The Metro Phoenix office market is showing fresh signs of resilience as tenants continue returning to premium office space, vacancy declines and developers largely remain on the sidelines, according to Newmark‘s 2Q 2026 Phoenix Office Market Overview. The report paints the picture of a market gradually finding its footing, with Class A and trophy properties outperforming older inventory while office conversions and limited new construction continue tightening supply.

The Valley recorded 167,319 square feet of positive net absorption during the second quarter, marking the third consecutive quarter of positive absorption. Overall office vacancy fell to 23.4%, down 20 basis points from the previous quarter and 200 basis points lower than one year ago. Rather than being driven solely by stronger leasing demand, much of the improvement stems from obsolete office buildings being removed from inventory and repositioned into alternative uses.

WOMEN IN BUSINESS: The Most Influential Women in Arizona for 2026

WOMEN IN REAL ESTATE: The Most Influential Women in Commercial Real Estate for 2026

While the office market continues to evolve in the post-pandemic era, one trend remains clear: tenants increasingly want quality over quantity.

Corporate occupiers continue gravitating toward trophy and high-end Class A buildings, particularly in executive-friendly submarkets such as North Scottsdale, North Tempe and other suburban employment corridors. Older Class B and Class C buildings continue to struggle, while premium properties are leasing quickly despite economic uncertainty. Newmark projects speculative office development could resume once trophy vacancy approaches 10%, a sign that demand for top-tier product remains healthy.

Leasing activity, however, remains measured.

Companies are generally maintaining existing office footprints while seeking greater flexibility in lease terms. Although some firms continue expanding, downsizing remains part of the equation as employers adapt to evolving workplace strategies. Overall leasing volume slowed during the quarter as tenants favored smaller footprints and shorter commitments despite an active touring pipeline.

On the pricing front, landlords continue benefiting from constrained supply.

Average asking rents increased 2.2% year over year, although Newmark notes much of that growth continues to trail inflation. Instead of significantly lowering rents, many landlords are competing through generous tenant improvement allowances and leasing concessions. Meanwhile, sublease availability remained low at 4.2%, continuing a downward trend that began in 2025 as much of the pandemic-era excess sublease inventory transitioned back into direct availability.

Construction activity has slowed considerably compared with previous years.

Newmark reports that no speculative office projects broke ground during the second quarter, with development largely limited to build-to-suit headquarters projects. Earlier this year, Republic Services completed and occupied its new corporate headquarters, highlighting that organizations willing to build today are largely doing so for their own long-term operational needs rather than speculative investment.

Investment activity also continues shifting toward opportunity plays.

Higher borrowing costs and approaching loan maturities are placing increasing pressure on office owners, leading investors to pursue discounted acquisitions, owner-user opportunities and adaptive reuse projects. Several notable second-quarter transactions reflected that strategy, including Diversified Partners’ purchase of the Lakefront at Scottsdale property for redevelopment and Finish Line Auto Storage’s acquisition of the vacant Scottsdale Perimeter office building for repositioning.

Phoenix’s broader economy continues providing a measure of stability for the office sector.

The metro area’s unemployment rate stood at 4.1% in May, below the national average for the fourth consecutive month. Office-using employment reached approximately 638,500 jobs, remaining 3.8% above pre-pandemic levels, while education, healthcare, business and professional services continued leading annual job growth. However, hiring has moderated, with office-using employment increasing just 0.6% year over year, reflecting the cautious approach many employers continue taking.

Looking ahead, Newmark expects several forces to shape Phoenix’s office market during the remainder of 2026.

Persistent inflation, elevated interest rates and tariff-related construction cost increases could continue limiting speculative development, further tightening supply. Combined with steady tenant demand for premium office space and declining vacancy, those conditions could gradually strengthen landlords’ position—particularly within the Valley’s highest-quality office properties. At the same time, continued office conversions and redevelopment projects are expected to reshape the market as aging buildings find new life outside the traditional office sector.