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Insights · Water & Growth

Arizona's water squeeze is now a real estate question. Here is what it means for growth.

Arizona is about to lose roughly 30% of its Colorado River water. Growth will continue, but water will decide where it goes, and that changes what land and buildings are worth.

By Jon Willis, Founder & Designated Broker · · 6 min read

This week KTAR reported that water questions have reached the people selling homes. At an October 21 presentation to Phoenix Realtors, Warren Tenney, executive director of the Arizona Municipal Water Users Association, called the coming cut to the state's Colorado River supply a "paradigm shift."

If buyers of houses are asking about water, buyers of land, industrial sites and investment property should be asking even harder questions. Here is our read on what is happening, what it means for commercial real estate, and what owners should do now.

What happened

  • The cut. Under a new two-year federal agreement, Arizona is expected to lose about 30% of its Colorado River allocation starting next year.
  • The river is shrinking. The Colorado was divided up assuming 16 million acre-feet a year. Flows averaged about 12.4 million by 2000 and near 10 million around 2020. According to Tenney, the winter of 2025–26 produced the worst snowpack ever recorded in the basin.
  • Cities are not all exposed the same way. About 11% of Tempe's water comes from the Colorado River. For Scottsdale, it is more than 70%.
  • Cities are building new supply. Phoenix has invested $3 billion in advanced water purification and plans three water recycling facilities over the next seven years. Peoria, Queen Creek and Buckeye have bought groundwater from the Harquahala Valley.

Growth is not stopping. It is being sorted.

The headline risk is "Arizona is running out of water." The reality is more useful. Greater Phoenix uses less water today than it did in 1985, even after adding about 3 million people, and more than 89% of its wastewater is already reclaimed and reused, according to the Greater Phoenix Economic Council.

What is changing is where growth can happen. Since June 2023, the state has stopped approving new subdivisions on the edge of the Phoenix area that rely on native groundwater for their required 100-year assured water supply. Cutting the Colorado River supply on top of that makes a secure, documented water source the single most important feature of a growth-area property.

Water is becoming the new zoning. Two parcels that look identical on a map can be worth very different amounts depending on what water stands behind them.

What it means by property type

Land

This is where water hits hardest and fastest. Land that can show a path to an assured water supply will command a premium. Land that cannot will sit longer and trade at a discount, no matter how good its location looks.

There is an opportunity here too. Arizona's 2025 "ag-to-urban" law lets owners in the Phoenix and Pinal management areas permanently retire irrigated farmland and turn the saved groundwater into credits that support new subdivisions. Credits must be pledged by the end of 2030. Farmland with grandfathered irrigation rights may be worth more to a builder than to a farmer, and many owners do not know it yet.

Industrial

Manufacturing, data centers and other large users are under the most scrutiny. Cities are already looking harder at big water users, and Scottsdale has proposed new limits on them. Sites served by a provider with a diverse water portfolio, or with access to recycled water, will hold an edge with large tenants. Expect water questions to show up earlier in site selection and in lease negotiations.

Retail and office

Retail follows rooftops. If new home construction shifts toward cities with secure water, so will demand for neighborhood retail, medical office and service space. Owners in established cities with strong water portfolios are well positioned. Owners betting on future rooftops at the far edge of the metro should understand exactly where that water will come from.

Income properties

For stabilized investments, the risk is slower and quieter: higher water costs passed through to tenants, possible conservation requirements, and buyers who now ask about water in due diligence. None of that kills a deal, but it can shave value from a property that has not prepared an answer.

What we recommend owners do now

  1. Know your provider's portfolio. Find out what share of your city's water comes from the Colorado River, the Salt River Project, groundwater and recycled water. Tenney's own advice is to ask city officials directly.
  2. Document your water position. Land owners should pull any assured water supply records, water rights and grandfathered irrigation rights tied to the property. Buyers will ask for them.
  3. Check whether your farmland has hidden value. If you own irrigated land in the Phoenix or Pinal management areas, the ag-to-urban credit program may change your best use. The 2030 deadline matters.
  4. Get a valuation that accounts for water. A pricing opinion that ignores water is out of date. Ours factors it in.

The bottom line

Arizona has been planning for this for decades, and growth will continue. But the market is starting to price water, and it will reward owners who can answer the water question clearly. If you own land or commercial property in the Phoenix metro and want to know how this affects your property, we are happy to walk through it with you, at no cost.

Sources

This article is general market commentary, not legal or water-rights advice. Consult qualified counsel and your water provider before acting.