Cadre 15 Spotlight: Phoenix

Phoenix, Arizona tops Cadre’s commercial real estate rankings for one and three-year price growth, with continued growth forecast in the region.

Published on Sep 01, 2021
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Executive Summary:

  • Net migration to Phoenix was #1 among U.S. metro areas in 2020, holding the top spot for the last three years.[1]
  • Jobs growth in Phoenix is projected to outpace the national average through 2029[2] , taking advantage of the city’s low costs of doing business and young talent pool.[3]
  • The region’s growing consumer base and its ability to service a sizable e-commerce market make industrial real estate investment opportunities particularly attractive.
  • The Phoenix metro area tops Cadre’s rankings for one and three-year price growth, with continued growth forecast in the region.

Phoenix successfully spread its wings to welcome even more new residents in 2020, capturing the top spot in net migration for the third straight year, according to the U.S. Census Bureau.[4] This population influx is being driven, in part, by lower costs of living and enhanced tax incentives, as well as by increasing job growth. Approximately 35 million consumers can be reached within a single day's truck ride from metro Phoenix, fueling the need for warehouse space in the e-commerce, logistics, and construction industries. With these businesses booming, investors may find outsized opportunities in the region, specifically within the industrial sector. Read on to learn why our data science team crowned Phoenix part of the Cadre 15[5] top commercial real estate markets in the nation.

Residents by Choice

People move to the Valley of the Sun for a number of reasons. Year-round warm weather, gorgeous natural landscapes, and a relatively lower cost of living contribute to its appeal. This migratory pattern is not new to Arizona: “Consistently, since statehood, almost two-thirds of Arizonans were born elsewhere,” reveals nonprofit Center for the Future of Arizona.[6]

Business incentives are also a draw. Corporate income tax is a mere 4.9%.[7] Phoenix’s foreign trade zone status reduces duties, eliminating them entirely for merchandise that is unsaleable (obsolete, damaged, destroyed as defective, scrapped, or wasted).[8] There is also no inventory tax in Arizona.

Additional benefits, as detailed by the Greater Phoenix Economic Council, greatly favor businesses operating in the region.[9] Arizona boasts relatively low labor costs and a large labor pool.[10] Phoenix also offers fast tax permitting and the lowest state unemployment insurance tax. This year, the Phoenix metro area moved up five spots to become the seventh best performing Tier-1 city in the U.S., according to new research from the Milken Institute.[11]

Talent Pipeline Draws Employers

As people move to the Phoenix area, jobs are following suit, and wages are rising alongside. Tech wages in metropolitan Phoenix are among the fastest growing in the country, increasing 7.6% in 2020.[12] The workforce in Phoenix is particularly young and healthy, with nearly a quarter of the population in the Phoenix metro area aged 18-to-34.[13] Approximately 50,000 more students graduate from colleges and universities in the metro area on an annual basis.[14]

“Industrial, tech, and other blue chip businesses are moving into the Phoenix metro area to take advantage of the strong talent pipeline and competitive state tax rates.”

--Brent Gerst, VP of Acquisitions, Cadre

In addition to a substantial bench of tech opportunities, major retailers such as Wal-Mart, Amazon, Costco, Target and Lowe’s are all based or have significant operations in the Phoenix metropolitan area. These retailers create a considerable demand for industrial properties to
handle the storage, distribution and fulfillment of e-commerce and other goods.

Warehouse and Distribution Needs are Increasing

COVID-19 accelerated the need for warehouse and distribution centers across the nation. Many analysts believe that customer preference for online rather than in-person shopping will remain long past the return to “normalcy.”[15] As businesses reposition to meet the demand for online commerce, their requirements for large, modern warehouse spaces are soaring.

Distribution centers serving the west coast traditionally sought out warehouse spaces in close proximity to the ports of L.A. and Long Beach. But rising prices in California have made it very expensive to build there, contributing to rent increases. (Companies are not alone in being priced out of the Golden State: throughout the past decade, almost a quarter of new Phoenix residents came from California.[16]) Businesses are waking up to the fact that secondary markets can be more cost-effective. Phoenix, in particular, is being sought out as competitive, with warehouse space available at about half the price companies might pay in L.A.

