Traditional office vacancy declines for first time in Phoenix since pandemic’s onset

Article originally posted on on August 11, 2025

Following four years of steep occupancy loss, the Phoenix office market is finally showing signs of stabilization.

While the medical office segment has been comparatively resilient over the past five years, performance among the Valley’s traditional for-lease office buildings has been disrupted.

The analysis in this article excludes medical and owner-occupied office buildings and those less than 10,000 square feet to triangulate a more-relevant universe of properties that most traditional office tenants, brokers and owners operate in.

The second quarter of 2025 marked the third-consecutive quarter with flat or positive demand formation in this segment. The 650,000 square feet of positive net absorption, or the change in occupied stock, during that time caused vacancy to fall from a decade-high of 23.6% to 23.1%.

While that amount of demand remains underwhelming for a market that averaged more than 2.5 million square feet of net absorption per year from 2015 to 2019, it marks a notable shift from prior performance, when the Valley regularly shed 500,000 to 1 million square feet of office space per quarter and vacancy was steadily rising.

Dutch Bros’ decision to relocate its headquarters from Grants Pass, Oregon, to Tempe, Arizona, was one of the largest recent contributors to positive demand. The drive-thru coffee chain moved into a 136,400-square-foot building at Liberty Center at Rio Salado, taking full occupancy of a property left vacant by Carvana in 2023.

Additionally, a few owner-user sales for vacant office buildings by U-Haul, Avnet and others took several large availabilities off the market.

Another factor supporting the sector’s recent stabilization is a near-total lack of supply-side pressure. Speculative traditional office development remains rare, with the bulk of recent projects focused on medical buildings or build-to-suits. In fact, a growing trend has emerged of vacant older suburban offices being demolished to make way for new industrial properties.

Moving forward, the Valley office market seems poised to maintain its momentum, though few expect explosive performance. If the macroeconomy avoids a recession, then limited supply additions and positive, albeit slow, demand formation should allow a recovery to take hold, resulting in modestly falling vacancy through 2026.