Economy: Output Accelerates Amid Sustained Job Growth
In Q2 2026, the Phoenix Metro reported an employment level of 2.5 million, after adding 20,500 jobs over the last year. While the unemployment rate ticked up from 3.8% to 4.0% during that timeframe, it remained below the national average of 4.2% and ranked third-lowest among major U.S. metros with total employment of at least 2 million jobs. Continued wage growth encouraged new entrants into the labor force, with the median household income increasing by 3.8% year-over-year (YOY) to $97,400. Population growth also more-than doubled the national average, however, the 0.8% YOY increase marked a deceleration from previous quarters. Annual GDP growth, meanwhile, accelerated up from 2.0% in Q2 2025 to 3.5% in Q2 2026, underscoring the Metro's positive economic momentum.
Demand: Vacancy Declines By Largest Margin In 10 Years
Phoenix's office vacancy rate fell by the fastest pace in over a decade, declining by 70 basis point (bps) quarter-over-quarter (QOQ) to 25.4%. Following multiple years negative net absorption, demand trends have now been positive in six of the past seven quarters, helping drive vacancy down by a total of 250 basis points (bps) over that span. Class B buildings have observed the most significant recovery, with the 25.7% rate in Q2 representing a 380 bps reduction from the Q3 2024 peak. Vacancy compression among Class A spaces has also been notable, with the sector reporting a 120 bps decrease QOQ to 27.1% in Q2. Across all asset classes, that submarkets that recorded the largest QOQ vacancy declines were aided by large owner-user acquisitions or office demolitions, including South Airport (-270 bps), Price/Chandler/Gilbert (-230 bps) and Metrocenter (-220 bps).
Demand: Leasing Improvement Led By Class A Buildings
Leasing activity in Phoenix totaled 1.5 million square feet (msf) in Q2 2026, up 12.9% from Q1. This growth was primarily driven by the Class A sector, which noted a 26.7% rise QOQ to 579,769 square feet (sf). Still, Class B spaces continued to account for the greatest volume of overall leasing, with 755,175 sf in Q2. Among submarkets, the Scottsdale Airpark stood out, posting a four-year high of 364,856 sf. The area has become increasingly attractive for cost-conscious tenants looking to relocate or consolidate within the market, with average asking rents growing at roughly one-fifth of the overall Metro's pace during the last three years. Other submarkets with notable levels of leasing in Q2 included Price/Chandler/Gilbert (125,207 sf), Camelback Corridor (106,859 sf) and South Scottsdale (106,698 sf).
Demand: Trailing 12-Month Absorption Pushes To Six-Year High
Office net absorption in Phoenix reached 450,074 sf in Q2 2026, lifting the trailing 12-month total to a six-year high of 1.3 msf. Momentum broadened during the quarter, with 14 out of 24 submarkets recording positive net absorption, compared to just eight in Q1. The Price/Chandler/Gilbert area led the overall Metro with 191,794 sf of absorption, followed by South Airport (78,159 sf) and Deer Valley (64,625 sf), reflecting growing occupier demand for suburban locations with strong freeway connectivity. Market-wide, Class A properties posted 341,135 sf of net absorption, marking the sector's strongest quarterly performance since Q1 2022. This performance pushed the Class A trailing 12-month total to 1.0 msf, which surpassed the 2014-2019 rolling annual average of 990,410 sf. Looking ahead, overall net absorption is expected to remain positive during the remainder of 2026, supported by over 700,000 sf of signed leases that are scheduled to commence.
Supply: Sublease Vacancy Declines While Availabilities Tick Up
In Q2 2026, Phoenix's total volume of vacant sublease space declined for the tenth consecutive quarter and reached an over-four-year low of 2.9 msf. Although several large blocks have been listed for sublease this quarter, expanding the number available options for prospective tenants, many are unlikely to be vacated before securing a new sublessee. Notable new listings include Nextiva's 101,865-sf campus in Scottsdale, Benchmark's 63,500-sf Rio 2100 building, and Offerpad's 41,164-sf floor at The Beam, all of which remain occupied while being marketed for sublease.
Pricing: Growth Pauses As Class A Owners Gauge Market
Phoenix's average full-service gross asking rent declined 0.3% from Q1 2026's all-time high, settling at $30.47 psf in Q2. This pause in growth is likely temporary, as an increasing number of landlords have opted to momentarily withhold asking rents from public listings to reassess pricing amid improving market fundamentals. This dynamic was most evident in the Class A sector, which noted a 0.5% decrease QOQ to $36.56 psf. Class B spaces, meanwhile, continued to observe above-average growth, with asking rents rising 1.3% QOQ to $28.67 psf. The average Class B rent has now grown 9.6% in the last five years, outpacing the Class A (8.1%) and C (5.1%) sectors.
Emerging Trend: Larger Buildings Observe Strong Demand
Vacancy among offices 100,000 sf and larger fell by 80 bps QOQ to 29.2% in Q2, marking a near-three-year low. Vacancy in this segment remained elevated compared to buildings under 100,000 sf, which posted an 18.0% rate, larger product is observing much stronger tenant demand. During Q2, buildings below 100,000 sf recorded 1,427 sf of negative absorption, while offices above that threshold observed 451,501 sf of positive absorption. This trend may reflect a growing flight-to-quality trend, with more tenants occupying spaces at larger Class A and B+ properties.
