Phoenix office market report

Q3 2024

25.7%

Vacancy continues increasing as companies downsize and work models evolve.

The Phoenix office market continues to face elevated vacancy rates as companies adopt new work models and shift away from traditional metro downtown hubs. Many companies have embraced hybrid or remote arrangements, reducing the demand for office space. In Q3 2024, the total vacancy rate reached 25.7%, marking the highest level on record. Notably, the proportion of direct-to-sublet space has grown, with vacancies totaling just under 25 million square feet across the Valley—5 million square feet of which is sublet space, accounting for 20% of the overall vacancy.

$30.96

Rents seem to have plateaued with growth slowing to under 2% per quarter in 2024.

In the Phoenix office market, rents have seemingly plateaued around $30.96 per square foot, with rent growth slowing noticeably over the past three quarters. From Q4 2021 through Q4 2023, the market experienced steady growth, with office rents consistently rising by 3% to 5% at any given quarter on an annual basis. However, 2024 has marked a shift in this trend, as rent growth has slowed to less than 2% per quarter, which reflects a lack of demand amid changing work models and continued high vacancy rates.

-759,437sf

Leasing remains challenging, with demand for larger spaces lagging significantly.

Q3 2024 absorption closed at -759,437 square feet. Leasing remains a challenge for the Phoenix office market, with demand for larger spaces still lagging. Before COVID, buildings over 100,000 square feet saw strong activity, but post-pandemic, absorption has been limited to small and mid-size properties, with no sign of recovery for larger spaces. Though there have been exceptions, such as Dutch Bros moving its headquarters to Phoenix, large-scale leases are infrequent. Meanwhile, the industrial sector is expanding as companies relocate to Phoenix and other Sunbelt markets, which could eventually boost office demand.

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