Phoenix’s office vacancy rate declined for the third consecutive quarter, falling to 23.4% from 25.4% a year ago, according to a new Newmark report. The improvement came despite leasing activity slowing compared with the second quarter of 2025.
Rather than stronger leasing demand, the market’s recovery is being driven largely by a shrinking office inventory. Older office buildings are increasingly being converted to other uses or demolished, reducing vacant space across the metro, according to BisNow.
Phoenix recorded 167,000 square feet of positive net absorption during the second quarter, largely reflecting these inventory reductions. No new office developments broke ground during the quarter.
Office-to-Other-Use Conversions Accelerate
Since 2024, roughly 3.3 million square feet of office space has been converted or demolished in metro Phoenix—more than during the previous decade combined. According to Cushman & Wakefield, another 4 million square feet of conversion projects have been proposed, placing Phoenix among the nation’s most active office redevelopment markets.
Recent projects include Diversified Partners’ acquisition of Lakefront at Scottsdale, which is planned for retail and restaurant redevelopment, and Finish Line Auto Storage’s purchase of the vacant Scottsdale Perimeter office property.
Demand Concentrates in Newer Class-A Buildings
While aging office properties continue to struggle, newer Class-A buildings remain in demand. Corporate tenants are favoring amenity-rich offices, particularly in submarkets such as North Scottsdale and North Tempe.
Average asking rents increased 2.2% year over year to $31.70 per square foot, although pricing growth has been tempered by older buildings lowering rents to compete for tenants.
The latest figures suggest Phoenix’s improving vacancy rate reflects a market with fewer outdated office buildings rather than a broad rebound in leasing activity.
