January 2025 – Knowing the Numbers In Commercial Real Estate

Office Market

Office vacancy in Phoenix continues to rise steadily as the year comes to a close. Many businesses are reevaluating their space needs, often leading to downsizing or closures. Additionally, job growth in traditional office-using sectors has remained sluggish for over two years. This sustained drop in demand has driven vacancy rates up by more than 550 basis points since Q4 2019. Further increases are anticipated in the midterm as pre-pandemic leases reach expiration.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 197M 16.9% $29.97 -359K 567K
4 & 5 STAR 71M 27.3% $34.93 -192K 384K
3 STAR 89M 12.7% $28.72 -129K 183K
1 & 2 STAR 37M 7.4% $23.40 -37K 0

INDUSTRIAL MARKET

A surge in new industrial developments continues to push Phoenix’s vacancy rate higher, a trend likely to extend through 2025. Over the past 12 months, builders have delivered a record-breaking 37.3 million square feet of net new industrial space, contributing to the market’s normalization. By contrast, Phoenix averaged just 8 million square feet of annual net deliveries in the three years preceding the pandemic.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 491M 12.5% $13.53 781K 22M
LOGISTICS 360M 15.3% $13.05 889K 15M
SPECIALIZED 98M 3.8% $13.47 -12K 6M
FLEX 33M 7.6% $19.10 -95K 484K

MULTI-FAMILY MARKET

The Phoenix multifamily market showed further signs of recovery in the third quarter of 2024. With inflation easing and consumer confidence on the rise, renter household formation has accelerated, fueling a rebound in tenant demand. While new supply still outpaces leasing activity, the decline in occupancy rates has started to stabilize, suggesting that property performance could begin to recover in the coming year.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 408K 11.4% $1,571 158 27K
4 & 5 STAR 199K 13.2% $1,777 134 21K
3 STAR 145K 10.2% $1,422 35 6K
1 & 2 STAR 63K 8.9% $1,180 -11 25

RETAIL MARKET

Despite an uptick in store closures slowing net absorption this year, the Phoenix retail market remains fundamentally tight as 2024 draws to a close. Strong demographics, rising incomes, and steady job growth continue to drive robust tenant demand. These solid demand factors, combined with a limited construction pipeline, have maintained low availability and sustained elevated rent growth.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 246M 4.9% $26.04 -22K 2.4M
POWER CENTER 34M 4.1% $28.73 -6K 156K
NEIGHBORHOOD CENTER 92M 5.9% $25.23 -13K 178K
GENERAL RETAIL 88M 3.0% $25.14 4K 1.3M