The Greater Phoenix investment market got off to a bit of a slower start to 2018.


  • Sales velocity for most commercial property sectors slowed and are lagging the pace established in the first part of 2017. With property fundamentals strong and investor demand still healthy, the greatest uncertainty in the market is where interest rates will be in the coming quarters.
  • Sales activity generally slowed to start 2018, a common occurrence at the beginning of years after a traditional spike during fourth quarters. Sales of commercial properties are also a bit behind the pace recorded in the first quarter of 2017.
  • Pricing was mixed during the first quarter. Prices rose in retail shopping centers and in industrial properties, while dipping in both office and medical office assets. Property fundamentals are improving, which should support prices, but interest rates are on the rise, which could cause cap rates to creep higher.
  • Cap rates averaged in the high-6 percent to low-7 percent range across the Greater Phoenix commercial property sectors during the first quarter. Current cap rates are near cyclical lows, due to strong investor demand for local assets. The yield on the 10- year Treasury rose 30 basis points during the first quarter and additional increases are likely over the remainder of 2018.


  • Sales of office buildings slowed by approximately 11 percent from the fourth quarter of last year to the first quarter of 2018. One area of the market where the decline in activity was most dramatic was in buildings that sold within the $10-million to $25-million range.
  • In transactions that closed during the first quarter, the median price for office buildings dipped to $139 per square foot. The median price in 2017 was $151 per square foot.
  • Cap rates averaged 7.1 percent during the first quarter, following some cap rate compression late last year. A few of the larger first quarter transactions involved single-tenant buildings that were leased to credit tenants. Cap rates in these transactions were generally in the low- to mid-6 percent range.

Medical Office

  • While sales of medical office condos have been generally consistent during the past nine months, there was an 8 percent uptick in activity during the first quarter. Properties in Peoria and Scottsdale accounted for nearly half of the Valley’s total activity during the first quarter.
  • Prices for medical office condos dipped a bit to start the year. The median price was $176 per square foot in the first quarter, compared to $178 per square foot in 2017.
  • During the first quarter, sales of traditional, non-condo medical buildings dropped by 40 percent from the fourth quarter of last year. Early indications suggest activity picked up at the beginning of the second quarter.
  • In traditional medical office buildings, prices dipped during the first quarter. The median price fell to $136 per square foot to start 2018, down from $157 per square foot in 2017. Cap rates remained flat at approximately 7 percent.


  • Sales of industrial buildings cooled during the first quarter, slowing by 17 percent from the end of last year. Activity in the first few months of 2018 was nearly identical to levels from one year earlier, dipping just 2 percent.
  • Industrial buildings are commanding higher prices. The median price during the first quarter was $97 per square foot, up 17 percent from the median price in 2017. The median price in buildings over 50,000 square feet was $91 per square foot during the first quarter.
  • Cap rates dropped into the mid-6 percent range at the end of 2017 before inching higher in the first quarter of this year. Year to date, cap rates have averaged approximately 6.8 percent.

Shopping Centers

  • Sales velocity in shopping centers slowed to start the year, with activity dropping by 30 percent from the fourth quarter of 2017. Compared to one year ago, transaction activity was down 16 percent. Investors are proving to be increasingly selective when evaluating shopping centers, which is likely one of reasons sales velocity has slowed.
  • Despite a decline in the number of transactions, sales prices for shopping centers rose significantly during the first quarter. The median price rose to $193 per square foot in the first quarter, up more than 60 percent from the median price in 2017.
  • While prices rose, cap rates have remained fairly steady, averaging approximately 7.2 percent in 2017 and again in the first quarter.