Employment growth in Phoenix’s knowledge sector lags overall expansion

Article originally posted on CoStar on July 1, 2025

Though the Phoenix labor market notched modestly positive growth over the past year, hiring in traditionally office-using sectors remained in negative territory.

Total nonfarm employment climbed 0.6% in the 12-month period ending in May 2025, representing an absolute gain of about 14,300 positions. The private education and health services sector fueled the Valley’s growth, adding 20,300 jobs during that time.

Conversely, the office-using segments, which include financial activities, information and professional and business services, shed 4,700 employees over the past year, a 0.7% loss. These sectors comprise about 25% of Phoenix’s total employment and are generally viewed as having a higher propensity for in-office work.

Recent weakness continues a trend of underwhelming performance first observed in early 2023. Since then, office-using employment has moved sideways or fallen, and is now just 2.7% higher than the level seen in February 2020. Overall employment has risen 10.2% over the same period.

Lower head count growth came as structural changes to workplace arrangements disrupted office real estate performance.

Net absorption — the change in occupied stock — was underwater by 2 million square feet or more in both 2023 and 2024, contributing to a steep rise in Phoenix’s office vacancy rate that began at the pandemic’s onset.

Recently, however, the Phoenix office market notched positive demand growth, causing metropolitan-wide vacancy to finally level off at around 16.9%. A near-total lack of supply-side pressure, along with a national trend of increased in-person office attendance, contributed to the recent stabilization.

With the office market seemingly on the road to recovery, future employment growth in Phoenix’s office-using sectors will likely play a role in how quickly property performance improves. A pickup in office-using hiring would support underlying demand for office space as companies look to grow footprints to accommodate employees. Downside risks to the outlook include considerable uncertainty and the prospect of slower economic growth.