I attended the Scottsdale Annual Economic Forecast Conference in Scottsdale, Arizona on January 9, 2026, and the consistent message across every panel was clear: 2026 will reward resilience, quality, and disciplined execution.
While the broader economy faces mixed signals—ranging from weak job growth to rising fiscal pressure—commercial real estate fundamentals in Arizona remain supported by demographics, selective capital deployment, and sector-specific demand drivers.
Below is a structured breakdown of the most important takeaways from the conference and what they mean for investors, developers, and owner-users navigating the 2026 market.
Healthcare Real Estate Outlook: The most resilient asset class heading into 2026
Healthcare real estate was repeatedly identified as the most resilient and durable asset class heading into 2026, supported by strong demographic demand and equity-backed growth within healthcare delivery systems.
Arizona continues to experience a physician shortage, with approximately 2.5 physicians per 1,000 residents compared to the national average of 3, while adding roughly 100,000 new residents annually. This imbalance continues to drive sustained demand for medical office space across the state.
Hospital systems such as Banner and HonorHealth are expanding off-campus outpatient facilities, reinforcing the shift toward decentralized care models. At the same time, private equity investment in physician practices is accelerating expansion into higher-quality Class A medical office space, fueling a clear flight to quality within healthcare real estate.
These trends create a long runway for medical development and investment through 2026 and beyond, positioning healthcare as one of the most recession-resistant sectors in commercial real estate.
Medical Office Leasing Trends: strong demand across class a and class b assets
Leasing activity in medical office buildings remains robust—even within Class B product—due to limited Class A availability and ongoing provider demand.
Unlike traditional office users, medical tenants prioritize patient access, proximity to hospitals, and surrounding residential density over lifestyle amenities. As a result, providers are often willing to lease lower-tier space when higher-quality options are unavailable, supporting strong occupancy across the medical office spectrum.
Medical clusters near hospitals and major residential corridors continue to form durable healthcare hubs, reinforcing leasing momentum despite broader office market headwinds.
Office Market Dynamics: Flight To Quality And Operational Excellence
The Phoenix office market remains defined by a pronounced flight to quality, with premium Class A buildings capturing the majority of tenant demand.
Downtown Tempe was cited as a clear example of this shift, having moved from roughly 3% vacancy pre-pandemic to nearly 30%, and now steadily recovering as tenants consolidate into higher-quality product. The Camelback Corridor has experienced more than 20% rent growth over the past five years, while Scottsdale remains constrained by limited supply of tenant-preferred office space.
An important takeaway from the panel discussions was that flight to quality extends beyond physical upgrades. Operational excellence—including property management, preventative maintenance, security, concierge services, and tenant relations—has become a decisive factor in tenant retention and leasing success.
Owners of Class B and C assets face a clear decision in 2026: reinvest capital to meet tenant expectations or accept higher vacancy risk as tenants continue to gravitate toward higher-quality buildings.
Institutional Capital and Investment Trends heading into 2026
Institutional capital is expected to re-enter the Phoenix office market in 2026, though with significantly greater selectivity.
Recent acquisition activity has been dominated by family offices and distressed or value-oriented funds. Looking ahead, core and core-plus institutional investors are expected to focus on high-quality, well-leased, well-amenitized assets with clear income durability or repositioning potential.
A recurring theme was “optionality and quality.” Assets capable of conversion to medical, flex, or alternative uses are increasingly favored over commodity office product. Sub-7% cap rates remain important to transaction velocity, and improvements in debt availability will be critical to pricing recovery.
Tenant Preferences: culture, amenities, and the workplace experience
Tenant demand continues to shift toward buildings that align with workforce culture and employee experience.
Office tenants increasingly prioritize security, concierge services, fitness centers, hospitality-driven common areas, and flexible collaboration spaces. Amenities are no longer generic—they are intentionally selected to attract specific talent pools and align with compensation levels and company identity.
Proximity to major universities, such as Arizona State University in Tempe, remains a powerful leasing driver for younger workforces. Buildings that successfully align product design with tenant culture are seeing stronger occupancy and rent performance.
Phoenix Multifamily Market: Stabilization After The Supply Wave
The Phoenix multifamily market is transitioning from a rapid expansion phase into stabilization.
