Into the last quarter of 2023, the impact of pandemic-induced shifts in demand continues to cast uncertainty over the market. Despite being more than four years removed from the onset of COVID-19, tenants continue to reevaluate the efficiency and size of their office spaces, leading to a structural lowering of demand. This has resulted in a more than 50% increase in vacant office space since 19Q4, marking an accelerated move-out trend in 2023 compared to the prior two years. The accumulation of vacant space is particularly pronounced in larger floorplates or single-tenant buildings where demand is softer. A rise in sublease availability, totaling 7.7 million SF or 3.9% of overall inventory, further highlights the variable headwinds facing the Phoenix office market.

Despite negative net absorption over the past 12 months, leasing volume remains aligned with historical figures. While rent growth has decelerated since early 2022, Phoenix’s office rents have outperformed many other markets, recording a 3.1% increase in average asking rents over the past year. Property owners, adapting to these shifts, have opted for increased concessions or higher tenant improvement allowances to compete for tenants rather than slashing asking rents.¬†Learn more about rent growth expectations in the coming year as elevated sublease availabilities intensify market competition by clicking below!