The Phoenix industrial real estate market is undergoing a significant shift as investors re-enter the scene, motivated by stabilizing interest rates and appealing prospects in off-market transactions. This is especially prominent in the $20-60 million acquisition range, where experienced buyers are securing yields that outpace traditional market deals.
Alex Bluth, Vice President of Investments at Menlo Group Commercial Real Estate, has built his business around these off-market opportunities, focusing exclusively on deals that never reach the public market. His strategy has produced notable outcomes, such as the recent sale of an 850,000-square-foot industrial facility at under $70 per rentable square foot, well below prevailing market rates.
“I really only focus on off-market transactions. I’ll go a step further, I don’t even really enjoy doing listing work. That’s just not my value add. I’m a really strong bird dog,” Bluth says. He has found this approach particularly effective in Phoenix, where he relies on relationships with major landholding families who control tens of thousands of acres across the metro area.
In recent years, property owners and lenders often postponed tough decisions through loan extensions and refinancing. This “extend and pretend” approach that characterized the post-pandemic period is coming to an end.
“We’re coming to the backside of it, where people are really being forced to make a decision,” Bluth observes. “But it’s not just owners wanting to extend, banks don’t want your properties either. They’re not operators, and they don’t want to be operators.”
Bluth expects the change to be driven by limited partners and private investors: “You can’t just sit and clip fees forever and not get returns. It’s either ‘we need to get our money out and be done,’ or ‘we’re going to inject more capital.’ The LP group is going to be the straw that breaks the camel’s back.”
Currently, the market strongly favors buyers, with demand far surpassing available supply. “There’s more interest in purchasing than there is selling right now, and frankly, it’s not even close,” Bluth notes. “I’m getting a lot more groups that want to buy and deploy capital, and they are not wanting to sell out of their portfolios at the moment.”
This imbalance is creating opportunities for experienced investors. A recent Tempe industrial portfolio with a $50 million price tag drew over 100 confidentiality agreements, highlighting the intense competition for quality assets. Most demand is from high-net-worth individuals, family offices, and institutional investors eager to deploy capital that has been on the sidelines.
The off-market advantage is clear. While Class A industrial properties sold through traditional channels are seeing cap rates in the mid-five percent range, off-market transactions are achieving yields above six percent. This premium reflects both the competitive nature of the process and the importance of relationships in securing these deals.
Market participants have adjusted to the current interest rate environment, setting aside expectations for major cuts and instead underwriting deals based on present conditions. “People are recognizing that the interest rate scenario is just what it is at this point,” Bluth explains. “We’re not getting huge dips or rate cuts, so people are starting to underwrite accordingly.”
This acceptance has led to more predictable underwriting and increased buyer confidence. “We know what the financial scenarios are going to be, what the interest rates are going to be. We can underwrite maybe a little bit more stable, which is nice,” he adds.
Today’s most active sellers are high-net-worth family offices and individuals with substantial gains in their properties. These owners can sell at attractive prices while still realizing significant profits due to their low original purchase basis.
“You’ve got some folks who just have such incredible basis on their property. If you run a competitive enough process, it may be below market in terms of cap rate or price per square foot, but it’s way better than their purchase basis,” Bluth explains. These sellers can then reinvest proceeds into new opportunities, fueling ongoing transaction activity.
In contrast, institutional owners are generally reluctant to sell. “Those groups are great as buyers, they’ve got all the capital in the world, but they don’t want to sell because they know it’s not in their best interest for their portfolios today,” he notes.
While industrial assets are actively trading, the land market faces different hurdles. Most land parcels are owned outright, giving owners significant leverage. “A lot of these landowners are saying, ‘I already own this outright. I’m not forced to sell, and I’m not forced to change my land basis,’” Bluth observes.
This puts developers in a difficult position, especially those with specific location needs. Medical developers, for instance, must build in certain areas to support practice growth. “Now their prices are much higher, their rents are much higher, and it’s all coming from land basis being too high,” he explains.
Phoenix has become a major data center market, supported by the region’s power infrastructure and strategic location. The requirements for data center development are clear but not easy to fulfill: fiber optic connectivity, water access, and 100 megawatts of power, all deliverable within 36 months.
“If you can check those boxes, it’s done. In my opinion, data center dirt is actually like El Dorado,” Bluth says. However, power remains the limiting factor. The Palo Verde Nuclear Power Plant provides about 9,000 megawatts, but demand in the development queue exceeds 17,000 megawatts over the next three years.
The data center market operates differently from traditional development. Success depends on direct relationships with end users rather than developers. “You actually have to go direct to the end user or the tenant, because they have their preferred developer groups that they use,” Bluth explains, noting that major tenants like Amazon work exclusively with specific advisory teams.
The Phoenix industrial market appears poised for continued activity as the gap between buyer demand and seller supply creates ongoing possibilities for skilled intermediaries. The combination of stabilized interest rates, forced decisions from extended loan positions, and significant capital seeking deployment suggests that transaction volume will remain strong in the coming months.
For investors and developers, the key is relationship-driven deal sourcing and the ability to move quickly on off-market opportunities. As Bluth’s experience demonstrates, understanding seller motivations and maintaining deep local relationships can unlock substantial value in a market where traditional marketing often falls short.
Industrial sector fundamentals in Phoenix remain solid, supported by the region’s logistics advantages and growing population. As participants adapt to the reality of higher interest rates and more selective capital allocation, those who can navigate the off-market landscape are finding meaningful opportunities for profitable transactions.
The market’s evolution reflects broader trends in industrial real estate, where capital is increasingly concentrated among sophisticated buyers and sellers with longstanding ties to the region. These relationships, combined with a willingness to act decisively, are shaping the next phase of growth for Phoenix’s industrial sector.
As the market continues to transition away from the uncertainty of recent years, the focus is on clarity, speed, and access. Those able to offer sellers a straightforward, confidential process and buyers access to exclusive deals are best positioned to benefit. In a competitive landscape, success increasingly depends on relationships, local knowledge, and the ability to recognize and act on opportunities before they reach the broader market.
Phoenix’s industrial real estate outlook remains positive, with off-market transactions playing a central role in shaping the market’s future. As investors, developers, and intermediaries adjust to the new normal, those who can combine strategic insight with strong local connections will continue to drive the sector’s evolution and capture the most attractive opportunities available.
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