Phoenix Commercial Office Space for Rent

Q1 2026

Phoenix Commercial Real Estate Market Report

Focus: Q1 2026 Market Trends

Executive Summary

The Phoenix commercial real estate (CRE) market is transitioning from its overheated pandemic-era growth cycle into a more measured, strategic phase in Q1 2026 [1]. The Office sector is showing distinct signs of stabilization, posting its strongest quarterly net absorption since 2019 [1], [3]. Industrial fundamentals remain a national powerhouse, leading the U.S. in investment dollars as semiconductor and advanced manufacturing megaprojects continue to expand [2]. Retail remains the tightest sector in the market, continuing to see strong absorption and steady rent growth [1], [4]. Meanwhile, the Multifamily market is navigating a period of elevated supply and negative rent growth, but a rapidly shrinking construction pipeline points to recovery on the horizon [5], [6].

TenantBase Proprietary Data [7] highlights the distribution of active tenant demand over the last 90 days:

  • Retail/Storefront dominated market activity with 58.32% of all searches [7].
  • Warehouse was the second most active sector at 32.34% [7].
  • Office accounted for 10.65% of total search volume [7].

Office Market

Market Overview Phoenix's office market is demonstrating renewed resilience in Q1 2026, posting significant net absorption gains as the market recalibrates [1].

  • Vacancy & Absorption: Total vacancy tightened to 25.0%, supported by positive annual net absorption of over 855,000 SF [3].
  • Rental Rates: Asking rents increased by 1.2% year-over-year, driven primarily by high demand for desirable Class A spaces [3].
  • Construction: The development pipeline has halted entirely, with zero new construction starts in the current quarter, which is expected to push vacancy lower throughout the year [3].

TenantBase Activity [7]

  • Demand Share: Office accounted for 10.65% of total search volume [7].
  • Lease Term Preference: Demand heavily favors short-term flexibility, led by Less than one year (40.00%), 2-3 Years (32.00%), and 3-5 Years (14.00%) [7].
  • Size Requirements: Tenants committing to 3-5 Year terms require lower-bound spaces that are roughly 172% larger on average than those seeking terms of Less than one year [7].

Industrial & Warehouse Market

Market Overview Phoenix remains the nation's dominant industrial market in early 2026, leading all U.S. states in investment dollars and fueled by massive advanced manufacturing growth [2].

  • Demand & Supply: The market absorbed over 13 million SF recently, though total vacancy rests near 12.8% as the market digests a historic 85 million SF delivered over the last three years [2], [3].
  • Investment: Phoenix captured nearly $520 billion in statewide industrial investment, driven heavily by semiconductor and aerospace megaprojects [2], [5].
  • Construction Slowdown: Construction activity has decelerated significantly year-over-year, with developers pivoting away from speculative starts to focus on absorbing existing inventory [1].

TenantBase Activity [7]

  • Demand Share: Warehouse accounted for 32.34% of total search volume [7].
  • Lease Term Preference: Industrial tenant demand is anchored by mid-term commitments [7]:
    • 1-2 Years: 31.17% of searches.
    • 3-5 Years: 27.27% of searches.
    • Less than one year: 22.08% of searches.
  • Size Requirements: Size requirements scale dramatically with term length. Lower-bound size requests for 5+ Year terms are approximately 257% larger on average than requirements for 1-2 Year terms [7].

Retail Market

Market Overview Retail is the tightest and most balanced sector in the Phoenix commercial market heading into Q1 2026, supported by robust population inflows and consumer spending [1], [4].

  • Demand & Visitation: Phoenix shopping centers saw 58 million visits recently, surpassing pre-pandemic visitation levels at 102% of the 2019 baseline [4].
  • Net Absorption & Rent: The market saw over 2.4 million SF of positive absorption, pushing average asking rents up by 5.8% year-over-year to $26.57 per SF [4].
  • Development Trends: Retail development remains highly targeted, with nearly 3 million SF of space under development concentrated heavily in the East Valley and West Phoenix submarkets [4].

TenantBase Activity [7]

  • Demand Share: Retail/Storefront activity dominated Phoenix with 58.32% of all search volume [7].
  • Lease Term Preference: Retail tenants show a strong preference for mid-to-long-term stability [7]:
    • 3-5 Years: 28.03% of searches.
    • 1-2 Years, 2-3 Years, and 5+ Years each evenly accounted for 20.45% of searches.
  • Top Locations: Out of the specifically requested submarkets, Phoenix captured the highest share of interest at approximately 20.18%, followed by Scottsdale (9.63%) and Mesa (8.26%) [7].

Multifamily Market

Market Overview The Phoenix multifamily sector in Q1 2026 is grappling with an oversupply correction, though demographic tailwinds and a shrinking construction pipeline provide a clear path forward [5], [6].

  • Vacancy & Occupancy: The market is currently absorbing a massive wave of over 60,000 units added since 2022, though stabilized occupancy has managed to hold at 93.4% [5].
  • Rents: Intense competition among property owners has driven average rents down between 2.9% and 4.1% year-over-year to an average of $1,519 per month [5], [6].
  • Construction Drop-off: Completions and new supply deliveries are projected to fall by an additional 40% across the market in 2026, marking a sharp pullback that will allow operators to stabilize [6].

2026 Outlook

Moving further into 2026, the Phoenix CRE market is positioned to digest its pandemic-era inventory and normalize.

  • Office Rebound: With zero new construction starts, top-tier Class A spaces will continue to capture positive absorption, while older commodity spaces may increasingly face pressure to convert or reposition [3].
  • Industrial Equilibrium: As speculative construction starts plummet, the market's robust leasing velocity—driven by tech and manufacturing megaprojects—is expected to steadily chip away at the current vacancy overhang [1], [2].
  • Multifamily Recovery: Rent growth will likely remain paused until late 2026 as the remaining supply is delivered and absorbed, setting the stage for renewed pricing power in 2027 [6].

Sources

  1. AZ Big Media: Phoenix Construction Market Outlook Q1 2026
  2. CRE Daily: Phoenix Industrial Leads US in Investment Q1 2026
  3. Newmark: Phoenix Office Market Report Q1 2026
  4. Avison Young: Phoenix Retail Real Estate Market Report Q1 2026
  5. Yardi Matrix: Phoenix Multifamily Market Report Q1 2026
  6. Feasibility Study Consultants: U.S. Multifamily Market Outlook 2026
  7. TenantBase Proprietary Market Data (Dashboard Export: SEO Market Reports)

Information in this report is aggregated from various third-party sources and synthesized using artificial intelligence and other research tools. While we believe these sources to be reliable, we cannot guarantee the absolute accuracy or completeness of the data. This report is intended for informational purposes to provide market insight and should be independently verified prior to any use in a real estate transaction or legal commitment.