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April 2025 – Knowing the Numbers In Commercial Real Estate

Office Market

Phoenix’s office market remains under pressure as users continue to reduce space and job growth in office-using sectors lags. Since COVID, more than 5.5 million SF has been vacated—exceeding losses seen during the Great Recession—with large suites and single-tenant buildings hardest hit. Demand is holding for smaller spaces under 5,000 SF, but total leasing volume is down 15% from pre-pandemic levels due to shrinking average lease sizes. Sublease availability has surged to 6.9 million SF, making Phoenix one of the most impacted sublease markets in the U.S. Limited new construction—just 150,000 SF delivered in the past year—has helped avoid a more severe imbalance but has also reduced availability of premium, first-generation space. Rent growth has slowed to 1.5% annually, with generous concessions remaining widespread. As pre-pandemic leases expire, further declines in occupancy and rent growth are anticipated in the near to midterm.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 195M 16.9% $29.36 -337K 657K
4 & 5 STAR 71M 26.8% $33.86 -165K 155K
3 STAR 89M 12.8% $28.13 -165K 155K
1 & 2 STAR 36M 7.4% $23.55 -7K 0

INDUSTRIAL MARKET

Phoenix’s industrial market continues to grapple with elevated vacancy rates as a massive wave of new construction—34.2 million SF delivered in the past year—outpaces even strong tenant demand. While leasing activity remains healthy and 2024 volumes were 33% above pre-pandemic averages, absorption of 16.1 million SF hasn’t been enough to offset the supply surge, pushing vacancy up to 12.5%. Larger properties over 100,000 SF are seeing the most vacant space, with a 15-year high vacancy rate above 16%, while smaller bay product remains more resilient. Rent growth has slowed sharply to 2.8% year-over-year, down from 14.5% in late 2022, and further deceleration is expected as competition intensifies. With 18.0 million SF still under construction—60% of it speculative—vacancy will likely continue rising through 2025. However, a recent slowdown in construction starts suggests relief by 2026, potentially setting the stage for a return to lower vacancies and renewed rent growth.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 498M 12.5% $13.71 -307K 18M
LOGISTICS 365M 15.1% $13.15 -499K 13M
SPECIALIZED 99M 4.7% $14.01 219K 5M
FLEX 34M 7.6% $18.96 -28K 483K

MULTI-FAMILY MARKET

The Phoenix apartment market continues to face pressure from an ongoing imbalance between strong demand and outsized supply. Net absorption totaled 18,000 units over the past year—more than double the pre-COVID average—driven by luxury lease-ups and a notable rebound in midpriced 3 Star properties. However, with 25,000 new units delivered and another 23,000 under construction, vacancy has climbed to 11.7% and may rise further in 2025. Supply pressure is most acute in high-growth areas like Downtown, Tempe, and the South West Valley. Luxury communities are bearing the brunt of elevated vacancies and rent declines, while workforce housing remains relatively more stable. Market competition has intensified, pushing rent growth negative and spurring widespread concessions, including up to two months of free rent at many properties. Although construction starts are slowing, allowing for potential recovery by 2026, the current oversupply suggests another year of soft rent growth and elevated vacancy lies ahead.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 414K 11.7% $1,588 583 23K
4 & 5 STAR 203K 13.3% $1,803 528 19K
3 STAR 148K 10.7% $1,425 57 5K
1 & 2 STAR 63K 8.9% $1,177 -2 25

RETAIL MARKET

Despite a recent slowdown in net absorption due to store closures, the Phoenix retail market remains fundamentally strong as 2025 begins, supported by population growth, rising incomes, and job gains. Availability rose modestly to 5.1%, still well below historical highs, as bankruptcies and small business closures opened space for new tenants. Leasing activity surged in 2024, with off-price and experiential retailers helping to fill big box vacancies. New construction remains limited, with just 950,000 SF delivered in the past year and most pipeline space concentrated in fast-growing suburban areas like Buckeye and Queen Creek. Low availability and strong consumer demand continue to fuel elevated rent growth, up 3.0% year-over-year and nearly 30% over five years. While some market normalization is expected, strong demand drivers are likely to sustain healthy property performance in the near term.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 247M 4.8% $25.39 -24K 2.6M
POWER CENTER 33M 3.6% $27.71 -13K 185K
NEIGHBORHOOD CENTER 92M 6.0% $24.60 -32K 345K
GENERAL RETAIL 88M 3.2% $24.70 -34K 1.4M
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