Phoenix's office market is showing signs of improving health.

Vacancy fell for the third consecutive quarter, to 23.4%, down from 25.4% a year earlier, according to a Newmark report. This happened despite leasing activity coming in well below where it was during the second quarter of 2025.

This momentum in Phoenix’s office market is largely due to a slew of office buildings across the metro being removed from inventory and redeveloped into other property types, according to the report.

The market registered 167K SF of positive absorption, driven by conversions. No office projects broke ground between April and June.

Since 2024, 3.3M SF of office space has been converted or demolished in the metro, more than the previous 10 years combined. With more than 4M SF of further projects proposed, Phoenix is one of the most active office conversion pipelines in the country, according to Cushman & Wakefield.

Two recently announced office redevelopment projects include Diversified Partners’ purchase of the Lakefront at Scottsdale property, with plans for new restaurants and retail, and Finish Line Auto Storage’s acquisition of the vacant Scottsdale Perimeter office building.

While vintage, obsolete office buildings in Phoenix are rapidly being adapted for other uses, newer office buildings remain in demand. Corporate tenants have their eyes on luxury, Class-A office buildings offering a host of amenities — spaces that “continue to lease quickly,” according to the report.

Asking rents rose 2.2% from a year prior to $31.70 per SF, reflective of the demand but dragged down by older buildings that have dropped prices as they struggle to attract tenants.

Many of the in-demand new office buildings that corporate tenants are drawn to are in submarkets like North Scottsdale, North Tempe and other “executive-housing-adjacent-corridors,” the Newmark report says.