Phoenix's Housing, Industrial Demands Are Driving Surge In Conversions

Office conversions in Phoenix are mounting as investors seek to leverage a swath of outdated buildings to meet the needs of a growing population and recovering industrial market.

Since 2024, 3.3M SF of office space has been converted or demolished in metro Phoenix, more than the previous 10 years combined, according to a Cushman & Wakefield report. Another 4.1M SF of projects are proposed, making the city one of the most active conversion and demolition pipelines in the U.S.

“In Phoenix, the conversion trend is being driven by a reevaluation of how certain well-located office sites are best utilized,” Josh Craft, senior research analyst at Cushman & Wakefield, told Bisnow. 

“Recent challenges in the office market have accelerated that process, motivating investors and developers to capitalize on redeveloping them into alternative uses,” he said. 

The ongoing projects are helping to rebalance Phoenix’s office market by eliminating excess supply as the region continues its post-pandemic recovery. In the first quarter, direct office vacancy dropped 60 basis points from the previous quarter to 14.5%, according to a Q1 Colliers report.

The offices being redeveloped or removed are typically high-vacancy with upcoming loan maturities, according to Cushman & Wakefield. Their removal frees up land and capital to build new housing for a surge in residents, with the population forecast to reach about 4.9 million people this year. 

Developers are also tearing down buildings to make way for warehouses and other industrial sites, hoping to capitalize on Taiwan Semiconductor Manufacturing Co.’s multibillion-dollar chipmaking project.

“The conversion trend will continue, especially as there remains a strong need for smaller-format industrial sites and also by the fact that there's an abundance of underutilized office sites that represent strong opportunities to develop them,” Craft said.

Last year, Phoenix ranked ninth out of 53 U.S. markets in office space that is planned for conversion or demolition, according to CBRE. Larger cities like New York, Washington, D.C., and Chicago have bigger overall conversion pipelines. But several regulatory changes in Phoenix have helped to facilitate an increase, according to the Cushman & Wakefield report.

Many of the properties being converted are 1980s-era buildings on large, now-valuable infill sites, said Erik Powell, executive vice president for Stevens-Leinweber Construction.

Those office buildings don’t have the amenities that modern office users seek, such as gyms and coffee shops, and “the layouts aren’t current with today’s standards, and energy efficiencies are lacking,” he said. The demand that does exist for office space in Phoenix is focused on amenitized Class-A spaces.

Land in the region has become more expensive, so “converting those sites to industrial or residential has made increasingly more sense,” Craft said. Developers are scooping up the existing offices for low prices as a way to secure any land they can for new projects.

Residential Projects Underway

Office-to-residential conversions make up 28% of the total proposed office conversions in the Phoenix pipeline today, down from 35% historically, according to the Cushman & Wakefield report. The share of office-to-industrial conversions has remained stable at 38% to 39%.

Despite the decline in office-to-residential proposals, Craft said the demand for new housing is strong. A RentCafe report found that Phoenix expects to see 1,550 residential units produced from office-to-apartment conversion projects this year, ranking the region as the 13th-largest office-to-residential converter in the country.

Conversions to residential have been driven by population growth as well as an undersupply of housing, said Dave Carder, executive vice president of Kidder Mathews’ Phoenix office. Phoenix saw a total of 3,854 apartment deliveries in the first quarter, according to a May Colliers report, a 20% decline from Q4 and the lowest quarterly volume in years. 

One notable project in the area is the highly anticipated transformation of the 11-story One Camelback, a former bank building being turned into a luxury apartment complex with expected rents of up to $10K a month. Kinella Capital bought the building for $36M last winter after the original developer defaulted on the loan. The conversion project was stalled for years but is now expected to be complete in the fourth quarter, according to AZ Big Media. 

The 163-unit multifamily complex will have an open atrium, 11K SF of ground-floor retail space, a gym, a coworking lounge, an underground parking garage and a rooftop pool. 

Another project underway is Caliber Co.’s conversion of a distressed two-building office complex on 25th and Dunlap avenues into a 376-unit multifamily rental complex called Canyon Village. The first units are expected to deliver this year. The Phoenix City Council unanimously approved a rezoning for the project in February 2025, the Phoenix Business Journal reported.

While the Caliber project was a straightforward adaptive reuse project, the One Camelback building had to be gutted and stripped “down to its skeleton” so that new glass, electrical, mechanical, plumbing and walls could be put in, KTAR News reported.

Because office-to-residential conversion projects have specific requirements, like properly sized floor plates, windows and elevator shafts, properties often must be torn down to “take off the skin” and bring them “down to the bones,” leaving just the foundation and floors, said Ron Gart, a real estate partner at Seyfarth Shaw. And oftentimes, it is easier for outdated buildings to be completely razed.

Partial demolitions are always needed for industrial conversions due to structural and logistical requirements. 

“The functional aspects of an industrial building are quite different from those of office buildings, due to factors such as clear heights, loading doors, truck courts, sprinkler systems, site coverage, and outside or trailer storage required by an industrial user,” Carder said.

'Unprecedented Demand' For Industrial

There are more office-to-industrial redevelopment conversions than residential ones, Craft said, because the zoning and approval process is more straightforward and because the latter often take “extended periods of time to actually materialize.” Plus, he said, industrial ones “have a stronger demand case.” 

A Colliers report found that industrial demand in the region is up overall, with investment activity hitting a record first-quarter volume. Vacancy dropped to 9.2% as “strong tenant demand drove net absorption well above new supply,” the report says. In the first quarter, net absorption reached 4.9M SF, up 200% from Q1 2025, according to a CBRE report.

“Phoenix is seeing unprecedented demand for logistics, manufacturing and industrial uses,” said David Krumwiede, senior executive vice president at Lincoln Property Co.

He listed the area’s business-friendly environment and “strategic geographic position” as key draws. These give the metro “a real advantage when it comes to replacing functionally obsolete office space with higher-demand industrial product,” he said.

Lincoln Property Co. is spearheading a major office-to-industrial project called Sky Harbor Logistics at 1515 W. 14th St. It is one of three office-to-industrial conversions taking shape in Tempe, according to the PBJ. The project involves the demolition of a 220K SF office building and parking garage to make way for a two-building, Class-A logistics campus spanning 255K SF. 

Krumwiede said Lincoln, which has been working on the redevelopment since 2024, had to consider factors like location, zoning, site functionality and long-term demand drivers before deciding to move forward with the conversion.

“The buyer had to understand existing lease commitments, the timing and cost of demolishing the existing improvements, and whether the site can efficiently support a future industrial use,” Krumweide said.

This month, Stevens-Leinweber Construction broke ground on TenSixty Interchange, another office-to-industrial project in Tempe. Powell said the company had demolished an outdated two-story office building, which cost less than $200K. 

Krumweide said that while there is plenty of opportunity for new projects in the office conversion space, “the lowest-hanging fruit has already been picked,” so “the pace may slow compared with what we have seen over the last few years.”

But reports forecast that the office conversion boom in Phoenix is likely to continue as long as land remains scarce. 

“As land becomes less viable in Phoenix, and as older office product gets older, it's going to go through a reuse, and one of the strong components of that in our market will be industrial manufacturing,” Powell said.

Gart said developers “will always look for opportunities, and there are still a number of properties that are in distress, which means reduced value, which means potential opportunity to convert.”