Phoenix’s office market has seen a steady rise in vacancy rates, reaching 16.8% in Q3 2024, up from 11.1% pre-pandemic. This increase is driven by ongoing space reductions and a slowdown in office-using job growth, resulting in negative net absorption with over 5.5 million SF vacated since the pandemic. Sublease space has reached 6.9 million SF, placing Phoenix as the fourth most impacted sublease market in the U.S. Minimal new construction, primarily in medical office buildings has helped prevent a larger imbalance between supply and demand. Leasing activity remains sluggish, with newer, smaller suites seeing more demand, while larger and older spaces are harder to fill.
Rent growth in Phoenix has slowed significantly to 1.7% over the past 12 months, down from previous high growth rates, with landlords offering increased concessions to attract tenants. Sublease rents are about 20% lower than direct leases, contributing to competitive pressures in the market. The Phoenix office market continues to face a challenging environment with rising vacancies, slowed leasing activity, and constrained rent growth.
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