**Phoenix Office Trends Show Positive Momentum, Reports Kidder Mathews**
Kidder Mathews’ latest commercial real estate market report for its Phoenix office highlights solid activity and encouraging signs in the local office sector.
Key findings from the report include:
– Year-to-date direct net absorption reached 390,000 square feet.
– Second quarter 2025 sales volume totaled 925,000 square feet.
– Total office vacancy rates declined by 20 basis points quarter-over-quarter, landing at 24.3%.
Breakdown by class includes:
– Class A vacancy at 29.9%,
– Class B vacancy at 18.3%,
– Class C vacancy at 8.3%.
Class A properties also held the highest average direct rental rates, at $33.58 per square foot, full-service gross (FSG).
Looking ahead, lease rates are expected to trend upward, largely due to rising operating costs, labor expenses, and construction materials.
Additionally, a movement toward adaptive reuse is transforming some traditional office buildings and larger complexes into multifamily or industrial properties. These conversions are reducing available office inventory, helping rebalance the market by mitigating supply and demand imbalances.
Interestingly, the report notes a shift in tenant preferences, with some tenants opting for traditional Class A office buildings over premium Class A spaces, primarily due to the growing gap in rental rates between the two tiers.
The latest trends suggest a favorable outlook for the Phoenix office market as it continues to evolve to meet shifting demand.
