View of the Phoenix Medical Office Market
Leasing Activity
The leasing market improved in Q2 2026. Direct vacancy fell to 15.1%, down from 15.8% in Q1, reversing last quarter’s uptick. Average direct rental rates also increased, rising to $34.39/SF from $33.80/SF on a full-service basis, further confirming that top-tier medical space continues to command strong pricing. Net absorption turned positive at 60,076 SF, a reversal from the (117,744) SF of negative absorption recorded in Q1. Tenant decisions are still taking time and costs remain a factor, but demand for well-located medical office space in strong submarkets continues to hold up.
Sales Activity
Sales activity picked up meaningfully in Q2 2026, with total volume increasing to $151.8 million from $88.9 million in Q1. The quarter was led by three larger transactions: 9000 W Thunderbird Rd in Peoria for $20.55 million, 3530 S Val Vista Dr in Gilbert for $51.5 million, and 1840 and 1910 S Stapley Rd in Mesa for $48.0 million. Together, those three deals accounted for nearly 79% of the quarter’s total sales volume. Buyers remain selective but are not sitting on the sidelines. When a property is well located, priced correctly, and has a strong story, deals are getting done. Our team was involved in the leasing or sale of two of the three largest transactions this quarter.
Construction
There were no new deliveries to the Phoenix medical office market in Q2 2026, which helps explain the quarter’s improvement in leasing activity. With no new supply added, the drop in vacancy paired with positive absorption is more meaningful, showing that the gains came from tenants taking space in the existing market rather than from new construction. Development remains careful and selective as construction costs stay elevated, and most projects need very strong tenant interest before moving forward. Office-to-medical conversions remain part of the supply story in certain submarkets, adding to the Valley’s approximately 17.3 million square feet of medical office inventory. As the Valley continues to grow, the long-term need for healthcare space remains strong, but new development will likely stay concentrated in locations where demand is already proven.
Market Breakdown
| Q1 2026 | Q2 2026 | Quarterly Change | |
|---|---|---|---|
| Direct Vacancy Rate (%) | 15.8% | 15.1% | ▼ 0.7% |
| Direct Rental Rate | $33.80 | $34.39 | ▲ $0.59 |
| Sold ($) | $88.9M | $151.8M | ▲ $62.9M |
| Net Absorption (SF) | (117,744) | 60,076 | ▲ 177,820 |
Read the full report at the link below.
The information in this update was composed by the Kidder Mathews Phoenix healthcare brokerage team of Michael Dupuy, Fletcher Perry, Rachael Thompson, Perry Gabuzzi, Chad Sutton, and Zack Harris.
Data source: CoStar
About the Team
The Kidder Mathews team of Michael Dupuy, Fletcher Perry, Rachael Thompson, Perry Gabuzzi, Chad Sutton, and Zack Harris specializes in healthcare real estate services with a strategic focus on the greater Phoenix region. For more information, visit their online team profile here.
About Kidder Mathews
Kidder Mathews is the largest fully independent commercial real estate firm in the Western U.S., with over 900 professionals in 20 offices across Washington, Oregon, California, Nevada, Arizona, and Texas. We offer a complete range of brokerage, appraisal, asset services, consulting, and debt & equity finance services for all property types. For more information, visit kidder.com.
Contact
Michael Dupuy, Executive Vice President
Fletcher Perry, Executive Vice President
Rachael Thompson, Senior Vice President
Perry Gabuzzi, Executive Vice President
Chad Sutton, Senior Associate
Zack Harris, Senior Associate
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