The Greater Phoenix office market is demonstrating improving fundamentals, with strong leasing activity and a measurable contraction in total inventory as outdated properties are repositioned. A recent first-quarter 2026 report from Colliers, covering the Greater Phoenix area, shows that the market has now recorded positive net absorption for two consecutive quarters, pointing to sustained tenant demand.
Economic momentum from the manufacturing and technology sectors is playing a key role in this performance, with growth in those industries beginning to filter into the office landscape. According to the report, leasing activity in the first quarter was substantial enough to deliver the second-strongest quarterly net absorption result in nearly four years. Net absorption for the period reached 432,379 square feet, underscoring expanding space usage and move-ins that outpaced move-outs.
Vacancy metrics moved in tandem with this demand. Direct vacancy declined by 60 basis points during the quarter to land at 14.5 percent, indicating that more existing space is being occupied. Class A assets also benefited, with vacancy in that segment falling by 40 basis points to 19.1 percent for the quarter. While the Class A rate remains higher than the overall market level, the direction of change suggests that better-quality properties are successfully attracting tenants, supported by the broader economic tailwinds in Phoenix.
At the same time, the market is being reshaped by a meaningful reduction in office inventory as older product is taken out of circulation. Nearly 1 million square feet of office space was removed from the inventory during the first quarter, contributing directly to the drop in vacancy. The report attributes this to a wave of activity in which obsolete buildings are being repurposed to better align with current market needs, reducing the supply of traditional office space and potentially improving the competitiveness of remaining assets.
Developers are at the center of this transition. Total office inventory has been trending downward as they continue to pursue projects that convert outdated buildings to new uses. In the first quarter of 2026 alone, three office buildings were sold to developers with plans for alternative uses, highlighting a clear strategy to address obsolescence and reshape portions of the office stock. This combination of tenant demand, falling vacancy and active repositioning of less-competitive properties is defining the current phase of the Phoenix office market.
