Phoenix medical office market strengthened last year

Demand formation improved markedly over the past year. The market recorded approximately 455,000 square feet of net absorption in 2025, reversing more than 350,000 square feet of occupancy loss logged in 2024. Much of the positive momentum was concentrated in Chandler, where move-ins at an office-to-medical conversion helped drive absorption. Peoria, Scottsdale and Buckeye also posted healthy gains, underscoring the geographically broad nature of the recovery.

Supply growth remained measured. Developers completed about 329,000 square feet of net new medical office space in 2025, a pace that lagged absorption and contributed to tightening conditions. As a result, vacancy declined from 12.3% at the end of 2024 to 11.8% by the fourth quarter of 2025, placing vacancy roughly 70 basis points below pre-pandemic levels. Leasing activity improved alongside this shift, with total leasing volume rising 13% year over year to roughly 1.5 million square feet.

Performance continues to diverge by building type. Single-story medical office properties remain especially competitive, with vacancy near a decade low of 6.8%, as tenants prioritize drive-up access and convenient parking. Multistory properties have also improved but continue to trail, with vacancy hovering between 18% and 19% over the past 18 months.

Despite lower vacancy, rent growth slowed materially. Average asking rents increased just 1.4% in 2025, one of the weakest annual performances of the past decade and well below the roughly 4.5% average annual growth recorded over the past five years. Medical office asking rents average about $25 per square foot on a triple-net basis, though premium buildings in affluent submarkets such as Scottsdale, Chandler and the Camelback Corridor can command rents in the mid-$30-per-square-foot range or higher.

Development is beginning to reaccelerate. Approximately 518,000 square feet of medical office space is currently under construction, the largest pipeline since late 2020. While opportunities for new projects in infill locations remain constrained, development continues to push outward to peripheral submarkets where existing medical inventory is limited.

Investment for Phoenix medical office properties strengthened further in 2025. Sales volume reached roughly $653 million, up 14% from 2024 and the strongest annual total since 2014, excluding the 2021 surge. Medical office buildings accounted for about one-third of all office sales, more than double their historical share.

Looking ahead, the balance between improving demand and a growing, but manageable, construction pipeline is expected to keep market conditions relatively stable through 2026, even as rent growth remains modest in the near term.