Phoenix office vacancy turned the corner in 2025

Article originally posted on CoStar on March 12, 2026

Following five years of disruption, the Phoenix office market took a step toward recovery in 2025.

The vacancy rate for traditional office buildings fell from a record high of over 24% in 2024 to 23.3% by the end of last year.

While the improvement was gradual and kept vacancy in the Valley’s office market above levels seen during the worst of the Great Recession, the inflection point is an important sign that conditions are no longer worsening and that the long road to recovery has begun.

Previously, elevated uncertainty and increased adoption of alternative workplace arrangements had kept vacancy on a steady upward trend since the onset of the pandemic. Annual vacancy increases of 1.5 to 2.5 percentage points were the norm from 2020 to 2024, as occupiers gave back millions of square feet of space.

Last year, however, a pickup in leasing, combined with limited supply additions, helped stem the rise in vacancy.

Non-renewal office lease volume rose 16% year over year, helping drive positive annual net absorption in 2025 for the first time since 2019. The pickup in demand formation came as construction for speculative non-medical office projects has stalled.

In fact, several conversion and redevelopment projects to replace underperforming offices with other property classes are progressing, removing high-vacancy buildings from the Valley’s inventory. This trend is expected to continue over the near term.

Moving forward, the construction pipeline for spec office remains thin, keeping supply-side pressure contained through at least 2026. If the demand-side holds, as is expected by both CoStar’s forecast and local leasing professionals, another year of stabilization could be in store.

Nevertheless, a broad-based, swift recovery could remain elusive, and only a measured reduction in vacancy is expected in the near term.