Phoenix Office Market
Office occupancy in the first quarter of 2024 contracted by 291,071 SF. Absorption losses are expected to slow but continue into 2024. Under-construction activity has trended down sharply since 2020. Hybrid work models and rising sublet availability are deterring developers from breaking ground. Vacancy and asking rents both increased year-over-year. Total vacancy grew to 24.7%, with only 252,578 SF of new product currently underway to come online during 2024. Sublease space entering the market has slowed down, with the transition from sublease availability to direct escalating. More direct-transitions are expected since many of the larger sublet offerings come to term in 2024 and 2025.
Phoenix Industrial Market
Net absorption in the first quarter of 2024 was 4.2 MSF versus 9.6 MSF in construction deliveries as numerous speculative buildings delivered partially vacant. Unleased speculative construction deliveries, coupled with 847,234 SF of new sublet vacant space, pushed the market’s total vacancy rate to 9.9%. Under-construction activity decreased for the fourth consecutive quarter, while 32.2 MSF is presently underway. Available sublease space totals 3.5 MSF, up 57.9% from year-end 2023. The average asking rent dropped by 13.8% quarter-over-quarter as the market readjusts to the influx of new construction and sublease space coming online.
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