The Phoenix office market continued to show signs of stabilization in the third quarter of 2026, as vacancy edged lower, rents increased and the region posted modest positive absorption, according to the latest research from Kidder Mathews.
The market recorded 23,600 square feet of positive direct net absorption during the quarter. Performance varied significantly by submarket, with the Central Corridor leading the Valley at 105,600 square feet of positive absorption. East Phoenix posted the weakest performance, recording 64,600 square feet of negative absorption.
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By building class, Class A properties generated 48,820 square feet of positive direct net absorption, while Class C recorded 14,036 square feet. Class B properties posted 39,236 square feet of negative absorption.
Sublease space also showed encouraging momentum. Class A sublet absorption totaled 40,300 square feet, helping push total Class A net absorption to 89,200 square feet during the quarter.
Leasing activity reached approximately 1.3 million square feet in the third quarter, declining from the previous quarter and totaling 1.29 million square feet on a year-over-year basis. Sales volume totaled approximately 470,000 square feet.
Despite the slowdown in leasing, rental rates continued to rise. Average direct asking rents held at $31.66 per square foot, full-service gross, representing a 2% increase from a year earlier. Class A properties commanded the highest average direct rents at $34.50 per square foot.
Overall vacancy stood at 23.7%, down 10 basis points from both the previous quarter and third-quarter 2025. Class A vacancy remained highest at 28.3%, compared with 18.5% for Class B and 11.1% for Class C.
Looking ahead, employment trends could provide additional momentum. Phoenix office-using employment increased 1.3% year over year in July, its strongest annual growth since mid-2022.
At the same time, developers are taking a more selective approach to new construction, placing greater emphasis on renovating and repositioning existing properties. Limited development and the potential removal or conversion of older buildings could gradually tighten available inventory.
That shift could intensify competition for well-located, updated office properties offering modern amenities and flexible spaces, while older commodity buildings may face a longer road to recovery.
