Tempe Fuels Metro Phoenix's Q4 Office Market

Tempe, Arizona’s office market is remaining steady and seeing strong sublet demand, according to a Q4 2025 report by Kidder Mathews.

Tempe, which has an estimated population of 190,114, carried the Phoenix office market in net absorption in Q4 2025. The suburb was responsible for some 185K SF of the metro market's total 211K SF of positive absorption in the quarter, according to the January report.

Michelle Gardner, senior vice president at Kidder Matthews, said Tempe has attributes that businesses want for their offices. 

“Tempe has walkability, proximity to talent pipelines, and mixed-use environments,” Gardner said. “We’re seeing Class-A buildings trending, with tenants drawn to the quality, image and employee experience.”

Sublet demand in particular remains strong in Tempe, Gardner said, because this option represents “flexibility and a path back into direct leasing.” A lot of companies that are wary of pivoting to a Class-A building are able to do so in a cost-effective manner through subleasing. 

“It gets them in the door, gets them the Class-A product they want, and gives them flexibility,” she said. 

Phoenix has a limited supply of new construction, according to the report. This is increasing competition for high-end office space, Gardner said.

“We’re also seeing a lot of outdated buildings being converted or repurposed,” she said. “That’s shrinking the footprint overall, in terms of office supply, with tenants trading up obsolete Class-B buildings into Class-A spaces.” 

This is driving up rental costs, even though the report also shows flat vacancy at 23.6%.

Overall, the Phoenix metro remains well-known for having a strong business climate, Gardner said. In 2025, the area attracted a 150K SF Comtech innovation facility, a 136K SF Dutch Bros corporate headquarters and a 30K SF Cognite headquarters. The influx of businesses will bring more than 27,000 jobs and over $34B in capital investment to the region, according to the report.

“A lot of these companies are relocating or expanding into Arizona because of the amazing climate and the affordability,” Gardner said. “They can get so much more in the office rental market here as opposed to coastal gateway markets.”