Phoenix, AZ – Avison Young has released its Third Quarter 2023 Phoenix Office Market Report. 

The Valley’s office market continues to see rising vacancy rates across the metro, again setting a decade-high total vacancy during the third quarter. Phoenix recorded a total office vacancy rate of 18.5% and a sublet vacancy rate of 5.9% - bringing the total vacancy rate to 24.4%, which equates to 23.3 million square feet (sf) of total vacant space.

The ongoing escalation of sublease space throughout the Phoenix metro is the predominant factor propelling the increase in overall vacancy. With hybrid and remote work models becoming a new normal for traditional office employees, businesses continue to reorganize their portfolios by subleasing under-utilized office space at a record rate.  

“While the Phoenix office market continues to navigate high vacancies and economic headwinds, there were a few bright spots in the third quarter. Rents for class A space continue to rise, and we saw a substantial increase in the sales transaction volume quarter over quarter. Notably, the price per square foot on these sales jumped 13% to $186.14psf despite increasing interest rates impacting cap rates and investor demands. It will take a while to absorb all the vacancy on the market, but it isn’t all doom and gloom in the office world, and Phoenix is well-positioned to bounce back faster than many other markets,” said David Genovese, Avison Young Principal and Managing Director – Phoenix.

Direct asking rents for Phoenix office space increased for a second consecutive quarter – jumping $0.18/sf (0.62%) from $29.05 to $29.23 quarter-over-quarter. Rents have continued to increase despite an evident lack of demand, as owners have opted to conserve the value of their investments by keeping rents high and, in return, sweetening the pot during negotiations by providing significant concessions by way of extended free-rent periods and higher-than-average tenant improvement (TI) allowances. Increased asking rates can also be attributed to the willingness of prospective lessees to compete for high-end/highly-amenitized space to attract workers back to the office.

Office property sales volume in Q3 was $225,992,142 – a significant increase of $82.7m (57.7%) quarter-over-quarter. The average price per sf on all transactions also rebounded in the third quarter, rising from $164.73/sf in Q2 to $186.14/sf in Q3 – a 13.0% increase quarter-over-quarter.

Avison Young creates real economic, social and environmental value as a global real estate advisor, powered by people. As a private company, our clients collaborate with an empowered partner who is invested in their success. Our integrated talent realizes the full potential of real estate by using global intelligence platforms that provide clients with insights and advantage. Together, we can create healthy, productive workplaces for employees, cities that are centers for prosperity for their citizens, and built spaces and places that create a net benefit to the economy, the environment and the community.

Avison Young is a 2023 winner of the Canada's Best Managed Companies Platinum Club designation, having retained its Best Managed designation for 12 consecutive years.

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