Class A Phoenix Retail Is Nearly Full. Class B and C Are Another Story

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Date:

22 Jun 2026

Retail real estate in Phoenix has moved past its old reputation as a secondary market. Population growth, business-friendly tax policy, and major infrastructure investment have collectively repositioned the metro area as a primary expansion target for national brands. Vacancy rates at quality centers hover around three to four percent, off-market deals are increasingly common, and new development anchored by names like Costco and Target continues to draw additional retailers to the region. For tenant representatives working the market daily, the picture is one of real opportunity paired with genuine complexity.

Carol Schillne, Senior Vice President at ORION Investment Real Estate and leader of the Schillne Retail Team based in Scottsdale, has spent more than three decades navigating retail real estate: as a broker, a developer, and now back in brokerage, leading a team that includes her two sons. That range of experience shapes how she reads the market and advises clients, whether they are publicly traded national chains or first-time franchise operators.

A Market That Has Outgrown Its Old Label

The valley now counts more than five million residents, with the broader state approaching seven million. One development in particular is accelerating growth in the northern corridor. TSMC, the world’s largest semiconductor chip manufacturer outside of Taiwan, is currently under construction in North Phoenix, representing a more than $165 billion investment. “That’s exploding our North Phoenix area,” Schillne notes, “so it makes the housing come alongside the retail and other employment.”

The result is a market that can no longer be treated as a single entity. Scottsdale is seeing luxury expansion. Gilbert is drawing family-oriented brands. Chandler has emerged as a technology employment hub. Each submarket carries its own demand profile, and retailers entering the region are increasingly expected to understand those distinctions before committing to a site.

Aggressive Goals, Selective Execution

National retailers are openly pursuing expansion, but the gap between stated ambitions and actual deal velocity tells a more nuanced story. Rising land costs and construction expenses have pushed landlords to demand higher rents, and those costs have to be weighed against realistic sales projections.

“They do have very aggressive goals, but they’re very selective on their real estate,” Schillne explains. “In retail, rent is a function of sales, so if they’re not really able to do the sales and afford it, they’re not going to do the deal.”

The calculus has also grown more complex as brands balance physical and digital sales channels. Decisions about where to open a store now factor in online revenue in ways that were far less prominent even five years ago. For tenant representatives, this means understanding a client’s full business model, not just their square footage requirements.

Deals That Take Time

Two recent transactions from Schillne’s pipeline illustrate how the current environment plays out in practice. A new Trader Joe’s near the University of Arizona in Tucson required a land assemblage that took more than three years to complete, working through community input, development coordination, and distribution logistics. The store recently held its grand opening.

A second deal involved relocating a regional restaurant, Fame, from Central Phoenix to a ground-floor space in an office building near the Biltmore, part of a broader trend toward mixed-use development as the city gradually increases density. “The deals take a little bit longer to do,” Schillne says. “You have to make sure you have a good team, and that everyone’s collaborating and communicating.”

Both examples point to a consistent theme: successful transactions in today’s market require more preparation, coordination, and patience than in previous cycles.

Vacancy Numbers and the Flight to Quality

Phoenix’s overall retail vacancy sits around five to six percent, but that figure masks a significant divergence between asset classes. Class A centers and new developments are running at three to four percent vacancy, while Class B and C properties face a harder road. Some lower-tier centers are converting to medical, office, or service uses as traditional retail tenants look elsewhere.

The tightness at the top of the market has changed how deals get sourced. Much of what Schillne’s team finds for clients is off-market, sourced through direct outreach to landlords about upcoming lease expirations or gaps in their tenant mix. “We’re calling landlords and saying, ‘Whose lease is coming up? How would you like to add something different to your merchandising mix?” she says.

This kind of proactive outreach requires deep local relationships: with landlords, with municipal economic development offices, and with the broader professional network. Firms without boots on the ground will not surface these opportunities, and in a market this tight, that gap is costly.

What Franchise Operators Get Wrong

Franchise clients represent a meaningful portion of Schillne’s business, ranging from multi-unit operators running more than 60 locations to first-time buyers leaving corporate careers. The needs and risk profiles vary considerably, but a few common mistakes appear consistently.

The first is underestimating the value of local representation. National franchise systems sometimes steer operators toward brokers without a meaningful market presence in the target city, limiting access to off-market inventory and local lease-negotiation norms.

The second is underusing legal counsel. Schillne notes that while brokers handle business points and negotiate deal terms, the lease is a contract an operator will live with for five or ten years. Assignment and sublease provisions, in particular, matter enormously if an operator eventually decides to sell the business. “We’re not legal counsel,” she says. “They need to understand what their rights are.”

Landlord Priorities Have Shifted

The criteria landlords use to evaluate prospective tenants have also evolved. Where conversations once centered primarily on rent, landlords now think carefully about merchandising mix, what a new tenant adds to the overall experience of a center, and how it complements existing occupants.

Schillne describes landlords evaluating whether a prospective tenant brings something distinctive: a high-demand specialty grocery store, a unique restaurant concept, or a service that fills a gap. Financial strength and operator experience also factor heavily, particularly for tenants that are not publicly traded. The rent conversation still happens, but it now sits within a broader evaluation of fit.

Artificial intelligence has entered the workflow for retail site selection, primarily in research and demographic analysis. Schillne sees genuine value in the efficiency it brings to market research but draw,s a clear line at relationships. Off-market opportunities still come from trust built over years with landlords, municipal contacts, and local brokers. “It’s certainly never going to replace relationships,” she says. AI accelerates the analytical layer; it does not replace the judgment that comes from decades in a specific market.

Looking Ahead

Through the remainder of 2026 and into next year, Schillne’s primary concern is not economic but regulatory. Arizona’s business-friendly posture has driven growth, and any slowdown in that direction – through permitting delays, staffing shortages at municipal offices, or policy changes that slow development approvals – could meaningfully affect deal timelines.

For now, the state’s fundamentals remain intact. In-migration continues, household incomes are solid, and the development pipeline is active. The question is whether institutional responsiveness can keep pace with demand. For retailers and investors evaluating where to put capital, Phoenix continues to offer a combination of market size, demographic strength, and active development that few metros can match, but the deals require more local expertise and patience than they once did.

About the Expert: Carol Schillne is a Senior Vice President at ORION Investment Real Estate and leader of the Schillne Retail Team in Scottsdale, Arizona, with more than three decades of experience in retail real estate as a broker and developer. Her team includes her two sons.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.

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