits to businesses that create qualified employment positions.
- Real estate tax reductions for companies based in the state's seven Foreign Trade Zones.
- Sales tax exemptions to help with the acquisition of manufacturing equipment.
- The Navigator Program, which connects employers with top talent in their area and industry.
- Grants for advanced manufacturing facilities and startups involved in semiconductor production.
For more details on the different support schemes available, visit the Arizona Commerce Authority website.