February 2025 – Knowing the Numbers In Commercial Real Estate
Office Market
The Phoenix office market remains in flux as the new year begins. Businesses continue to reassess their space needs, often leading to downsizing or closures. Meanwhile, job growth in key office-using sectors has been sluggish for over two years, further dampening demand. As a result, vacancy rates have risen by more than 550 basis points since Q4 2019, with further increases expected in the midterm as pre-pandemic leases expire.
SUB-MARKET | TOTAL SF AVAILABLE | VACANCY RATE | MARKET RENT | NET ABSORPTION SF | UNDER CONSTRUCT SF |
---|---|---|---|---|---|
TOTAL: | 197M | 16.9% | $29.82 | 18K | 537K |
4 & 5 STAR | 71M | 26.5% | $34.75 | 376K | 384K |
3 STAR | 89M | 13.0% | $28.37 | -259K | 153K |
1 & 2 STAR | 37M | 7.5% | $23.82 | -99K | 0 |
INDUSTRIAL MARKET
A surge in new industrial developments continues to push Phoenix’s vacancy rate higher, a trend that may persist through 2026. Over the past year, builders have delivered a record 35 million square feet of net new industrial space, bringing market conditions closer to equilibrium. For context, 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: | 494M | 12.1% | $13.54 | 4.4M | 21M |
LOGISTICS | 362M | 14.8% | $13.06 | 3.6M | 16M |
SPECIALIZED | 99M | 3.9% | $13.44 | 853K | 5M |
FLEX | 33M | 7.7% | $19.07 | -128K | 484K |
MULTI-FAMILY MARKET
The Phoenix multifamily market made further strides toward recovery in 2024. With inflation easing and consumer confidence rising, renter household formation has accelerated, fueling a strong rebound in tenant demand. While new supply still exceeds leasing activity, the pace of occupancy decline has slowed, suggesting that a turnaround in property performance could begin this year.
SUB-MARKET | TOTAL SF AVAILABLE | VACANCY RATE | MARKET RENT | NET ABSORPTION UNITS | UNDER CONSTRUCT UNITS |
---|---|---|---|---|---|
TOTAL: | 410K | 11.7% | $1,586 | 2061 | 27K |
4 & 5 STAR | 200K | 13.4% | $1,805 | 1392 | 21K |
3 STAR | 148K | 10.6% | $1,423 | 677 | 5K |
1 & 2 STAR | 63K | 9.0% | $1,175 | -8 | 25 |
RETAIL MARKET
Despite a surge in store closures slowing net absorption last year, the Phoenix retail market remains fundamentally tight as 2025 begins. Strong demographics, rising incomes, and steady job growth continue to drive tenant demand. With limited new construction, these factors have kept vacancy rates low and rent growth strong.
SUB-MARKET | TOTAL SF AVAILABLE | VACANCY RATE | MARKET RENT | NET ABSORPTION SF | UNDER CONSTRUCT SF |
---|---|---|---|---|---|
TOTAL: | 246M | 5.0% | $25.75 | -272K | 2.5M |
POWER CENTER | 34M | 3.8% | $28.16 | 71K | 185K |
NEIGHBORHOOD CENTER | 92M | 6.2% | $24.93 | -300K | 181K |
GENERAL RETAIL | 88M | 3.1% | $25.08 | -41K | 1.3M |