Phoenix Office Market Shows Positive Shift In Net Absorption - We Buy Phoenix Apartments - Vestis Group

Phoenix Office Market Shows Positive Shift In Net Absorption

PHOENIX OFFICE MARKET SHOWS POSITIVE SHIFT IN NET ABSORPTION

PHOENIX ARIZONA REAL ESTATE

Phoenix Office Market Shows Positive Shift In Net Absorption

 

By AZBigMedia, azbigmedia.com | October 16, 2025

Phoenix office market is beginning to show a positive shift in total net absorption, according to an analysis from Kidder Mathews.

Market Highlights

  • YTD total Net absorption totals 867.2K square feet.
  • 3Q25 sales volume reached 991K square feet.
  • Total vacancy rates decreased 140 bps QOQ to 23.6%.

Market Drivers

  • The Phoenix office market recorded a positive direct net absorption of 226.1K square feet in 3Q25, led by Chandler, which recorded the largest gain at 241.2K SF.
  • Class A space saw a positive direct net absorption for the quarter of 194.9K SF and maintained a positive YTD direct net absorption of 583.3K square feet. Both Class A and Class B spaces saw strong sublet absorption, totaling 417.7K SF and 224.7K SF, respectively.
  • Overall direct and sublet net absorption in 3Q25 totaled 867.2K square feet. the strongest quarterly performance since 4Q19.
  • Total leasing activity remained steady in 3Q25, totaling 1.4M square feet. Average direct rates increased slightly QOQ from $30.93/SF FSG to $30.95/SF FSG.
  • Total vacancies stand at 23.6%, reflecting a 140 bps YOY decrease. Class A total vacancy stood at 29.0%, Class B at 17.9%, and Class C increasing slightly to 9.0%. Class A rates continue to lead average direct rates at $33.86/square feet FSG.

Economic Review

  • Arizona’s unmatched business climate continues to attract major companies such as Comtech, Dutch Bros, and Cognite, who are targeting the Phoenix market for expansion and relocation of their corporate headquarters.
  • The Federal Open Market Committee (FOMC) decided to reduce rates by 25 basis points in their September meeting, citing a softening labor market as the main factor. Two additional rate cuts are expected before the year concludes.

Near-Term Outlook

  • Large tenants with near-term lease expirations (within the next 12 months) will continue to look at newer, highly amenitized buildings within urban and mixed-use locations, leaving older, less amenitized buildings to compete for tenants by offering lower rental rates and higher concessions.  With this “flight to quality” phenomenon, rental rates in Class A+ buildings have increased dramatically.  This has pushed some office tenants to consider higher-quality Class B, and even some older Class A properties at a lower price point.  Class C properties that are older with little to no amenities will likely struggle to increase occupancy.
  • Underperforming office properties will continue to be targeted for conversion or redevelopment.  With the conversion of these less desirable properties, square footage will be subtracted from the overall inventory base and vacancy.

– more at azbigmedia.com

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