1-Minute Phoenix Metro Office Market Update: Q1 2026

The Metro Office leasing market maintained its recovery momentum in the first quarter.  The key indicator, net absorption, posted another positive figure of 191,000 SF.  2025 was a key recovery year for Metro Phoenix after suffering its worst performance ever in 2024.  A positive Q1 helps prove the return to the office is on a sustained path back to health. Of course, we need more quarters of positive net absorption to confirm this recovery is sustainable.

Lease rates increased from $29.81/SF/YR Full Service to $30.47/SF/YR Full Service. How does this happen when the combined direct and sublet vacancy is above 20%?  Stubbornly high Tenant improvement costs have not retreated.  Tenants are also focused on making the office experience as pleasant as possible for their employees and visitors. With many tenants taking less space than they were pre-pandemic, they can justify spending extra on improvements.

Here is the Q1 report, and here are my takeaways:

–Haves and have-nots: The office buildings performing the best (highest rents and occupancies) are the ones with amenities on site and easily accessible nearby.  They are not all Class A, by the way.  The office buildings performing the worst have no amenities on site and lack a compelling experience.

–Sublease inventory continues to drop: Three of the top five leases signed this quarter were subleases. (Our team negotiated one of these.)  Sublease inventory has now dropped to 4.4 million SF.  This is great progress!  Inventory hit a peak of 6.9 million SF post-pandemic.  We have a ways to go before we reach the historical  average of 2 million SF.  PS- sublease inventory fell to 1.25 million in Q4 2019.

–Direct Vacancy isn’t too far off normal: 19% vacancy sounds high for most markets around the US.  In Phoenix, however,  our average for direct vacancy is 18%.  I predict this figure will hover around 18-19% while sublease inventory works itself out.  The rents needed to make new construction pencil remain prohibitively high for most companies. It makes more sense to renovate & lease existing product, then to go brand new…For now.

Our team at The Coppola-Cheney Group is working on over 150 active deals. If you’re trying to figure out what this all means for your office strategy, let’s connect.