Phoenix’s office market remained under pressure in Q4 2024 as vacancy rates climbed and demand weakened. Net absorption was -1.8 million SF for the year, bringing total space vacated since 2020 to over 5.5 million SF. The vacancy rate rose to 16.8%, up from 11.6% pre-pandemic, with further increases expected as older leases expire. Leasing activity stabilized but remains 10% below pre-pandemic levels, with tenants opting for smaller footprints. Sublease availability surged to 6.8 million SF, making Phoenix the fourth most impacted sublease market in the U.S.
Newer office buildings performed better, with 300,000 SF of positive absorption in 2024, while older properties lost 2.4 million SF. Some companies, like Fennemore Craig and Perkins Coie, are downsizing while upgrading to higher-quality space. Rent growth slowed to 1.8% for the year, down from 5% in 2022, as landlords increased concessions, particularly in premium submarkets. Tenant improvement allowances now reach up to $100 per SF in competitive areas. With office demand expected to stay weak and older leases rolling over, vacancies are projected to keep rising into 2026 before stabilizing.
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