Phoenix, AZ – Avison Young recently released its Second Quarter 2024 Phoenix Office Market Report. 

In the second quarter of 2024, Phoenix's office vacancy remained at a historically high level of 25%, with a notable increase in sublet vacancies rising to 5.3%—500 basis points (bps) higher than pre-pandemic levels in Q2 2019. This has led to ongoing challenges in the market, particularly for larger buildings, typically over 50,000 square feet (sf), which are showing higher vacancy rates. In contrast, office buildings with smaller floorplates (below 10,000 sf) remain relatively healthy at 10.7% vacant. Notable transactions, such as the Dutch Bros headquarters for over 130,000 sf, offer a sense of certainty as companies navigate their new post-pandemic work models.

“It wouldn’t be accurate to characterize the Phoenix office market as healthy overall, but there are some bright spots appearing halfway through 2024. Office buildings with floorplate sizes of less than 10,000 sf are doing well comparatively, boasting a 10.7% vacancy rate, well below buildings with larger floorplates. Additionally, major space commitments by Dutch Brothers for a new headquarters, Willscot Mobile Mini’s 90,000 sf headquarters, and LPL Financial’s new expanded commitment show Phoenix remains high on the list for those corporate space users looking to grow and/or relocate from other parts of the U.S.,” said Mark Seale, Avison Young Principal and Director of Brokerage – Phoenix.

Despite the lack of demand and record-high vacancies, Phoenix office asking rents continue to rise, reaching $31.33 per sf annually in Q2 of 2024. Landlords are facing the challenge of balancing rising operating costs due to inflation and increased construction costs as well as tenant improvements for larger Class A properties. The decelerating rate at which rents are increasing, in comparison with previous quarters, reflects the impact of the high vacancy rates and shifting market dynamics.

Moreover, investment sales in the Phoenix office market for both traditional and medical office space have seen substantial growth, surpassing the figures of the last four quarters. Investment sales reached $275.9 million for Q2 of 2024, marking a significant rise of 111.4% from the previous year. Key players in the market, such as Columbus Properties and Breakwater Property Partners, have been actively involved in notable investments, indicating confidence in the market's long-term potential. Overall, while significant challenges persist in the Phoenix office market, there are also signs of resilience and potential for growth, expressed through major investment activities and key transactions in the region.

Avison Young creates real economic, social and environmental value as a global real estate advisor, powered by people. As a private company, our clients collaborate with an empowered partner who is invested in their success. Our integrated talent realizes the full potential of real estate by using global intelligence platforms that provide clients with insights and advantage. Together, we can create healthy, productive workplaces for employees, cities that are centers for prosperity for their citizens, and built spaces and places that create a net benefit to the economy, the environment and the community.

Avison Young is a 2024 winner of the Canada's Best Managed Companies Platinum Club designation, having retained its Best Managed designation for 13 consecutive years.

www.avisonyoung.com

For more information:

Media Contact: 
Darcie Giacchetto, Media Relations Specialist – Southwest: +1.949.278.6224