The latest CommercialCafé U.S. Office market report shows a commercial real estate sector still in flux, particularly in the West region, as the technology industry undergoes massive layoffs and the post-pandemic flight to quality continues to disproportionately impact older assets.
Metro Phoenix, however, has been less impacted than other markets, particularly in the West, even though it remains behind in terms of square footage valuations.
The report says, “The commercial real estate sector is experiencing a pronounced division between property types, with deep discounts and mounting distress heavily concentrated among assets that cannot adapt to evolving tenant demands. Specifically, out of more than 800MSF of space traded nationally since 2024, distressed transactions climbed to 19.4% — a sharp increase from the 6.2% recorded between 2021 and 2023.”
It later adds, “Consequently, as flight to quality consolidates market demand into a limited pool of properties, buildings in central city cores are struggling to retain value. As an example, among properties in Central Business Districts with multiple historical sale prices for comparison, 73% sold at a discount since 2024. For comparison, discount rates reached 48% for urban assets and 42% for suburban buildings.”
Year-over-year, Office vacancy rates in Phoenix dropped by a modest 100 basis points, coming in at 16.4%. The May 2026 listing rate was $29.65, reflecting a 12-month change of 4.1%. In comparison, the national listing rate increased 1.4%, settling at $33.61, while vacancy dropped 180bps to 17.6%.
Phoenix is one of only three markets in the West where asking rates tracked lower than the national average. It is also one of only two markets in the region with a vacancy rate of less than 19%.
CommercialCafé identifies three market sectors in examining primary users of Office space: Financial Activities, Information, and Professional and Business Services. All three sectors declined slightly on the national front, with Financial Activities falling 0.25%, Information dropping 0.27%, and Professional and Business Services declining 0.07%.
Phoenix, however, saw a mixed set. Financial Activities dropped by 0.86%, while Information rose 0.20%, and Professional and Business Services increased 1.31%.
Phoenix has recorded year-to-date sales of $521M. Almost all the activity is in the existing inventory, as the metro has only 600KSF under construction.