Phoenix Office Trends Appear Favorable

The months Kidder Mathews Phoenix Office CRE Market highlights include:

· YTD Direct Net Absorption totals 390,000 square feet. 

· 2Q25 Sales Volume reached 925,000 square feet. 

· Total Vacancy Rates decreased 20 bps QOQ to 24.3%. Class A total vacancy stood at 29.9%, Class B at 18.3%, and Class C at 8.3%. Class A rates continue to lead average direct rates at $33.58 a square foot FSG.

The Near-Term Outlook reports that lease rates are expected to continue rising, driven by increasing operating expenses, construction materials, and labor costs. 

Certain traditional office buildings and large complexes are being repurposed to multifamily or industrial uses, driving an increase in office building sales for redevelopment. This trend benefits the overall office market by decreasing total inventory to mitigate supply and demand imbalances. 

Some tenants are now choosing traditional Class A buildings over premium Class A buildings due to the rental rate disparity between the two.

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