Q4 2023: Phoenix Office Market Report

The Metro Phoenix office market finished the fourth quarter with an overall vacancy rate of 16 percent, a slight increase of 10 basis-points from the previous quarter. Despite the increase, the Phoenix office market showed signs of improvement during the fourth quarter with 45,458 square feet of positive net absorption. This was the first positive net absorption recorded during a quarter since 2022. Leasing activity has been strongest for requirements in the smaller size range (10,000 square feet and below). Demand for large blocks of space has remained limited in the market. Uncertainty of future office space usage by larger users has contributed to the surge in sublease space availability. At the end of the fourth quarter, there was over 7.8 million square feet of sublease space on the market.

Phoenix office market rental rates continued to rise with the overall average asking rate closing the year at $29.68 per square foot. Increased demand for high-quality space with amenities, along with increased construction costs and operating costs, have been the key drivers for rent growth. Moving forward, rent growth is expected to slow as office vacancies remain high. Buildings with recently upgraded space and modern amenities are anticipated to generate the highest demand from office users in 2024.