Phoenix office market report

The Phoenix office market has witnessed a steady increase in vacancy rates, reaching a high of 25.3% at the beginning of 2024, consisting of 19.4% direct vacancy and 5.9% sublet vacancy. Amidst the ongoing post-pandemic struggle, direct vacancies continue to fluctuate in an upward direction. Notably, sublet vacancies have surged nearly fifteenfold from 0.4% in Q1 2020 to 5.9% in Q1 2024, meaning there’s been a significant increase in sublet space. The submarkets closer to Downtown Phoenix are contributing greatly to these heightened vacancy rates as large contiguous spaces and high-rise buildings remain available.

Despite rising vacancies and increasing company downsizing due to the hybrid work-from-home culture, asking rents in the Phoenix office market continued to climb. In Q1 2024, Class B rents experienced a modest increase from $26.80 in Q3 2024 to $26.93 per square foot. Class A asking rents showed a year-over-year increase of 3.3% from $32.17 in Q1 2023 to $33.24 in Q1 2024.

These increases resulted in an overall $30.85 per square foot asking rent in Q1 2024, making a $0.76 increase from Q1 2023 at $30.09.

In Q1 2024, Phoenix witnessed investment sales surpassing $108 million in traditional office and medical office properties exceeding 20,000 square feet. Notably, medical office investment sales, excluding owner-user properties, reached $52.8 million, representing 48% of the quarter's total performance. Despite recent lows in traditional office property sales volume, the medical office sector shines as a standout in the market, emphasizing the continued resiliency of this property type.