Phoenix Office Market Posts Strongest Net Absorption Since Pre‑Pandemic — A Turning Point for CRE in 2026

The Phoenix office market is showing notable signs of recovery as we move into 2026. According to the latest data from Colliers, the Greater Phoenix office sector recorded its strongest net absorption since the fourth quarter of 2019, signaling growing tenant demand, lower vacancy rates, and renewed confidence in office space usage after years of pandemic‑related disruption.

Here’s what this shift means for commercial real estate, local employers, investors, and the broader Phoenix property market.

A Market Trending Toward Recovery

Net absorption — the amount of leased office space minus the space that became vacant — is one of the most telling indicators of office market health. In the fourth quarter of 2025, Phoenix saw approximately 531,893 square feet of positive net absorption, the strongest quarterly performance since late 2019.

Over the course of the full year, total net absorption reached 414,850 square feet, marking the first year of positive absorption since 2020 and a clear departure from the negative absorption patterns that defined much of the post‑pandemic office landscape.

Vacancy Is Decreasing and Leasing Activity Is Up

This improvement helped drive direct office vacancy down to 15.1%, reflecting fewer empty spaces and stronger occupancy.

Another positive trend is the decline in available sublease space, which fell by about 1.8 million square feet compared with year‑end 2024, bringing total availability down to approximately 18.1%.

Leasing activity was spread throughout multiple submarkets, with areas like Tempe, Scottsdale Airpark, Camelback Corridor, and Chandler all contributing to strong leasing totals.

What’s Driving the Phoenix Office Demand

Several factors are converging to boost office activity in Phoenix:

1. Return‑to‑Office Momentum
Companies across sectors are encouraging hybrid or full office returns, which is increasing demand for well‑located office space.

2. Tenant Preference for Quality Space
Demand is strongest in Class A properties — modern, well‑amenitized buildings — which saw more leasing activity and positive absorption, a trend that reflects shifting tenant priorities toward flexible spaces with attractive amenities.

3. Lower New Construction Levels
Office construction activity is at a 10‑year low, helping balance supply and demand and reducing downward pressure on occupancy.

4. Conversions and Redevelopments
Non‑performing office buildings are being repurposed or demolished, reducing surplus inventory and encouraging focused redevelopment that aligns more closely with current market needs.

What This Means for Investors and Employers

For commercial investors, the Phoenix office market’s rebound could signal improving property values, stronger leasing fundamentals, and renewed investor interest. Reduced availability and rising tenant demand often translate into better rental rates — particularly in high‑quality spaces — and a more stable income stream for office assets.

Employers evaluating office space decisions may also find more flexible leasing opportunities and a growing pool of quality space as the market adjusts to new hybrid work models without the oversupply issues seen earlier in the decade.

Looking Ahead: Office Trends in 2026 and Beyond

While challenges remain, such as evolving hybrid work patterns and shifting space needs, the Phoenix office sector’s recent performance offers a more optimistic outlook than in recent years. Many experts expect net absorption to remain positive in 2026, supported by tenants anchoring in desirable submarkets and continued adaptive reuse of older properties.

The Phoenix office market’s strongest net absorption performance since pre‑pandemic times is a milestone that reflects broader confidence returning to the sector. Reduced vacancy, rising leasing activity, and disciplined construction activity all point to a more balanced commercial real estate landscape.

Whether you’re a commercial investor, a business evaluating office lease options, or simply tracking Phoenix market trends, this shift is a sign that office fundamentals are stabilizing and evolving to meet modern workplace needs.