Phoenix office market report

Q3 2023

Three key market themes:


Total vacancy rate (%)

The Valley’s office market continues to see rising vacancy rates across the metro, again setting a decade-high total vacancy during the third quarter. Phoenix office recorded a total vacancy rate of 18.5% and a sublet vacancy rate of 5.9% - bringing the total vacancy rate to 24.4%, which equates to 23.3 msf of total vacant space.

The ongoing escalation of sublease space throughout the Phoenix metro is the predominant factor propelling the increase in overall vacancy. With hybrid and remote work models becoming a new normal for traditional office employees, businesses continue to reorganize their portfolios by subleasing under-utilized office space at a record rate.


Transaction volume (by $)

Transaction volume (by $) in Q3 was $225,992,142 – a significant increase of $82.7m (57.7%) quarter-over-quarter. The average price per square foot on all transactions also rebounded in the third quarter, rising from $164.73/sf in Q2 to $186.14/sf in Q3 – a 13.0% increase Q/Q.

Though sales activity for the Phoenix office market made a notable recovery in Q3, transaction volume is still down compared to historical norms. The timeframe for a return to normalcy is difficult to predict, given continued increases in interest rates and vacancy and heightened scrutiny from lenders during the underwriting process.


Direct asking rents - FS ($/sf)

Direct asking rents for Phoenix office space increased for a second consecutive quarter – jumping $0.18/sf (0.62%) from $29.05 to $29.23 quarter-over-quarter.

Rents have continued to increase despite an evident lack of demand, as owners have opted to conserve the value of their investments by keeping rents high and, in return, sweetening the pot during negotiations by providing significant concessions by way of extended free-rent periods and higher-than-average TI allowances.

Increased asking rates can also be attributed to the willingness of prospective lessees to compete for high-end/highly-amenitized space to attract workers back to the office.


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