Phoenix Office Vacancy Remains Low, Despite Challenges

The office construction activity in Phoenix remained sluggish during the first half of the year, according to the latest Yardi Research Data. The metro’s pipeline ranked seventh among its peers, while only three properties came online, marking a notable year-over-year drop in office deliveries.

Similarly, office transactions in The Valley placed it sixth among peer markets, while average sale prices and rents were below the national level. However, Phoenix’s office vacancy rate was among the few bright spots as the sector struggles with low occupancy.

Phoenix office prices high, volume steady

Year-to-date through June, Phoenix’s office sales volume reached $466 million, with assets trading at an average sale price of $185 per square foot—slightly below the national average of $189 per square foot.

The Valley’s transaction volume placed it sixth among its peers. The Bay Area led the rankings, with $3.2 billion in deals, while Houston followed with $1.2 billion. Phoenix outperformed Denver ($425 million) and Austin ($278 million), while Nashville’s $45 million posted the lowest figure across the top 25 U.S. markets.

Noteworthy sales during the first half of 2025 include Koelbel & Co.’s $48.3 million acquisition of 2801 E. Camelback Road, a 115,000-square-foot, four-story office building. The buyer secured a $31.7 million acquisition loan from Pinnacle Bank.

Another significant deal was the $44.6 million acquisition of Scottsdale Centre, a 163,727-square-foot office campus in Scottsdale, Ariz. Baseline Partners purchased it from MIG Real Estate, with acquisition funds from Glacier Bank totaling $29.3 million.

The average sale price of $185 per square foot placed Phoenix fourth among its peer markets. The Bay Area led this category, with $387 per square foot, with San Diego ($347 per square foot) and Austin ($221 per square foot) following. In contrast, Denver was the most affordable office metro year-to-date through June, reaching and average of $95 per square foot.

Phoenix office vacancy below national level

The office vacancy rate in Phoenix clocked in at 17.1 percent in June—below the national average of 19.4 percent and marking a 110-basis-point drop over the past 12 months. Among peer markets, the metro’s rate was lowest, with Austin’s 28 percent at the other end of the spectrum.

Among the few leases signed in the metro was RED Development’s 24,772-square-foot deal at CityScape, an office tower in the city’s central business district. Non-profit organization Visit Phoenix will relocate here and establish its new headquarters.

Another notable deal was HonorHealth’s 50,000-square-foot medical office lease at an office conversion project underway in Chandler, Ariz. The tenant plans to open its Arizona Center for Cancer Care at ViaWest Group’s Chandler Integrated Care Campus.

Meanwhile, the average listing rates in Phoenix stood at $28.86 per square foot—below the national average of $32.87 per square foot and among the most affordable rents in high-volume secondary markets. Phoenix outperformed Houston ($28.35 per square foot), while the most expensive rents were listed in the Bay Area ($51.93 per square foot) and Austin ($45.26 per square foot).

Slow construction activity

As of June, Phoenix had 1.2 million square feet of space underway, spread across 16 projects and accounting for 0.7 percent of existing stock—below the national figure of 0.9 percent. Across similar markets, Austin led with 3.7 percent, while the Bay Area and Dallas followed, with 1.2 percent each.

In terms of square footage among high-volume secondary markets, the Valley’s pipeline was one of the smallest ones, with only Atlanta (1 million square feet) and Denver (508,871 square feet) lagging. Austin led this ranking with 4.1 million square feet.

The largest office project underway in the metro is Republic Services’ upcoming 265,525-square-foot headquarters at 5353 E. City North Drive. Developed by U.S. Realty Advisors, the project was backed by a $168.2 million construction loan issued by Wilmington Trust.

The second-largest project under construction is Sprouts Farmers Market’s 144,500-square-foot new headquarters project, that broke ground in June.

Year-to-date through June, construction starts in Phoenix comprised only 235,715 square feet across five properties, while developers completed three properties totaling 202,521 square feet. Deliveries in the metro registered a 57.7 percent drop since the same period last year.

Office-to-residential projects in the metro

Office-to-residential conversions gained ground as an option for underutilized properties. To help assess which markets and buildings make strong candidates for such initiatives, Yardi launched the Conversion Feasibility Index last year. It evaluates a building’s potential for residential conversion using a set of property-level scores.

One such project is the conversion of Canyon Corporate Center, a distressed, two-building office campus in the metro. Caliber Cos. purchased the asset from ViaWest group last year and recently received approval for the redevelopment project, which will include 376 rental units.

Coworking sector keeps steady

As of June, the coworking sector in Phoenix comprised 2.9 million square feet across 153 locations. In terms of square footage, the metro’s footprint was on par with the Bay Area’s and outperformed San Diego (2.5 million square feet), Nashville (2.1 million square feet) and Austin (1.8 million square feet).

Phoenix’s share of coworking space as percentage of total leasable office space stood at 2 percent in June—on par with the national average and outperforming Dallas (1.7 percent), Houston (1.7 percent) and the Bay Area (1.4 percent).

Regus remained the flex office provider with the largest footprint in The Valley, with operations totaling 622,626 square feet. The company was followed by Industrious, with 259,344 square feet and Spaces, with 155,435 square feet.