MARKET DRIVERS
The Phoenix office market recorded a negative direct net absorption of 267K SF in 1Q26. Tempe recorded the highest positive net absorption at 195K SF, while Downtown saw the lowest, with negative net absorption of 337K SF. By asset class, Class A recorded negative net absorption of 210K SF, followed by Class B at negative 38K SF and Class C at negative 18K SF.
Sublet demand remained strong, with Class A sublet absorption totaling 64K SF, though overall direct and sublet net absorption in 1Q26 totaled negative 232K SF.
Total leasing activity remained steady at 1Q26, totaling 1.4M SF. Average direct rates rose
YOY to $31.45 PSF FSG. Total vacancies stand at 24%, reflecting a 70 bps YOY decrease.
Class A total vacancy stood at 29.1%, Class B at 18.4%, and Class C at 10.3%. Class A rates
continue to lead average direct rates at $34.49 PSF FSG, as highly amenitized office buildings
remain preferred by tenants.
NEAR-TERM OUTLOOK
Hybrid work continues to disrupt traditional office user demand. The shift from traditional office layouts to more collaborative and open space layouts has reduced overall office footprints. With the continued downsizing of space, the demand for move-in ready/spec suites is accentuated by tenants’ desire to eliminate long construction timelines and high tenant improvements costs. This demand has lowered the average Phoenix lease sizes to between 4K-5K SF. Landlords are capitalizing on this trend by building spec suites that attract tenants, giving tenants greater leverage to negotiate more flexible lease terms.
Tenant relocation within the same or adjacent submarkets is a noticeable trend among users
in the Valley. Tenants are being drawn to properties offering new common area amenities such as shared conference facilities, on-site grab-and-go options, on-site restaurants/delis, and entertainment features like sports simulators. Premier Class A buildings are capitalizing
on the employee experience by creating hospitality-driven environments that enhance workplace satisfaction, support collaboration, and serve as a tool for both talent attraction and retention. This trend is expected to continue.
1Q 2026 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 Rates Decline Year-over-Year: The total vacancy rate fell to 24.0%, down 70 basis points from 1Q 2025, while total availability dropped 150 basis points to 25.3%.
- Leasing Activity Expands: Leasing activity totaled 1.4M SF, representing a 10% year-over-year increase, driven primarily by Class A demand and submarket relocations.
Net absorption registered -267,340 SF, reflecting ongoing downsizing and footprint optimization among office users. - Asking Rents Rise Despite Soft Demand: Average direct asking rents increased 2% year-over-year to $31.45 PSF (FSG), led by Class A buildings averaging $34.49 PSF.
- No New Office Deliveries: Phoenix recorded 0 SF of new office construction deliveries in 1Q 2026, limiting additional supply amid elevated vacancy levels.
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