After delivering approximately 45,000 units over the past several years, absorption is underway and new construction is slowing. Deliveries are expected to decline materially after 2026, with a sharper drop projected in 2027—creating a potential supply cliff that could support future rent growth.
Occupancy varies by submarket, generally ranging from the high-80% to low-90% range. Operators are balancing concessions, rent sensitivity, and resident retention while navigating rising insurance and operating costs.
AI adoption is improving back-office efficiency in property management, though panelists emphasized that human interaction remains essential to maintaining resident satisfaction.
Industrial Market Performance: strong absorption and rising tenant expectations
Industrial real estate remains one of Arizona’s strongest asset classes.
Net absorption in 2025 totaled approximately 14.7 million square feet, driven largely by big-box leasing along the 303 corridor. While smaller-bay leasing slowed in some infill submarkets, demand for advanced manufacturing and logistics space continues to dominate.
New industrial product commands significant rent premiums—often 30% higher than older buildings—forcing owners of second-generation assets to invest in upgrades such as HVAC, roofing, dock packages, office improvements, lighting, and trailer parking.
Tenant expectations have shifted meaningfully, with roughly 90% of smaller tenants now requesting air conditioning, increasing retrofit costs and influencing competitive positioning.
Retail Market Outlook: tight vacancy, higher rents, and mixed-use growth
Retail entered 2026 with cautious optimism and strong fundamentals.
Vacancy rates have declined to approximately 4.5%, down from 8.6% a decade ago, pushing new retail rents into the $50–$60+ per square foot range. Pre-leasing activity for new developments remains strong, often exceeding 85% prior to groundbreaking.
Mixed-use projects combining retail, residential, and medical uses are increasingly favored, particularly in suburban growth corridors. Medical tenants are emerging as key anchors, providing stable daily traffic and helping insulate retail centers from volatility.
Operational challenges remain, including rising labor costs, construction pricing volatility, and extended permitting timelines—requiring closer collaboration between landlords and tenants.
Economic Outlook: Ai-Driven Growth, Weak Job Creation, And Fiscal Constraints
The broader U.S. economy is currently being supported by massive AI-related infrastructure investment, which added approximately 1.8% to GDP growth and helped offset traditional recession signals such as manufacturing contraction and an inverted yield curve.
Despite this growth, job creation remains weak. The economy has added only 17,000 jobs per month on a six-month average, well below the 75,000–100,000 jobs typically required for robust growth. Labor force participation remains stagnant around 63%, influenced by demographic aging and restrictive immigration trends.
Housing affordability remains a major constraint, with the median first-time homebuyer now 38 years old and mortgage rates averaging 6.5%, limiting mobility and reinforcing rental demand.
At the federal level, fiscal pressure continues to rise, with interest payments projected to reach $1.8 trillion annually by 2035, constraining long-term monetary and fiscal flexibility.
Arizona-Specific Economic Insights
Arizona’s economy reflects many national trends but with important local nuance.
Employment growth slowed to approximately 0.4% in 2025, ranking near the bottom nationally, despite population growth around 1.3% and very low unemployment. Long-term population forecasts have been revised downward modestly, though Arizona is still expected to outperform most U.S. states.
Targeted high-wage job creation—particularly in advanced manufacturing—remains a bright spot, supporting long-term demand for industrial, healthcare, and housing assets. Commercial real estate absorption trends in Arizona parallel national patterns, with strong industrial and retail performance offsetting a slower office recovery.
The 2026 playbook: resilience, operations, and flexibility
Across every panel, the strategic framework for 2026 was consistent:
- Focus on asset classes with durable demand drivers
- Execute operationally at a high level to protect occupancy and NOI
- Invest in quality and flexibility to preserve long-term liquidity
- Remain disciplined on underwriting, pricing, and capital structure
Let’s Talk Strategy For 2026
At the ICRE Investment Team, we work alongside investors, developers, and owner-users to navigate these shifts with clarity and precision. Whether it’s underwriting opportunities, identifying resilient asset classes, or structuring smart deals, our focus is helping clients make informed, forward-looking decisions in a changing market.
If you’d like to compare notes from the conference, sanity-check a deal, or talk through how these trends impact your portfolio or acquisition targets, I’m always happy to connect.
