Phoenix Makes a Dent in Office Vacancy

Phoenix’s office sector showed mixed performances across its fundamentals in the first month of 2026, according to Yardi Matrix data.

One of the brightest spots was the vacancy rate, which posted one of the sharpest year-over-year improvements in the country. Coworking also expanded, elevated the metro’s flex space footprint above the U.S. benchmark.

Meanwhile, transactions held steady, though sale pricing trailed the national average.

On the down side, construction activity continued to contract. The development pipeline remained modest and deliveries slowed down as last year’s completions barely surpassed the late-2024 figures.

Reduced pipeline reflects national trends

At the end of January, Phoenix’s office sector had 910,630 square feet of overall space under development across 17 projects—accounting for 0.6 percent of the existing stock. Among its peers, The Valley ranked seventh, while Houston led in construction activity with 2.7 million square feet underway. The only two peer markets outperformed by Phoenix were Denver and Nashville, Tenn., where there were 604,628 square feet and 385,919 square feet underway, respectively.

As for the competitive office space, Phoenix’s development pipeline included 432,258 square feet, accounting for 0.3 percent of stock—below the 0.4 percent national average. When also adding planned projects in the mix, The Valley’s figure amounted to 1.1 percent of inventory, still below the 1.5 percent national mark.

The pipeline size placed Phoenix on the 14th spot among the top 25 U.S. markets and the seventh spot among peers. The metro outperformed Nashville and the Bay Area, where office developments amounted to 289,919 square feet and 145,000 square feet, respectively.

The largest office development underway is ASM America’s new campus at 18601 N. Scottsdale Road in Scottsdale, Ariz. Construction started in May 2025 on the 220,000-square-foot building set to include office, research and laboratory spaces. The U.S. division of Dutch-based ASM International N.V. invested more than $300 million in the project that is estimated to come online by the end of 2026.

During the first month of 2026, two office developments totaling 277,697 square feet came online. The largest one was Republic Services’ new headquarters at 5353 E. City North Drive, developed by U.S. Realty Advisors. Wilmington Trust had provided a $168.2 million construction loan for this project.

Office deliveries comprised 654,858 square feet across nine projects at the end of the previous year. This represented a completion growth of only 1.3 percent when compared to 2024.

One of the most significant deliveries of 2025 was the 199,222-square-foot Building 3 at Gilbert Spectrum. Owned by SunCap Property Group, the project has been in the works since 2023 and came online last October.

Phoenix’s office vacancy rate keeps improving

The office vacancy rate in Phoenix clocked in at 17 percent in January. The index was below the 18.2 percent national average and down 240 basis points over the year, one of the most significant declines nationwide.

Phoenix’s rate was also the lowest among peers. By contrast, Austin recorded one of the highest office vacancies in the country, at 26.4 percent. Elevated rates were also recorded in Denver (23.5 percent), the Bay Area (23.1 percent) and San Diego (22.7 percent).

Phoenix’s average asking rents reached $29.89 per square foot, up 5.2 percent year-over-year. However, the value remained below the national average of $32.55 per square foot.

The metro also ranked among the most affordable comparable markets. Only Denver and Houston recorded lower average rents, at $29.32 per square foot and $28.54 per square foot, respectively.

The most expensive rent among peers was the Bay Area’s $53.01 per square foot, followed by Austin’s $46.04 per square foot and San Diego’s $45.18 per square foot.

Stable investment pace across Phoenix’s office market

Investment activity for Phoenix office space generated $137 million at the end of January—placing The Valley on the eight spot among the top 25 U.S. markets. The peer market that led this ranking was the Bay Area with $359 million in office sales, landing the third spot nationwide.

Markets with lower dollar volumes included Denver ($60 million), Dallas ($53 million) and Atlanta ($45 million).

The average sale price for Phoenix office assets averaged $230 per square foot in January—below the $278 per square foot national figure.

Among peer markets, Phoenix ranked fourth. The Bay Area led with $433 per square foot, followed by Dallas ($316 per square foot) and San Diego ($287 per square foot). On the other end of the spectrum, the most affordable peer markets in January were Houston and Denver, where office properties sold for $63 per square foot and $57 per square foot, respectively.

The largest Phoenix office transaction in January was the $30.6 million sale of a 62,521-square-foot medical office property in Buckeye, Ariz. Milwaukee-based Hammes purchased the building that came online in 2025 as the first phase of Abrazo Health Buckeye Medical Campus. Cambridge sold the asset.

When looking at 2025, Phoenix ended the year on a high note. Investor activity generated $1.3 billion in the metro, outpacing the dollar volume of some gateway markets such as Chicago ($1.1 billion), Seattle ($779 million) and Miami ($771 million).

One of last year’s largest office transactions amounted to $70.7 million and involved Axis Raintree, a 175,000-square-foot property at 8605 E. Raintree Drive in Scottsdale, Ariz. Trammell Crow sold the asset to an entity affiliated with D.R. Horton, one of the nation’s most prominent homebuilders. At the time, the price tag of $404 per square foot marked one of the highest single-building sales in the market.

Flex office growth keeps Phoenix competitive

At the end of January, Phoenix had nearly 3.4 million square feet of coworking space across 175 locations, according to CoworkingCafe. The metro ranked fifth among similar markets, surpassing the Bay Area (3.2 million square feet), San Diego (2.9 million square feet), Nashville (2.2 million square feet) and Austin (2 million square feet). Dallas led at 6.7 million square feet.

The Valley’s share of flex office space accounted for 2.3 percent of its total office inventory—slightly above the national 2.2 percent average and on par with the one recorded in Dallas.

Regus remained the coworking provider with the largest footprint in the metro, at 625,048 square feet. Top operators also included Industrious (259,344 square feet), Spaces (210,733 square feet), Bellagio Executive Plaza (178,430 square feet) and Arizona State University (155,697 square feet).