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July 2025 – Knowing the Numbers In Commercial Real Estate

Office Market

The Phoenix office market remains under strain as companies downsize footprints and sublease space swells to 6.6M SF. Vacancy has climbed to 16.9%, the highest in 15 years, despite signs of stabilization in smaller suites and newer buildings. Rent growth slowed to 1.4% as generous TI packages become more common. Deliveries remain limited, helping prevent oversupply, but a wave of expiring pre-pandemic leases may keep vacancy elevated through 2026. Demand is strongest for modern, compact space in prime submarkets.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 195M 16.9% $28.86 -184K 619K
4 & 5 STAR 70M 26.7% $33.48 -115K 444K
3 STAR 89M 13% $27.50 -13K 175K
1 & 2 STAR 36M 7.3% $23.19 -56K 0

INDUSTRIAL MARKET

Massive new development continues to drive up vacancies in the Phoenix industrial market, which reached 12.6% after adding 25.4M SF in the past year. Demand remains strong, with 11.8M SF absorbed, the third highest nationally, driven by logistics, construction, and manufacturing. Still, supply outpaces leasing, especially in large-format buildings. Small bay space in the West Valley remains tight and in high demand. Rent growth has cooled to 2.2% amid fierce competition. A construction slowdown may ease pressure by 2026, setting the stage for renewed tightening and rent acceleration.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 502M 12.6% $13.66 -252K 20M
LOGISTICS 367M 15.2% $13.07 -211K 14M
SPECIALIZED 102M 5.0% $14.11 -23K 6M
FLEX 32M 7.8% $19.06 -19K 633K

MULTI-FAMILY MARKET

Elevated construction has pushed Phoenix’s apartment vacancy to 12.1%, despite nation-leading absorption of nearly 17,000 units. Rent growth remains negative, with asking rents down 2.6% over the past year. Over 24,000 units are still under construction, keeping pressure on lease-ups and driving widespread concessions. High-end product is most affected, while workforce housing holds steadier. A construction slowdown could rebalance supply and demand by 2026, with long-term recovery supported by strong demographics and relative affordability.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION UNITS UNDER CONSTRUCT UNITS
TOTAL: 419K 12.1% $1,584 -150 24K
4 & 5 STAR 207K 13.6% $1,800 13 20K
3 STAR 149K 11.2% $1,420 -117 5K
1 & 2 STAR 64K 9.3% $1,170 -46 25

RETAIL MARKET

Despite a modest rise in closures that nudged availability up to 5.0%, the Phoenix retail market remains historically tight thanks to strong demographics and consumer demand. Robust leasing in 2024, led by off-price and experiential tenants, reflects a healthy expansion environment, even as bankruptcies free up big-box space. Construction remains limited, focused in fast-growing suburbs like Buckeye and Queen Creek. Asking rents rose 3.8% over the past year and 31.7% in five years. While economic headwinds may temper performance, long-term fundamentals remain solid.

SUB-MARKET TOTAL SF AVAILABLE VACANCY RATE MARKET RENT NET ABSORPTION SF UNDER CONSTRUCT SF
TOTAL: 245M 4.5% $25.93 71K 2M
POWER CENTER 34M 3.6% $28.44 -3K 179K
NEIGHBORHOOD CENTER 92M 5.6% $25.16 131K 360K
GENERAL RETAIL 88M 3.1% $25.12 -64K 797K
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