Recent infrastructure improvements in the Phoenix metro area have further improved the ability for goods and services to flow freely to and from California. Expanded highway loops allow drivers to avoid traffic congestion in downtown areas. Upgraded water and power services are highly desirable in the region. These benefits are clearly apparent to the major blue chip industrial tenants moving into the region, including e-commerce and logistics companies such as Amazon, which recently leased over 3.5 mm square feet of space in Phoenix.

Hot Market for Industrial Properties

The increased need to warehouse goods, along with reduced rents (compared to markets such as L.A.) are drawing more industrial tenants to the Phoenix region. The demand for industrial spaces will likely continue, as all signs point to e-commerce becoming a permanent part of the retail firmament. The U.S. Census Bureau estimates that e-commerce has grown 39.1% year-over-year as of Q1 2021.[17]

U.S. Census Bureau Estimated Quarterly U.S. Retail Sales, as of July 12, 2021

“The Greater Phoenix industrial market is delivering strong results, with continued record net absorption and rental rate growth. We are confident that the Phoenix industrial market will continue to accelerate in the coming year.”’

--Paul Komadina, Senior Managing Director, CBRE[18]

While the real estate industry as a whole was disrupted by the pandemic in 2020, The NCREIF Property Index shows sizable returns from investments in industrial properties at the national level through the first quarter of this year.[19]

Source: NCREIF Property Index, trailing 1 year returns as of March 31, 2021. Amounts rounded to the nearest tenth of a percent.


Industrial is not the only sector private real estate investors should consider in the Phoenix region; population and job growth are also increasing the need for housing. Historically, the region has been highlighted by investment brokers as a strong investment opportunity[20] and we expect price appreciation to continue in the multifamily market going forward. As of June 2021, the Phoenix metro region grew almost 3x the national average, with 16.6% year-over-year growth vs. 6.2% for the U.S.[21]

Office Space

Office demand in the Phoenix metro area surged prior to the pandemic, driving 5.1% rent growth in 2019 alone. We believe that the office market in the Phoenix metro area is well-positioned to recover post-COVID, given the region’s relatively low labor costs and reduced regulation. This office market experienced an average annual rent growth of 3.7% over the past five years versus the national average of 2.0% rent growth over the same time period.[22] Additionally, the region is a growing draw for California-based firms such as Align Technology, Robinhood, and PennyMac, which increased their footprint in Phoenix over the past few months, helping to drive market recovery.[^23]

Cadre Data Science and Market Selection

Data scientists at Cadre use financial technology to observe pricing dynamics and price drivers. This proprietary analysis can be used to help our investment team better understand their sources and level of risk within the commercial real estate marketplace.

Here’s how it works: Cadre’s proprietary price indices track returns in over 50 markets across the U.S. From these, we derive our momentum factor, which indicates the pricing trend (up or down) for each market. Our value factor seeks to capture underpriced markets, and our gateway factor measures the selected market against average Tier-1 market performance. The interplay of these factors over time can help explain how we are being rewarded for taking specific market investment risk.

The chart below compares the rapid pace of real estate pricing growth in the Phoenix metro area compared to the U.S. over the three-year period through the first quarter of 2021.

Every sector we track shows Phoenix trending ahead of national averages. In the case of industrial, multifamily and retail properties, the Phoenix metro area experienced significantly higher growth rates.

Cadre Price Index. Returns from 3/31/2018 through 3/31/2021.

While this chart shows the strength of the Phoenix metro area over the past three years, it’s worth noting that, in some cases, these trends are also accelerating. Over the past year, the Phoenix metro area moved up from seventh to third place for national growth in industrial real estate. As measured historically, index outperformance has been persistent over multiple year horizons. We have not observed any weakening in the Phoenix region at this time.

Our data science team also shows specific quantitative benefits to investing in the Phoenix metro area. Over the most recent 20-year time period (2001-2021), our proprietary factor model indicates positive return contributions for both value and general market (gateway) investment risk, with a detraction from growth (momentum). Over this same time period, industrial real estate investments in the region produced excess returns of 27 bps per quarter over the national average.

With strong price appreciation and growth rates, we believe that private real estate opportunities of many stripes are on the rise in Phoenix. Cadre currently has investments in two properties in Phoenix.

Our Mission

Cadre’s selection process combines the skill sets of our experienced commercial real estate professionals and data scientists to identify markets that we believe will outperform over time. Our mission is to help make real estate more accessible, transparent and affordable to a greater number of investors, while strengthening the communities they invest in. Cadre’s strategy includes its initiatives to:

Deposit 5% of cash holdings with well-qualified, minority-owned financial institutions.
Allocate 10% of future investment capital to minority-owned operating partners.
Encourage minority-owned banks to bid on and participate in financing our transactions.
Maintain consistent numbers of affordable rental units for families within our multifamily properties.

