Our Backyard
Start with Phoenix. The topline reads like a slow grind: Transwestern pegs Q2 2026 metro net absorption at 141,747 square feet, with the direct vacant available rate down 20 basis points to 16.7 percent. A market inching back. But the metro average hides two very different buildings.
Scottsdale alone absorbed more than 208,000 square feet in the quarter, which is more than the entire metro took down. The arithmetic only works if other submarkets gave space back. Asking rents say the same thing: the Camelback Corridor commands $39.22 per foot and Scottsdale $37.93, against a metro-wide average of $31.75. The tenants that are moving are moving up, toward newer and better located space, and they are paying for it.
Then there is downtown and midtown Phoenix, which Transwestern calls the metro's biggest challenge: a 25.2 percent direct vacancy rate, 31.0 percent total availability, and more than 5.1 million square feet sitting open. That is not a problem you solve with a sharper leasing broker. A good share of that space is functionally obsolete, and the realistic exit for part of it is conversion or demolition, not a tenant.
Las Vegas is the cleaner picture, and the useful contrast. CBRE has office vacancy here falling for a fourth straight quarter to 11.9 percent in Q2 2026, 80 basis points below the 12.7 percent of a year earlier, with direct asking rents steady at $2.56 per foot full service. Net absorption in the quarter was a modest 8,000 feet, down from a strong 170,000 in Q1, and yet vacancy still fell. The reason is the lack of new supply: almost nothing is being delivered, so even quiet demand tightens the market.
The read for us is the same in both markets. There is no single office market left to underwrite. There is a building, in a submarket, of a given vintage, and the spread between the good version and the bad version is as wide as we have seen it. We will look hard at well located Class A in Scottsdale, the Camelback Corridor, and the Las Vegas submarkets where occupancy is grinding higher against no new construction. We will not reach for a half-empty downtown tower on the theory that office is back. Office is back for some addresses and gone for others.
Asset Classes
The national numbers say the recovery is broad; the supply side says it will not stay cheap. CBRE has the national office vacancy rate falling 30 basis points in Q2 2026 to 18.3 percent, the largest quarterly decline since 2015, with 12.6 million square feet of net absorption, the ninth straight quarter of positive demand. Leasing activity rose 16 percent year over year to 62.4 million square feet.
The supply side is what tilts this toward owners. CBRE puts the national under-construction pipeline at 15.4 million square feet, down 87 percent from its 2020 peak, with just 2.2 million square feet completed in the quarter, the lowest first-half figure since CBRE began tracking it in 1990. Separately, 2025 was the first year that demolitions and conversions removed more office inventory than new construction added, which had not happened since CBRE started counting in 1988. The stock of good space is not being replenished. It is shrinking.
Put those two facts together and the flight to quality stops being a slogan. CBRE describes the gap between prime and non-prime performance as near a record high. Demand is concentrating in the best buildings at the exact moment the supply of best buildings stops growing. For owners of quality space in the right submarkets, that is pricing power arriving on a schedule. For owners of the other kind of building, a national recovery headline will not fill the floors.
Sources
- Transwestern, Q2 2026 Phoenix Office Market report, via AZ Big Media: https://azbigmedia.com/real-estate/phoenix-office-market-finds-stability-as-suburban-demand-drives-momentum/
- CBRE, Las Vegas Office Figures Q2 2026: https://www.cbre.com/insights/figures/las-vegas-office-figures-q2-2026
- CBRE, Q2 2026 U.S. Office Market Report: https://www.cbre.com/insights/figures/q2-2026-us-office-market-report
- CBRE, U.S. Real Estate Market Outlook 2026 (Office): https://www.cbre.com/insights/books/us-real-estate-market-outlook-2026/office
Frequently Asked Questions
- Is the office market actually recovering in 2026?
- On the numbers, yes: CBRE reports a ninth straight quarter of positive national net absorption, 12.6 million SF in Q2 2026, with vacancy down to 18.3%. But the gains concentrate in the best buildings and submarkets, so a market average overstates the recovery for commodity space.
- Why is Las Vegas office vacancy falling if demand is only modest?
- Because almost nothing new is being delivered. Las Vegas net absorption was only about 8,000 SF in Q2 2026, yet vacancy still fell to 11.9% for a fourth consecutive quarter, since there is no new supply to backfill (CBRE).
- What is happening in downtown Phoenix office?
- It remains the metro's weakest spot, with a 25.2% direct vacancy rate and more than 5.1 million SF available in Q2 2026. Much of that stock is functionally obsolete, so the realistic path for part of it is conversion or demolition rather than re-leasing (Transwestern).
- What does flight to quality mean for owners right now?
- CBRE puts the prime versus non-prime performance gap near a record high just as new construction hits multi-decade lows. Owners of well-located, high-quality space gain pricing power, while owners of older commodity space may not see the recovery at all.