Phoenix Office Sector Shows Strong Sales, Tight Vacancy

Phoenix’s office sector showed a mix of strengths and strains across key fundamentals as of October, according to Yardi Matrix.

Office investment volume in The Valley exceeded the $1 billion mark, though average sale prices remained below the national average. Development activity remained solid, supported by large projects in Northeast Phoenix and Scottsdale, Ariz., while new starts and office completions declined.

The metro’s October vacancy rate was the lowest among its peers—a notable upside across elevated rates hitting traditional office markets. Meanwhile, coworking continued to expand, keeping Phoenix competitive across the broader flex office landscape.

Slower new starts, pipeline remains steady

Year-to-date through October, Phoenix’s office pipeline totaled 1.2 million square feet of competitive space across 13 projects, representing 0.7 percent of existing stock—on par with the national average. Among its peers, Phoenix ranked on the seventh spot, while the Bay Area led in office construction activity, with nearly 3 million square feet underway. At the opposite end stood Nashville, Tenn., with only 359,699 square feet underway.

The largest office development underway remains Republic Services’ new headquarters at 5353 E. City North Drive. Developer U.S. Realty Advisors began construction on the 265,525-square-foot project last year, backed by $168.2 million in construction financing from Wilmington Trust. Completion is expected by the end of this year.

The second-largest project underway is ASM America’s new campus at 18601 N. Scottsdale Road in Scottsdale, Ariz., where construction began this year. The 220,000-square-foot development will include office space and a research and development laboratory, expanding the semiconductor equipment supplier’s North American footprint. The company, owned by Dutch-based ASM International NV, is investing more than $300 million in the project, which is expected to create 500 new jobs and come online by late 2026.

Developers started seven projects totaling 620,584 square feet during the period, while office deliveries consisted of seven properties totaling 507,353 square feet—a 21.5 percent year-over-year decline in completions.

Phoenix records solid deal flow

Year-to-date through October, Phoenix’s office sector generated $1.1 billion in transactions, placing the metro 11th among the top 25 U.S. markets. Manhattan led the nation with $6.4 billion in sales.

Phoenix ranked fifth among its peer markets. The Bay Area led with $4.4 billion, followed by Dallas ($2.5 billion). Phoenix outperformed Houston ($996 million) and Denver ($861 million), while Nashville posted one of the slowest transaction totals nationwide at $203 million.

One of the most significant local deals was the $70.7 million purchase of Axis Raintree, a 175,000-square-foot office property at 8605 E. Raintree Drive in Scottsdale. Trammell Crow sold the asset to an entity affiliated with D.R. Horton, one of the nation’s largest homebuilders. The $404.06-per-square-foot price marked Phoenix’s highest single-building office sale this year.

The second-largest transaction in The Valley was Koelbel & Co.’s $48.3 million purchase of The Collective, a 115,000-square-foot building. Humphreys Capital sold the property at a 27 percent discount from its previous sale in 2022, when it traded for $66.4 million.

As of October, average office sale prices in The Valley stood at $188 per square foot—below the national average of $191 per square foot and ranking fifth among peer markets. The Bay Area posted the highest average ($386 per square foot), followed by Dallas ($290). Houston recorded the most affordable pricing at $90 per square foot.

Vacancy improves as rents remain affordable

Phoenix’s office vacancy rate reached 17.4 percent in October, marking a 100-basis-point year-over-year decline and falling below the national average of 18.6 percent. The metro recorded the lowest vacancy among its peer markets. Austin posted the highest rate at 26.9 percent, followed by Denver at 23.5 percent.

Notable leasing activity included HonorHealth’s 50,000-square-foot commitment at Chandler Integrated Care Campus, a 187,000-square-foot office-to-medical-office conversion in Chandler, Ariz., owned by ViaWest Group.

Asking rents in Phoenix averaged $29.67 per square foot—below the national average of $32.81 per square foot and among the most affordable of its peer markets. The Bay Area ($51.59 per square foot) and Austin ($45.79 per square foot) remained the most expensive, while Houston posted an average of $27.49 per square foot.

Flex space expands in the metro

As of October, Phoenix had 3.1 million square feet of coworking space across 173 locations, according to CoworkingCafe. This footprint ranked fifth among peer markets, with Dallas leading at nearly 6 million square feet. The Valley’s coworking inventory outpaced the Bay Area (3.1 million square feet), San Diego (2.7 million square feet), and Nashville (2.1 million square feet), while Austin ranked last with 1.9 million square feet.

Phoenix’s share of coworking space reached 2.1 percent of total office inventory—slightly below the national average of 2.2 percent and on par with Dallas.

Regus remained the largest coworking operator in the metro, with 607,189 square feet. It was followed by Industrious (259,344 square feet), Arizona State University (155,697 square feet), Spaces (155,435 square feet), and Expansive (132,095 square feet).