Phoenix Commercial Office Space for Rent

Q4 2025

Phoenix Commercial Real Estate Market Report

Focus: Q4 2025 Market Trends

Executive Summary

The Phoenix commercial real estate (CRE) market is defined by a massive wave of new supply across most sectors, particularly Multifamily and Industrial, which has led to rising vacancy and stabilization of rents [1, 3]. Despite supply-side pressure, underlying tenant and renter demand remains strong, driven by high in-migration and job growth [2, 3]. The market is actively working to digest the inventory delivered over the past two years [1, 3].

TenantBase Proprietary Data [12] highlights the distribution of active tenant demand over the last 90 days (520 total deals): Retail/Storefront dominated with 60.96% of all searches, Warehouse was the second most active sector at 32.69%, and Office accounted for 6.73% [12].

Office Market

Market Overview

The Phoenix office sector is showing initial signs of recovery, marked by positive net absorption in Q3 2025, a significant turnaround for the market [2]. The "flight to quality" phenomenon is driving tenants toward newer, highly amenitized buildings [2].

  • Vacancy & Availability: Total vacancy stands at 23.6%, representing a 140 basis point (bps) decrease year-over-year (YOY) [2]. Class A total vacancy stood at 29% [2].
  • Net Absorption: Direct net absorption was positive 226,100 SF in Q3 2025, the strongest quarterly performance since Q4 2019 [2]. The year-to-date total for direct and sublet net absorption reached 867,200 SF [2].
  • Rental Rates: Average direct asking rates increased slightly to $30.95 per SF (FSG), up 1% YOY [2]. Class A rates continue to lead at $33.86 per SF (FSG) [2].
  • Market Drivers: Large tenants are continuing to target newer, highly amenitized buildings in mixed-use locations [2]. Underperforming Class C properties are likely to be targeted for conversion or redevelopment [2].

TenantBase Activity [12]

  • Demand Share: Office accounted for just 6.73% (35 deals) of total search volume [12].
  • Lease Term Preference: Demand is highly polarized toward short-term flexibility [12, 65]:
    • Less than one year: 43.75% of deals.
    • 2-3 Years: 25.0% of deals.
    • 3-5 Years: 21.88% of deals.
  • Size Requirements: Tenants seeking shorter commitments prefer smaller space. The average lower SF required for a Less than one year term is 833 SF, compared to 4,000 SF for a 2-3 Years term [12, 69].

Industrial & Warehouse Market

Market Overview

Phoenix remains a national leader in industrial development but is navigating a significant surge in supply, causing vacancy to rise, though it showed a quarterly dip in Q3 2025 [3, 2]. Demand remains strong from logistics and manufacturing tenants [3].

  • Vacancy & Rent: The vacancy rate fell for the first time since Q1 2023, ticking down 20 bps quarter-over-quarter (QOQ) to 13.1% in Q3 2025 [1]. The rate for buildings larger than 100,000 SF reached a 15-year high of over 16% in mid-year 2025 [3]. Average asking rents have stabilized, reaching $1.08 per SF per month (NNN) [3].
  • Demand & Supply: Demand remains healthy, with 11.4 million SF leased year-to-date (YTD) in Q2 2025, driven by logistics and retail expansion [3]. The construction pipeline has dropped to 14.9 million SF [3], but still ranks third in the nation [3].

TenantBase Activity [12]

  • Demand Share: Warehouse accounted for 32.69% (170 deals) of total search volume [12].
  • Lease Term Preference: Demand is balanced across all mid-to-long terms [12, 73]:
    • 3-5 Years: 31.25% of deals.
    • 1-2 Years: 25.0% of deals.
    • 2-3 Years: 23.75% of deals.
  • Size Requirements: The average lower SF required for a 3-5 Years term is 4,269 SF, while the 5+ Years term average is 5,000 SF [12, 77].

Retail Market

Market Overview

The Phoenix retail market remains fundamentally tight despite a modest rise in space availability [4]. Strong demographics and robust tenant competition continue to support pricing power for landlords [4].

  • Vacancy & Availability: Overall vacancy held firm at 5.1% for the third straight quarter in Q3 2025 [4]. The availability rate has reached 5.0% as of Q4 2025 [4].
  • Net Absorption: The market registered 208,480 SF of positive absorption in Q3 2025, pushing the YTD total to 837,900 SF [4]. This YTD demand represents a 60% increase compared to the same period in 2024 [4].
  • Rental Rates: The overall average asking rate grew by 2.9% YOY to $19.20 per SF (NNN) in Q3 2025 [4]. Average asking rent for the market is currently $25.53 per SF [4].

TenantBase Activity [12]

  • Demand Share: Retail/Storefront activity dominated with 60.96% (317 deals) of total search volume [12].
  • Lease Term Preference: Retail tenants show a strong preference for stability and longer terms [12, 82]:
    • 5+ Years: 25.56% of deals.
    • 3-5 Years: 22.56% of deals.
    • 1-2 Years: 21.8% of deals.
  • Top Locations: Tenant interest is highly concentrated in the core cities [12, 102]:
    • Phoenix: 49 deals (9.42%).
    • Mesa: 23 deals (4.42%).
    • Scottsdale: 17 deals (3.27%).

Multifamily Market

Market Overview

The multifamily sector is dealing with unprecedented supply growth, which is keeping vacancy elevated and rents under pressure despite historically strong renter demand [1, 5]. Supply is expected to peak in 2025 before slowing [5].

  • Vacancy & Occupancy: The vacancy rate for stabilized properties ended Q3 2025 at 7.2% [1]. Overall occupancy, including newly constructed properties in lease-up, is forecast to be 91.9% in Q4 2025 [2].
  • Rents & Concessions: Current rents are down 3.0% from one year ago [1]. Average effective rent is projected to be $1,566 in Q4 2025, with a 1.5% forecasted annual change [2]. More than 60% of communities are offering concessions [5].
  • Construction: Approximately 23,000 units are under construction [5]. New unit completions are projected to decrease by 43% in 2025 compared to 2024 [2].
  • Demand: Year-to-date net absorption is up more than 10% compared to the same period in 2024 [1].

Sources

  1. Northmarq: Multifamily Absorption Elevated, but Rents Still Inching Lower in Phoenix - Q3 2025
  2. Kidder Mathews: Phoenix Office Market Report | Q3 2025
  3. Avison Young: Phoenix Industrial Real Estate Market Report | Q2 2025
  4. Cushman & Wakefield: PHOENIX Retail MarketBeat | Q3 2025
  5. CBRE: U.S. Real Estate Market Outlook 2025 - Multifamily
  6. MMG Real Estate Advisors: 2025 Phoenix Forecast - Multifamily
  7. Yardi Matrix: Phoenix Multifamily Market Report – September 2025
  8. Rise48 Equity: Phoenix Market February 2025 Outlook - Industrial Drivers
  9. C2 Brokerage: PHOENIX INDUSTRIAL REPORT - Q1 2025
  10. Kidder Mathews: PHOENIX INDUSTRIAL - Q4 2024
  11. Avison Young: Phoenix Retail Real Estate Market Report | Q3 2025
  12. TenantBase Proprietary Market Data (Last 90 Days)

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.