Serving Up Growth: The Phoenix Restaurant Market is Booming
Metro Phoenix’s restaurant scene is experiencing a seismic shift, with historic low vacancy rates, vigorous competition for prime available space and rents that continue to trend upward in response.
At the end of the first quarter, the metro Phoenix restaurant vacancy rate was just 4.4%. This means that only 145,000 square feet of the Valley’s almost 3.3 million square feet of restaurant inventory is available for lease. With our steady influx of both residents and businesses, the macroeconomic tailwinds driving this trend show no signs of slowing.
In the first quarter alone, corporate giants including Taiwan Semiconductor (TSMC), Apple and Mayo Clinic announced billions in expansion investments that should bring a wave of high-paying jobs to our state. As those professionals arrive, they will not only need homes, they’ll need places to dine and socialize.
Our current state of growth – and the outlook for the growth to come – has metro Phoenix restaurants thriving at unprecedented levels. Five years ago, the top-grossing restaurant in the Valley did roughly $14 million annually. Today, there are nearly half a dozen restaurants approaching or surpassing $20 million in annual sales. Though these specific numbers are from fine dining establishments, the vast majority of restaurants in the Valley have higher top-line sales than ever before.
There are some casual dining restaurants that, in recent months, have reported softening sales. This could be due to tighter consumer budgets as households wrestle with the impact of inflation, a potential recession, or unease about the current political climate. In the meantime, there are some unicorns like Chili’s, who recently announced an astounding 31% same-store sales increase in its fiscal Q2 2025 results that seems to be bucking the norm. Only time will tell if these are emerging trends or short-term anomalies
Generally, however, our market’s restaurant performance paints a strong picture for companies looking to plant a flag here. We continue to see a marked rise in of out-of-state interest, with many of these inquiries converting to actual leases. The activity is establishing a new generation of first-to-market restaurant concepts across the Valley, often involving national hospitality groups wanting to capitalize on a booming economy and affluent consumer base.
Just some of these new destinations include Uchi, an upscale Japanese restaurant from Austin, the trendy LA-based Elephante, and Catch, another LA import. While the latter two signed on at the prestigious Scottsdale Fashion Square, neighborhood centers are also performing well, driven by busy consumers who are looking for quick access to quality food.
Perhaps the most transformative change in the industry is the rise of off-premise dining. In the past, I would often visit a restaurant in person – using in-store traffic as one metric to gauge success. Today, that approach may be less effective, as a quieter dining room doesn’t necessarily mean a lack of sales.
In many cases, carryout and delivery can account for 20% to 25% of a full-serve restaurant’s sales. For fast-casual concepts, this figure can be even higher. I’ve even had some clients reference upwards of 60% (or more) of their business coming from off-premise orders.
Those are staggering numbers to those of us who have some career tenure, and it is a trend that I believe will continue to reshape restaurant site selection and space requirements not just in Phoenix but across the U.S. With metro Phoenix retail rates now at an average $39.67 p.s.f. (and reaching into the $80 p.s.f. range for the best restaurant space), the ability to reduce footprints is an appealing option for many restaurant operators.
Many national brands are developing more efficient restaurant prototypes by implementing technology such as kiosk ordering and redesigning kitchens and dining rooms. Portillo’s, a Western Retail Advisors client, is one of these, recently reducing their average footprint from 7,700 square feet to 6,500 square feet with a “restaurant of the future.”
With rents, labor costs and construction expenses all high, I continue to hope that our restaurants can ride the current wave of success and sustain long-term profitability. Fortunately, with consumer demand and broader investment in the market still on the rise, my belief is that our restaurant industry will continue its trajectory toward becoming one of the hottest markets in the country.
