March 2025 – Knowing the Numbers In Commercial Real Estate

Office Market

The Phoenix office market remains challenged as companies continue reducing space and job growth in office-using sectors remains sluggish. Since COVID, over 5.5 million SF of office space has been vacated, surpassing losses seen during the Great Recession, with large suites and single-tenant buildings hit hardest. Demand is strongest for smaller spaces under 5,000 SF, while total leasing volume is down 15% from pre-pandemic levels. Sublease availability has surged to 6.9 million SF, making Phoenix the fourth most impacted market in the U.S. Limited new construction has helped moderate the imbalance, with only 260,000 SF completed in the past year, but it has also created a shortage of first-generation office space. Rent growth has slowed to 1.7% annually, and landlords continue offering generous tenant incentives. As pre-pandemic leases expire, occupancy and rents are expected to decline further in the near term.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	196M	16.8%	$29.39	349K	458K
4 & 5 STAR	71M	26.2%	$33.92	611K	305K
3 STAR	88M	13.1%	$28.12	-141K	153K
1 & 2 STAR	37M	7.6%	$23.61	-120K	0

INDUSTRIAL MARKET

Phoenix’s industrial market continues to face rising vacancy rates due to an unprecedented wave of new construction, with 35.1 million SF delivered in the past year—far exceeding pre-pandemic averages. While demand remains solid, particularly from logistics and manufacturing tenants, it has not kept pace with supply, pushing vacancy up to 12.6% as of early 2025. Large industrial spaces over 100,000 SF are experiencing the highest vacancy levels, while smaller properties remain more insulated. Increased competition has slowed rent growth to 3.2% over the past year, a sharp decline from 14.5% in 2022. With 19.1 million SF still under construction, vacancy is expected to rise further before stabilizing, though a slowdown in new starts suggests a potential market tightening by 2026, setting the stage for renewed rent growth.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	496M	12.6%	$13.70	3.8M	19M
LOGISTICS	365M	15.4%	$13.19	2.1M	14M
SPECIALIZED	98M	3.9%	$13.81	1.7M	5M
FLEX	34M	7.6%	$18.97	-62K	484K

MULTI-FAMILY MARKET

The Phoenix multifamily market showed signs of recovery in 2024 as easing inflation and rising consumer confidence spurred renter household formation and strong demand. Net absorption reached 19,000 units over the past year, surpassing pre-COVID averages, with notable rebounds in midpriced 3 Star properties. However, new supply remains a challenge, with 26,000 units completed and another 25,000 under construction, making Phoenix one of the most aggressively built apartment markets. Vacancy reached 11.7%, with high-end properties experiencing the greatest pressure, while workforce housing remained more insulated. Increased competition has led to negative rent growth since early 2023, with widespread concessions, including six to eight weeks of free rent at many properties. Vacancy is expected to peak in 2025, with a gradual recovery forming by year-end, though meaningful rent growth may not return until 2026 as excess supply is absorbed.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION UNITS	UNDER CONSTRUCT UNITS
TOTAL:	412K	11.7%	$1,588	3811	25K
4 & 5 STAR	202K	13.3%	$1,804	2860	20K
3 STAR	147K	10.6%	$1,428	938	5K
1 & 2 STAR	63K	8.8%	$1,174	13	25

RETAIL MARKET

Despite a rise in store closures that slowed net absorption last year, the Phoenix retail market remains tight as 2025 begins, driven by strong demographics, income growth, and job gains. The availability rate has risen to 5.0% from 4.3% in late 2023 due to bankruptcies and small business closures, yet it remains well below historical highs. Increased closures have allowed new retailers to expand, with leasing activity surging in 2024, especially among off-price and experiential tenants. Limited new construction has helped maintain low supply pressure, with most new developments concentrated in fast-growing suburbs like Buckeye and Queen Creek. Strong consumer demand has fueled nation-leading rent growth, with asking rents rising 4.2% in the past year and over 30% in five years. While economic and consumption growth may moderate, property fundamentals are expected to remain strong due to favorable demographic and employment trends.

SUB-MARKET	TOTAL SF AVAILABLE	VACANCY RATE	MARKET RENT	NET ABSORPTION SF	UNDER CONSTRUCT SF
TOTAL:	247M	4.9%	$25.56	51K	2.2M
POWER CENTER	33M	3.6%	$28.01	161K	185K
NEIGHBORHOOD CENTER	92M	6.1%	$24.75	-241K	161K
GENERAL RETAIL	88M	3.2%	$24.88	33K	1.2M