Phoenix, AZ– Avison Young recently released its First Quarter 2024 Phoenix Office Market Report.

The Phoenix office market has witnessed a steady increase in vacancy rates, reaching a high of 25.3%. This consists of 19.4% direct vacancy and 5.9% sublet vacancy. The ongoing post-pandemic struggle has resulted in direct vacancies continuing to fluctuate in an upward direction. Notably, sublet vacancies have surged nearly fifteenfold from 0.4% in Q1 2020 to 5.9% in Q1 2024, indicating a significant increase in sublet space. The submarkets closer to Downtown Phoenix have contributed greatly to these heightened vacancy rates as there are still large contiguous spaces and high-rise buildings available.

“The first quarter Phoenix office market can be characterized as less of the same. We are experiencing the same trends we experienced in 2023 but with reduced overall leasing activity. The trends include medical office outperforming traditional office; more than 50% of office leases being less than 10,000 square feet; and the highest quality buildings in prime locations attracting the best tenants at the expense of commodity buildings. The predicted catastrophic foreclosures have not yet happened, but lenders are very active participants in the leasing process,” said Mark Seale, Avison Young Principal and Director of Brokerage – Phoenix.

Despite rising vacancies and increasing company downsizing due to the hybrid work schedule, asking rents in the Phoenix office market continued to climb. Class B rents experienced a modest per square foot increase from $26.80 in Q3 2024 to $26.93 in Q4 2024. Class A asking rents showed a year-over-year increase of 3.3% from $32.17 in Q1 2023 to $33.24 in Q1 2024. These increases resulted in an overall $30.85 per square foot asking rent in Q1 2024, making a $0.76 increase from Q1 2023 at $30.09.

In Q1 2024, Phoenix witnessed investment sales surpassing $108 million in traditional office and medical office properties exceeding 20,000 square feet. Notably, medical office investment sales, excluding owner-user properties, reached $52.8 million, representing 48% of the quarter's total performance. Despite recent lows in traditional office property sales volume, the medical office sector shines as a standout in the market, emphasizing the continued resiliency of this property type.

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