Phoenix office market report

Phoenix has outperformed national benchmarks on many statistics relating to strength and resilience of economy.

The national unemployment rate currently stands at 3.7%, while Phoenix’s unemployment rate looks to close the year at 3.0% - a remarkable rebound compared to the Valley’s high of 12.8% at the start of the pandemic. 

Using December of 2019 as a baseline, only 41% of workers have returned to the office full-time, according to Avison Young’s Vitality Index.

In Phoenix, office space has been impacted much more drastically than any other property type – for comparison: hospitality & recreation properties have seen a 30.8% increase in daily population volume; retail a 2.0% increase; transit a 43.3% decrease; and healthcare a 44.1% decrease.  

Heading into 2023, four office projects are currently under construction across the greater Phoenix region, totaling 426,854 sf of rentable space.

Development projects slated to be delivered in 2023 include (but are not limited to): The Grove, a two-building class A office located in the highly desirable Camelback Corridor, is set to deliver the second building in January and will add an additional 70,000 sf to the project’s total 250,000 sf of premium leasable office space. One Scottsdale, another class A office building is part of a ±1.8 million sf mixed-use development that will also include leasable space for retail and hospitality. The office portion of the development project will offer 149,800 sf of leasable space in the growing Scottsdale Airpark submarket. The project is expected to be delivered in April of 2023.

Net absorption posted its 3rd straight negative year, ending 2022 with negative 2,435,146 sf of total net absorption.

Since the pandemic, the office market has struggled to recover. The adoption of remote working has led many businesses to analyze their needs and “right-size” their office portfolios. Additionally, national layoffs and companies prepared for an economic downturn have played a large role in the reduction of office space.

Average asking rents for office space 20,000 sf and above increased by $0.78 psf (2.8%) year-over-year, with Q4 seeing average asking rents average $28.90 to end the year. 

The East Valley, East Phoenix, and Scottsdale submarkets saw the highest average rents, with all three submarkets posting rates much higher than the greater Phoenix area’s average.

Office transaction volume (by $) was down year-over-year by $196,934,787. However, 2022 saw 18 more properties transacted over the course of the year – bringing the total amount of office building transactions to 160 to end the year.

Regardless of the reduction in sales volume ($) year-over-year it should be noted that sales metrics in the last two years have reverted to their pre-COVID levels, which have remained consistent over the past 6 years with 2020 being the sole outlier.