JLL: Phoenix office leasing activity outpaces demand for Class A product

Vacancy decreased in Q1 to 22.8% while new construction remains low

The Phoenix Office of JLL has released its Q1 2026 Phoenix Office Market Dynamics report, noting a modest vacancy reduction in the first quarter and a widening deficit for the kind of highly amenitized, Class A space that today’s modern tenants seek.

Total vacancy fell by 50 basis points quarter-over-quarter, to 22.8%. During that same period, absorption rose to 375,983-square-feet, more than double the 148,977 square feet absorbed during Q4 2025. Construction, however, remains low, with just 410,025 square feet underway as tenants collectively took more space than they gave back in the first months of the year.

“This is positive news for Phoenix, but not without its friction,” said JLL Senior Vice President Kyle Seeger. “With virtually no new Class A construction, we’re seeing a real bottleneck in the amenity-rich, top locations that tenants are competing for. While Class B product sits vacant, Class A is pre-leasing. It has these sectors moving in opposite directions. Until supply catches up with tenant preference, that tension isn’t going away.”

According to the JLL report, first quarter Phoenix leasing activity was led by mid-sized transactions, underscoring that the market is still driven more by steady demand than broad-based expansions. Activity also included renewals and expansions in higher-quality assets, such as Gust Rosenfeld’s 24,029-square-foot renewal downtown and Taft Law’s 23,781-square-foot expansion in the Camelback Corridor.

“Some developers have read the market, upgrading Class B buildings to amenity-rich product that is leasing at a remarkable pace,” said Seeger. “George Oliver’s success at Bond and Arbor is a prime example, and the renovations at Fifty 90 and Arroyo by Southwest Value Partners is another signal that this strategy is gaining momentum. For some, the message is getting through that it’s time to build, and that tenants will show up if the product is right.”

In the meantime, landlords are balancing occupancy goals with income preservation. Direct asking rents held at an average $31.4 per-square-foot during Q1. According to JLL, those rates are forecasted to increase as vacancy continues to decline and Phoenix office space moves toward gradual stabilization.

In Phoenix, JLL is a market leader employing more than 600 of the region’s most recognized industry experts offering office, industrial, retail, healthcare and data center brokerage, tenant representation, facility and investment management, capital markets, multifamily investments and development services, and related services within the real estate leasing, investment and management process. For more news, videos and research resources, please visit JLL’s newsroom.