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August 2025 – Knowing the Numbers In Commercial Real Estate

Office Market

The Phoenix office market is showing early signs of stabilization. Vacancy has flattened at 16.7% following three quarters of positive net absorption, totaling 850,000 SF since late 2024. Limited new supply and rising in-person attendance are helping, though significant headwinds remain. Rent growth is tepid at 1.5%, with rising tenant improvement (TI) costs undermining effective rates. Demand is concentrated in premium, newer assets, while older suburban buildings lag. Sublease space remains elevated. Recovery will depend on backfilling obsolete inventory and tenants expanding beyond top-tier buildings.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 195M 16.7% $28.98 145K 801K
4 & 5 STAR 70M 26.4% $33.63 120K 502K
3 STAR 89M 12.9% $27.61 101K 300K
1 & 2 STAR 36M 7.3% $23.25 -77K 0

INDUSTRIAL MARKET

The Phoenix industrial market is stabilizing after a surge in supply pushed vacancy to 12.1%. Demand remains solid, led by logistics and advanced manufacturing, with 13.4M SF of net absorption in the past year. However, the pace of new construction—especially in buildings over 100,000 SF—continues to challenge absorption rates. Rent growth has cooled to 2.0% from pandemic highs. Vacancy among smaller bay properties remains tighter, benefiting from local demographic and infrastructure trends. The tapering pipeline suggests improving fundamentals by 2026.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 502M 12.1% $13.54 3M 22M
LOGISTICS 367M 14.4% $12.93 3M 13M
SPECIALIZED 103M 5.4% $13.99 29K 8M
FLEX 32M 7.9% $19.01 -29K 633K

MULTI-FAMILY MARKET

Phoenix’s multifamily sector faces elevated vacancy at 12.2% amid a historic construction boom, outpacing solid renter demand. Over 23,000 units delivered this year, with another 23,000 underway—ranking Phoenix among the most aggressively built U.S. markets. Rent growth remains negative at -2.6%, with concessions widespread. High-end properties bear the brunt of competition, while workforce housing has proven more resilient. Vacancy may stay high through 2025, but reduced construction starts point to potential recovery in 2026, supported by favorable long-term demographic trends.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 421K 12.2% $1,578 1,287 23K
4 & 5 STAR 208K 13.7% $1,794 1,224 18K
3 STAR 149K 11.2% $1,413 84 5K
1 & 2 STAR 64K 9.5% $1,170 -21 25

RETAIL MARKET

Despite a modest rise in availability due to store closures, Phoenix’s retail market remains fundamentally tight. Low unemployment, rising incomes, and strong demographics are driving demand, while limited construction helps constrain supply. Vacancy has crept up to 5.0% from 4.3% in 2023, yet remains historically low. Retailers, especially off-price and experiential tenants, are backfilling vacated big-box sites. Rent growth has slowed to 4.3% from last year’s 6.1%, yet still outpaces national trends. Risks remain, including slower economic growth and shifting trade policies.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 244M 4.6% $26.07 -142K 1.7M
POWER CENTER 33M 4.7% $28.61 -331K 179K
NEIGHBORHOOD CENTER 92M 5.7% $25.20 72K 356K
GENERAL RETAIL 88M 3.2% $25.19 10K 818K
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