MARKET DRIVERS
The Phoenix office market recorded a positive direct net absorption of 211K SF in 4Q25, led by Tempe, which recorded the largest gain at 184.6K SF. Class A space posted positive direct net absorption of 413K SF for the quarter and maintained a positive 2025 direct net absorption total of 1M SF. Sublet demand remained strong, with Class A sublet absorption totaling 155K SF. Overall direct and sublet net absorption in 4Q25 reached 270K SF.
Total leasing activity remained steady in 4Q25, totaling 1.8M SF. Average direct rates remained flat QOQ at $30.97 PSF FSG. Total vacancies stand at 23.6%, reflecting a 140 bps YOY decrease. Class A total vacancy stood at 28.1%, Class B at 18.9%, and Class C increasing slightly to 10%. Class A rates continue to lead average direct rates at $33.89 PSF FSG.
Economic Overview
In 2025, the Arizona Commerce Authority and its economic partners secured 90 competitive projects, committing to 27,749 jobs and more than $34B in capital investment. Arizona’s strong business climate attracted major companies in 2025 such as Comtech, Dutch Bros, and Cognite, which are targeting the Phoenix market for corporate expansion and headquarters relocations.
NEAR-TERM OUTLOOK
Highly amenitized buildings continue to vie for quality-focused tenants desiring an upgraded office image and experience. This “flight-to-quality” will disrupt occupancy within older more traditional Class A and Class B properties resulting in tenants moving between desirable submarkets. Limited new office construction combined with continued conversion and redevelopment of underperforming assets will result in continued tightening of overall office inventory.
Owner-user demand is expected to remain active across well-located suburban submarkets as interest rate clarity improves and businesses seek long term occupancy cost control through ownership rather than leasing. Most of which are taking advantage of low down payments SBA loans. Investment activity is selectively returning, driven by repricing, motivated sellers, and buyers targeting stabilized or value-add office assets with strong tenancy, manageable rollover, and replacement cost advantages.
4Q 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 decreased to 23.6%, down 140 bps year-over-year.
- Average Asking Rents Holds Steady: Direct asking lease rate averaged $30.97 per SF per year, unchanged from Q4 2024.
- Positive Net Absorption: Net absorption reached 211,540 SF for the quarter, with Class A contributing 413,951 SF.
- Leasing Activity Remains Strong: Total leasing activity for Q4 was 1.8M SF, bringing the annual total to 6.4M SF.
- Sales Volume Softens: Quarterly sales volume totaled 1.76M SF, an 18% decline year-over-year.
- No New Deliveries: Construction pipeline remained inactive with 0 SF delivered in Q4.
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