Phoenix’s office vacancy rate fell to 23.4% in the second quarter of 2026, the third consecutive quarterly decline, according to Newmark’s 2Q 2026 Phoenix Office Market Overview. The trend matters less as a sign of surging tenant demand than as evidence that a market swollen with empty space since the pandemic is finally working through its glut, largely by shrinking rather than filling up.
Vacancy is down 20 basis points from the first quarter and 200 basis points from a year earlier, per Newmark’s research. Phoenix’s office vacancy rate climbed well above its long-run average during the shift to remote and hybrid work in the early 2020s and has stayed elevated since, according to the firm’s historical data. The slow retreat follows years in which Phoenix, like other Sun Belt metros, drew corporate relocations and steady population growth that outpaced much of the country. Newmark’s report ties that growth to a durable base of demand among office tenants that serve local residents, particularly in financial services and law.
Second-quarter net absorption — the change in occupied space — totaled 167,319 square feet, the third straight quarter of positive absorption, Newmark said. But the report is explicit that the vacancy decline “is primarily due to office buildings being removed from inventory and redeveloped into other property types,” not a jump in leasing activity. Total leasing volume actually slowed during the quarter, with tenants favoring smaller footprints and shorter lease terms even as touring activity picked up.
The market remains sharply divided by building quality. Trophy and top-tier Class A space is leasing quickly, with trophy-building vacancy at 12.7%, while older Class B and C buildings continue to struggle, Newmark found. Corporate tenants are concentrating in suburban submarkets such as North Scottsdale and North Tempe. Newmark projects that speculative office construction could resume once trophy vacancy falls to around 10%; none broke ground in the second quarter, with new development limited to build-to-suit headquarters projects such as Republic Services’ recently completed corporate campus.
Notable second-quarter leases included Consumer Cellular’s 123,340-square-foot deal at 8501 E. Raintree in the Scottsdale North/Airpark submarket and McCarthy Construction’s 96,252-square-foot lease in the Camelback Corridor, according to Newmark. On the investment side, Diversified Partners bought the Lakefront at Scottsdale property and Finish Line Auto Storage acquired the vacant Scottsdale Perimeter building, both purchased as redevelopment plays, the report said.
Average asking rents rose 2.2% year over year, trailing inflation, as landlords lean on tenant-improvement allowances and other concessions rather than rent cuts to attract tenants, per Newmark. Sublease availability held steady at 4.2%, continuing a decline that began in 2025.
Phoenix’s broader economy is providing some support. Local unemployment stood at 4.1% in May, below the national average for a fourth straight month, and office-using employment totaled about 638,500 jobs, 3.8% above pre-pandemic levels, Newmark reported, citing U.S. Bureau of Labor Statistics data. But job growth in those sectors has slowed to just 0.6% year over year, a sign the labor market cushioning office demand is no longer expanding as briskly as it once did.
What it means: The vacancy rate genuinely fell for a third straight quarter, and Newmark’s own data ties most of that decline to shrinking inventory — obsolete buildings being converted or demolished — rather than a leasing rebound. That distinction matters for anyone reading the improvement as a sign of returning demand: it describes a market thinning out its weakest assets more than one attracting a wave of new tenants. Newmark’s research on Phoenix’s industrial market, where vacancy has moved on a different track, underscores how uneven the metro’s commercial recovery has been across property types.
What to watch: Newmark’s outlook flags rising loan maturities and elevated borrowing costs pushing more distressed and bank-owned office buildings onto the market, which could accelerate both sales activity and further inventory reductions. Trophy vacancy approaching the 10% threshold Newmark cites as a trigger for new speculative construction is another marker worth tracking, as is whether tariff-driven construction costs keep suppressing new supply. For more on why some buildings recover faster than others, see RealtyWire’s explainer on office vacancy trends.
