Phoenix medical office market shows further signs of stabilization in 2025

Article originally posted on CoStar on November 14, 2025

The Phoenix medical office market has performed well so far this year, bouncing back after a challenging 2024, according to CoStar’s latest Medical Office Report.

Over the past 12 months, occupied space increased by about 305,000 square feet. This is a turnaround from 2024, when the market lost roughly 87,000 square feet of occupied space.

This recovery comes as more than 450,000 square feet of new medical office space was completed, showing that supply and demand are becoming more balanced.

Vacancy has stayed steady at just over 12% for four straight quarters, dipping to 12.3% in the third quarter. While that’s about 2 percentage points higher than the record lows in late 2023, it matches pre-pandemic levels and has supported continued rent growth.

While construction of traditional office buildings has largely stopped, new medical office projects are still moving forward, with about 295,000 square feet currently in development. Most of this construction is happening in fast-growing areas on the edge of the market, including Buckeye, Queen Creek and San Tan Valley.

Rents are climbing. The average asking rent rose 3.8% over the past year, compared to less than 2% during the same period in 2024. This growth is stronger than the 2.9% increase seen in traditional office space. Across the market, rents average about $25 per square foot on a triple-net basis, while newer buildings often command $35 to $40 per square foot. Lower-cost options are generally found in Mesa, Central Phoenix and the Black Canyon Corridor.

Investment activity is also strong. About $637 million worth of medical office properties sold in the 12 months ending in the third quarter — a 15% increase from the previous year and well above the pre-pandemic annual average of roughly $420 million.

Looking ahead, Phoenix’s medical office market is benefiting from demographic trends that continue to drive tenant demand. Combined with a manageable level of new construction, the sector is positioned for steady growth through 2026.