If you are interested in learning more about Cadre, please connect with us.

  1. ↩︎
  2. ↩︎
  3. US Census Bureau’s American Community Survey, downloaded as of November 2020 (for the period 2013-2018); US Bureau of Labor Statistics ↩︎
  4. ↩︎
  5. The Cadre 15 is a list of metropolitan statistical areas periodically identified by Cadre as commercial real estate markets with strong potential for risk-adjusted returns. The Cadre 15 is developed through a combination of quantitative and qualitative analysis, including predictive analytics and on-the-ground intel. Quantitative analysis involves forecasting two-year growth projections for each market and asset class based on various variables known to drive market appreciation including but not limited to population growth, employment, rent growth, new construction, and occupancy. Qualitative analysis involves a review of quantitative data by our industry experts. There is no guarantee that an investment in a Cadre 15 market will be successful. ↩︎
  6. ↩︎
  7. ↩︎
  8. Ibid. ↩︎
  9. ↩︎
  10. ↩︎
  11. ↩︎
  12. Ibid. ↩︎
  13. ↩︎
  14. and ↩︎
  15. U.S. Census Bureau Estimated Quarterly U.S. Retail Sales, as of July 12, 2021 ↩︎
  16. ↩︎
  17. NCREIF, YoY through Q1 2021, as of July 6, 2021 ↩︎
  18. ↩︎
  19. Costar, June 2021. ↩︎
  20. CoStar, as of July 14, 2021. ↩︎
  21. Ibid. ↩︎
  22. Cadre’s factor analysis is based upon study of internal price indices which track CRE values across 52 markets and 5 different asset classes. Factor selection follows Fama-French methodology,* and factor premiums are evaluated following the approach of Fama MacBeth.** The momentum, gateway and value factors are all found to be statistically significant.
    *Fama, Eugene F. and French, Kenneth R., Choosing Factors (March 1, 2017). Fama-Miller Working Paper, Tuck School of Business Working Paper No. 2668236, Chicago Booth Research Paper No. 16-17, Available at SSRN: or
    **Fama, Eugene F., and James D. MacBeth. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, vol. 81, no. 3, 1973, pp. 607–636. JSTOR, Accessed 17 June 2021. ↩︎


Educational Communication
Not AdviceThe views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.

Not Advice
This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.

Performance Not Guaranteed
Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.

Risk of Loss
All securities involve a high degree of risk and may result in partial or total loss of your investment.

Liquidity Not Guaranteed
Investments offered by Cadre are illiquid and there is never any guarantee that you will be able to exit your investments on the Secondary Market or at what price an exit (if any) will be achieved.

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The Cadre Secondary Market is NOT a stock exchange or public securities exchange, there is no guarantee of liquidity and no guarantee that the Cadre Secondary Market will continue to operate or remain available to investors.

Opportunity Zones Disclosure
Any discussion regarding “Opportunity Zones” ⁠— including the viability of recycling proceeds from a sale or buyout ⁠— is based on advice received regarding the interpretation of provisions of the Tax Cut and Jobs Act of 2017 (the “Jobs Act”) and relevant guidances, including, among other things, two sets of proposed regulations and the final regulations issued by the IRS and Treasury Department in December of 2019. A number of unanswered questions still exist and various uncertainties remain as to the interpretation of the Jobs Act and the rules related to Opportunity Zones investments. We cannot predict what impact, if any, additional guidance, including future legislation, administrative rulings, or court decisions will have and there is risk that any investment marketed as an Opportunity Zone investment will not qualify for, and investors will not realize the benefits they expect from, an Opportunity Zone investment. We also cannot guarantee any specific benefit or outcome of any investment made in reliance upon the above.

Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Any actual transactions described herein are for illustrative purposes only and, unless otherwise stated in the presentation, are presented as of underwriting and may not be indicative of actual performance. Transactions presented may have been selected based on a number of factors such as asset type, geography, or transaction date, among others. Certain information presented or relied upon in this presentation may have been obtained from third-party sources believed to be reliable, however, we do not guarantee the accuracy, completeness or fairness of the information presented.

No U.S. or foreign securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through us.

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