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April 29, 2025
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PHOENIX, AZ (April 29, 2025) -- Phoenix’s office market posted positive momentum in Q1 2025 with 369,460 square feet of positive net absorption and a vacancy rate drop to 22.1%, the lowest since Q2 2022, according to CBRE. Class A and Class B spaces both recorded gains, while the average full-service gross asking lease rate fell 4.7% year-over-year to $30.00 per square foot. No new office buildings were delivered this quarter, but significant deliveries are expected next quarter, including Gilbert Spectrum – Building 3, fully leased to Northrop Grumman. Submarkets like the Northeast Valley (17.0% vacancy) and Camelback/Piestewa Peak (19.7%) led in occupancy, while East Phoenix recorded the highest vacancy at 29.0%.

Key Metrics

  • Vacancy Rate: 22.1% (lowest quarterly vacancy since Q2 2022; down 90 basis points from last quarter)
  • Net Absorption: +369,460 square feet
  • Construction: 424,747 square feet under construction
  • Average Asking Lease Rate: $30.00 per square foot (Full Service Gross)
    • Down 4.7% year-over-year ($1.13 decrease)

Key Takeaways

  • Positive Net Absorption:
    Both Class A and Class B properties recorded positive absorption:

    • Class A: +70,285 SF
    • Class B: +357,127 SF
  • No New Deliveries or Starts this quarter. However, two major projects are scheduled for Q2 2025:
    • Gilbert Spectrum – Bldg 3 (fully preleased to Northrop Grumman)
    • The Grove – 4210 Building
  • Availability Rate: 25.3%
  • Notable Space Removal:
    Nearly 200,000 SF at Park at 25th was removed from inventory due to conversion plans, contributing to lower vacancy.

Submarket Highlights

  • Lowest Vacancy Rates:
    • Northeast Valley: 17.0%
    • Camelback/Piestewa Peak: 19.7%
  • Largest Vacancy Improvement:
    • West/Northwest Valley:
      • Vacancy fell by 330 basis points to 25.6%, helped by new leases totaling 97,373 SF.
  • Highest Vacancy:
    • East Phoenix: 29.0%

Trends

  • Class B properties are performing relatively stronger.
  • Asking lease rates declined, but Phoenix still shows better long-term rental growth relative to the 3-year average.
  • Conversions (like Park at 25th) are impacting vacancy statistics.

Read the full report here.

 

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