Phoenix Office Real Estate Posts 432,379 SF Net Absorption in Q1 2026, Colliers Reports

PHOENIX — The Greater Phoenix office real estate market recorded 432,379 square feet of net absorption in the first quarter of 2026, marking the second consecutive quarter of positive gains, according to a report published May 18 by Colliers.

The Colliers report attributed the performance to strong leasing activity and a reduction in total inventory as obsolete office buildings are repurposed for alternative uses. The quarter ranked as the second strongest for net absorption in nearly four years.

Leasing Activity and Vacancy Trends in Phoenix Office Real Estate

The Tempe submarket led leasing activity during the first quarter, accounting for nearly 35 percent of total square footage leased across the Phoenix metro area. Class A assets recorded 498,865 square feet of positive net absorption market-wide, while both Class B and Class C assets posted negative totals.

Direct vacancy declined 60 basis points over the quarter to 14.5 percent, influenced in part by the removal of nearly 1 million square feet of inventory. Class A properties saw a 40 basis point decline in vacancy to 19.1 percent.

Sublease space increased for the first time in nine consecutive quarters, with a modest 33,178 square feet added during the period. Despite the uptick, sublease space has decreased 36.7 percent since its peak of 7.8 million square feet in the first quarter of 2024, according to Colliers.

Rental Rates and Real Estate Development Activity

Overall rental rates rose 1.33 percent in the first quarter to $30.52 per square foot. Class A assets recorded the largest year-over-year gain, rising 1.41 percent to $34.60 per square foot.

The market showed notable bifurcation between asset classes and submarkets. Camelback Corridor rents rose 6.3 percent year-over-year to $44.79 per square foot, while South Scottsdale rents increased 4.1 percent to $41.16 per square foot. Two leases signed during the first quarter set a new high watermark for the market, with starting rates exceeding $62.00 per square foot, the report noted.

Real estate development activity in the office sector declined to its lowest level, with just 184,500 square feet under construction across two buildings. Both are build-to-suit developments with deliveries expected over the next two quarters. The Colliers report cited limited available capital for speculative office development and the rental rates required to achieve acceptable investment returns as factors suppressing new construction.

The delivery of Republic Services' 265,525-square-foot new headquarters contributed to leasing figures during the quarter.

Sales Volume and Investment Transactions

Sales volume reached $353 million in the first quarter of 2026, a 33.3 percent decline from the fourth quarter of 2025 but a 53.7 percent increase year-over-year. The average price per square foot paid during the quarter was $207.

The Tempe submarket led sales activity, accounting for more than 30 percent of total volume across seven transactions. The largest transaction of the quarter was the five-property "Rio West" portfolio, totaling 296,663 square feet, which sold for $61.5 million. The largest single-asset sale was Thirty 03, located at 3003 N. Central Ave., a 26-story Midtown tower that sold for $32.25 million.

Three buildings that traded during the first quarter are slated for repurposing, which will remove more than 335,000 square feet from existing inventory when placed under construction, according to Colliers.

Research Team and Market Outlook

The Colliers report was produced by the firm's Arizona research team, which includes Phillip Hernandez, director of research for Colliers in Arizona, along with researchers Carter Cho and Nicole Shih. Hernandez previously served as a GIS analyst, where he produced high-quality geographic and demographic maps and investigated multiple approaches to storytelling through map and market analytics. Carter Beim Cho, who joined Colliers full-time following an internship with the firm's Phoenix office, has supported industrial real estate teams and the broader research department; this blend of academic rigor and applied learning has prepared Carter to contribute meaningfully in data-driven real estate environments, according to his firm biography.

The Colliers report noted that the push for employees to return to the office is more prevalent and is expected to strengthen as 2026 progresses. The report also cited strong support from economic development groups and pro-business conditions as factors positioning the Phoenix market to attract out-of-state companies, particularly those seeking partnerships with higher education institutions to sustain a labor force.

The report indicated that while certain submarkets will continue to outperform others, the current environment creates opportunities for tenants to secure space in lower-performing areas at discounted rates.