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Market Report

Phoenix Office Market Report

2023 Investment Forecast

Tenant Demand for New, Top-Tier Spaces Frames Office Outlook;
Investment Encumbered by Rising Debt Costs

State-of-the-art offices positioned to attract firms. The consolidation of office space by the state’s government agencies is illustrative of a larger trend taking place in The Valley. Over the past two years, the state relinquished over 750,000 square feet of office commitments, opting instead to move its 15,000 hybrid employees to its newly-built Arizona Connected Workspace late last year. Amid the office landscape’s uncertainty, tenants are doubling down on state-of-the-art buildings. This bodes especially well for Class A projects that continue to reinvest and add amenities — as well as those slated for 2023 completion — which includes Tower 3 in the Novus Innovation Corridor and Buildings A and C in Rio Yards, all top-tier offices totaling 460,000 square feet. Still, a short-term reset of the local labor market will reduce firms’ urgency for leasing space to attract recruits, likely resulting in longer periods where vacant space could sit on the market. Class B/C offices may be in a position to satiate the short-term needs of these firms, as a number of them downshift to smaller formats while temporarily reducing headcounts.
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