The Phoenix office market is bouncing back, and smart investors and tenants are finding real value in Class B and C buildings. Here’s what you need to know to make winning decisions.
Phoenix Market Reality Check
Phoenix office vacancy hit 20.9% overall in 2024, but here’s the key insight: smaller office buildings under 50,000 square feet are crushing it with only 8.5% vacancy. Meanwhile, larger buildings are struggling at 27.8% vacancy.
What You’ll Pay Right Now:
- Class A space: $32.91 per square foot
- Class B space: $23.56 per square foot
- Class C space: $19.34 per square foot
The math is simple. Class B and C buildings can save you 30-40% compared to Class A space, and in today’s market, that’s money you can put toward growing your business.
Why Class B & C Buildings Are Winning
Companies are downsizing and going hybrid. This shift creates huge opportunities in Class B and C buildings because they offer exactly what businesses need now:
Real Benefits You Get:
- Save $10-15 per square foot compared to Class A
- Flexible lease terms that adapt to your changing needs
- Better parking (essential in Phoenix where everyone drives)
- Room to customize without breaking the bank
- Lower barriers to entry for growing businesses
The Recovery Is Real
Here are the facts that matter for your investment decisions:
Sales volume already hit 5.6 million square feet this year, crushing last year’s total of 3.3 million square feet. Limited new construction means supply and demand are finally balancing out.
The sublease market is shrinking to 4.7%, which means businesses are expanding again and taking direct leases. This is exactly what you want to see as an investor or tenant.
Coworking Is Booming in Phoenix
Phoenix has become a coworking hotspot with major players like WeWork, Regus, and Industrious expanding throughout the metro. This trend benefits Class B and C building owners who can capture this demand.
Why Phoenix Works for Flexible Office:
- Home to four Fortune 500 companies
- Ranked as one of the best places to start a business
- Only 3.2% unemployment rate
- Sky Harbor Airport connects you to 1,200 daily flights worldwide
Where to Focus Your Search
Top Submarkets for Class B & C Success:
- Downtown Phoenix – Light rail access and walkable amenities
- Biltmore Corridor – Established business district with dining options
- North Phoenix/Deer Valley – Large submarket with room to grow
- Tempe – Hot tech sector driving demand
- Scottsdale Airpark – Business aviation access for executive tenants
Smart Investment Plays
For Investors Looking at Cap Rates: Current average is 6.81% for Phoenix office properties, but the real opportunity is in the details.
Target These Properties:
- Buildings near light rail stations (transit access drives value)
- Mixed-use locations with restaurants and retail nearby
- Smaller buildings showing better occupancy rates
- Properties perfect for coworking conversion
Avoid These Risks:
- Buildings with CMBS debt maturing in the next 12 months
- Properties in office-only locations with no amenities
- Buildings with outdated HVAC systems (death in Phoenix heat)
Tenant Success Strategy
How to Win in Class B & C Space:
- Negotiate hard on lease terms (landlords are flexible now)
- Look for buildings that include parking in the rent
- Check the parking ratio (you want 4+ spaces per 1,000 square feet)
- Make sure the internet infrastructure can handle your needs
Must-Have Features in Phoenix:
- Reliable air conditioning (non-negotiable in 115-degree summers)
- High-speed internet and strong WiFi
- Easy freeway access to I-10, I-17, or Loop 101
- Parking spaces for every employee
- Nearby restaurants and services
What Landlords Are Doing Right
Successful building owners are adapting fast. They’re allowing creative uses like training facilities and corporate learning centers. The demand is shifting toward more private offices and less open space.
Smart Building Upgrades:
- Energy-efficient smart building technology
- Upgraded internet and WiFi throughout
- Communal kitchens and lounge areas
- Electric vehicle charging stations
- Bike storage and shower facilities
Office-to-Apartment Conversion Opportunity
With Phoenix median home prices around $413,000 and strong population growth, some Class B and C buildings make perfect apartment conversion candidates. Vacancy rates below 6% in well-located properties support this strategy.
2025 Market Outlook
What’s Coming:
- Transaction volume expected to pick up in the second half of 2025
- Private equity and high-net-worth individuals driving activity
- Continued growth in flexible office demand
- Over 100,000 small businesses in Phoenix need affordable office space
Your Action Plan
For Investors: Focus on smaller, well-located buildings with conversion potential. Look for properties near transit, in mixed-use areas, with solid HVAC systems and parking.
For Tenants: Class B and C space gives you 30-40% savings while keeping you in Phoenix’s growing business ecosystem. Prioritize buildings with reliable systems, good parking, and flexible landlords.
Bottom Line
Phoenix’s Class B and C office market offers real opportunities right now. The city’s strong fundamentals, business-friendly environment, and strategic location create lasting value.
Success comes down to four key factors: location near amenities, right-sized buildings, essential amenities like parking and HVAC, and flexibility to adapt to changing business needs.
The numbers are clear, the trends are positive, and the opportunities are here. The question is: are you ready to take advantage of them?
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Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
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