The Greater Phoenix office market’s fourth quarter 2025 posted its strongest net absorption since fourth quarter 2019, totaling 531,893 square feet. The uptick in net absorption and 10-year low construction activity led to a decline in direct vacancy to 15.1 percent, according to a report released by Colliers.
The Greater Phoenix office market finished 2025 with its strongest quarter since year-end 2019. Net absorption posted in the final quarter totaled 531,893 square feet, following a third quarter of negative net absorption. Total 2025 net absorption reached 414,850 square feet, marking the first year of positive net absorption since 2020. Strong tenant demand pushed gross leasing to more than 1.0 million square feet during the fourth quarter. Leasing was dispersed throughout the market. Chandler, Camelback Corridor, Scottsdale Airpark and Tempe each captured more than 100,000 square feet of leasing and combined, accounted for 65 percent of total gross leasing for the quarter. Leasing remained strongest in Class A properties, which recorded 1.047 million square feet of positive net absorption in 2025.
Direct vacancy fell 20 basis points year-over-year, ending at 15.1 percent. Available sublease space declined by 1.8 million square feet from year-end 2024, reducing the total availability rate by 140 basis points to 18.1 percent. A total of 4.9 million square feet are available for sublease, which marks the lowest level since fourth quarter 2021. The largest move-out of fourth quarter was AAA vacating 5353 W. Bell Rd., which is an entire building of 206,334 square feet. The tenant relocated and contracted its footprint by 75 percent.
Construction activity hit a 10-year low, and conversions of non-performing office properties accelerated. Demolition began on multiple redevelopment projects, decreasing the total office inventory by more than 800,000 square feet. Currently, there are 564,057 square feet of office space under construction, with build-to-suit projects accounting for 75 percent of the total. the Fender headquarters building at PV was the only new delivery during fourth quarter. Construction on the Republic Services build-to-suit project at City North is expected to be completed the first half of 2026.
Overall rental rates posted a small increase for the third consecutive quarter, rising 0.53 percent to $30.12 per square foot. Class A assets posted the largest year-over-year increase in rental rates, rising 5.9 percent compared to 2024. Rental rates remain highly bifurcated with highly amenitized Class A assets in desirable submarkets commanding strong rates that are rising. Class B and C assets in less desirable locations face rent reductions. Class A asset rental rates rose 1.37 percent to $34.12 per square foot, while Class B and C assets experienced 1.47 percent and 1.7 percent declines. Camelback Corridor led the market with the largest overall and Class A year-over-year rate increases, at 4.0 percent and 5.4 percent respectively.
Third quarter 2025 was strong for office sales activity and the momentum continued during fourth quarter. The market posted a 6.9 percent increase in sales volume quarter-over-quarter, ending at $530.0 million. Fourth quarter activity was slower than fourth quarter 2024, comparatively slower by 5.19 percent. Total office sales volume in 2025 reached $1.56 billion, marking a 5.9 percent increase over 2024 and marking the highest volume since 2022. Six transactions closed during fourth quarter totaling 448,147 square feet. All of the six properties were acquired by development firms planning to repurpose the properties for alternative uses. Owner-user purchases and private capital investments continue to lead buyer activity in the office market. Scottsdale Airpark posted the highest sales volume in fourth quarter at $98.4 million. This was driven by the largest transaction of the quarter in which Axis Raintree sold for $70.75 million or $394 per square foot.
The Greater Phoenix office market is poised for a rebound with all metrics indicating the sector is in a positive momentum toward recovery. Return-to-office efforts is accelerating, and more tenants are expected to implement these policies in 2026. Additional office conversions or redevelopments of under-performing assets are anticipated, helping create a more appealing inventory. Construction levels are expected to remain low and new developments will prioritize experiential office designs and enhanced amenities.
