MARKET DRIVERS
The Phoenix office market recorded a positive direct net absorption of 226.1K SF in 3Q25, led by Chandler, which recorded the largest gain at 241.2K SF.
Class A space saw a positive direct net absorption for the quarter of 194.9K SF and maintained a positive YTD direct net absorption of 583.3K SF. Both Class A and Class B spaces saw strong sublet absorption, totaling 417.7K SF and 224.7K SF, respectively.
Overall direct and sublet net absorption in 3Q25 totaled 867.2K SF, the strongest quarterly performance since 4Q19. Total leasing activity remained steady in 3Q25, totaling 1.4M SF. Average direct rates increased slightly QOQ from $30.93 PSF FSG to $30.95 PSF FSG.
Total vacancies stand at 23.6%, reflecting a 140 bps YOY decrease. Class A total vacancy stood at 29.0%, Class B at 17.9%, and Class C increasing slightly to 9.0%. Class A rates continue to lead average direct rates at $33.86 PSF FSG.
Economic Overview
Arizona’s unmatched business climate continues to attract major companies such as Comtech, Dutch Bros, and Cognite, who are targeting the Phoenix market for expansion and relocation of their corporate headquarters.
NEAR-TERM OUTLOOK
Large tenants with near-term lease expirations (within the next 12 months) will continue to look at newer, highly amenitized buildings within urban and mixed-use locations, leaving older, less amenitized buildings to compete for tenants by offering lower rental rates and higher concessions. With this “flight to quality” phenomenon, rental rates in Class A+ buildings have increased dramatically. This has pushed some office tenants to consider higher-quality Class B, and even some older Class A properties at a lower price point. Class C properties that are older with little to no amenities will likely struggle to increase occupancy.
Underperforming office properties will continue to be targeted for conversion or redevelopment. With the conversion of these less desirable properties, square footage will be subtracted from the overall inventory base and vacancy.
3Q 2025 Phoenix Office Market: Key Data Points
Explore our full Phoenix office market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy Rate Declines: Total vacancy dropped to 23.6%, a 140 bps decrease year-over-year.
- Net Absorption Turns Positive: Direct net absorption reached 226K SF in Q3, with 867K SF total absorption YTD.
- Leasing Activity Holds Steady: Quarterly leasing volume totaled 1.4M SF, with 4.4M SF YTD—down 14.5% YOY.
- Asking Rents Increase Slightly: Average asking lease rate rose to $30.95 PSF FSG, up 1% YOY.
- Sales Volume Slows: Office sales totaled 991K SF in Q3, with YTD volume down 33% compared to 2024.
- Class A Space Leads Recovery: Class A net absorption totaled 195K SF in Q3 and 583K SF YTD.
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