CRE Market Snapshot | Quarter 1 2025

The first quarter of 2025 was packed with change — and opportunity. From new tariffs affecting construction costs to the rising demand for data centers and transformative commercial projects taking shape across the Phoenix area, there’s a lot happening in the CRE landscape.

We believe staying informed is a key part of how we serve our clients better. That’s why we keep our finger on the pulse of the market and share timely, relevant insights with you.

Read on to see what’s driving momentum and what to keep an eye on in the months ahead.

Recent tariff announcements and ongoing trade discussions are already influencing the real estate and construction sectors and will continue to do so in the months ahead.

With new tariffs targeting steel, aluminum, and lumber imports, developers are beginning to see rising material costs and preparing for potential supply chain disruptions.

According to Construction Drive, since the beginning of the year:

•  Steel prices have increased 15% to 25%
•  Aluminum prices have risen 8% to 10%
• Lumber costs have increased 10% to 15%

Cement and copper are also expected to be impacted. These increases could significantly affect construction budgets and, in some cases, lead to longer build-out timelines.

Data Center Demand is Surging

The rapid advancement of artificial intelligence (AI) and cloud computing is driving an unprecedented need for more data centers across the United States.

According to McKinsey & Company, global demand for data center capacity could triple by 2030. This surge requires constructing at least twice the data center capacity built since 2000 in less than a quarter of the time.

Major technology companies are responding with substantial investments. For instance, the Stargate initiative (a collaboration among OpenAI, SoftBank, and Oracle) plans to invest $100 billion in AI infrastructure, including the construction of 10 data centers, each approximately 500,000 square feet, with potential expansion to 20 facilities.​

This escalating demand presents significant opportunities for the commercial real estate sector, particularly in regions capable of supporting large-scale infrastructure projects. Phoenix currently ranks 4th among North American data center markets.

Navigating Maturing CRE Loans in 2025

The commercial real estate industry is bracing for a wave of maturing loans, with nearly $957 billion set to come due in 2025 — a record volume. Many borrowers extended their loans during the recent interest rate hikes, anticipating more favorable conditions. Now, as those extensions reach maturity, refinancing is a central concern.

With interest rates on the rise, refinancing at current terms could present a challenge. For some context, according to S&P Global, “the average interest rate on CRE loans originated in 2024 was 6.2%, whereas the rate on those maturing was 4.3%, a jump of nearly 200 basis points.”
That kind of rate jump can significantly impact borrowing costs and underwriting strategies.

The sectors most affected include:

• Hotels/motels (35%)
• Office (24%)
• Industrial (22%)
• Multifamily (14%)
• Retail and healthcare (18%)

Despite these hurdles, the MBA expects lending activity to rebound with a projected $583B in new loans.

Notable Phoenix-Area CRE Projects

The Phoenix metropolitan area is experiencing significant growth in commercial real estate developments. There are a ton of projects to keep your eye on in 2025, but here are some of the most notable ones:​

Next Wave Tempe at Former Big Surf Site

Next Wave Commercial has broken ground on a transformative mixed-use development at the iconic former Big Surf waterpark site in Tempe. This reuse project will deliver more than 600,000 square feet of new space, including 1,150 apartment units and 26,000 square feet of retail. The project reflects the broader trend of reimagining underutilized urban spaces into high-density, transit-accessible communities.

Halo Vista Development

This ambitious $7 billion project aims to create a “city within a city” around the Taiwan Semiconductor Manufacturing Company’s facility. The development plans include hotels, residential spaces, educational facilities, and more, potentially generating approximately 10,000 permanent jobs and an additional 80,000 in the surrounding area.

The Metropolitan at Metrocenter

Following the demolition of the former Metrocenter Mall, this $750 million redevelopment project, known as “The Metropolitan,” is set to feature a transit-oriented development with a light-rail hub. Plans include 1,200 to 2,000 housing units, retail spaces, and other amenities, with completion anticipated within three to four years.

VAI Resort in Glendale

A $1.2 billion resort project designed to bring Las Vegas-style entertainment to the West Valley. The resort will feature four hotels, performance venues, a white-sand beach, 12 restaurants, bars, shopping stalls, and the first-ever Mattel Adventure Park. The initial facilities are scheduled to open by the end of 2025, with additional attractions opening throughout 2026.

Looking Ahead

We will continue tracking major shifts and trends impacting commercial real estate in Arizona and nationwide. Stay tuned for our next quarterly update for more insights.

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