Q3 2026 - Phoenix Commercial Real Estate Market Report - Arizona Commercial Real Estate

Phoenix commercial real estate market report numbers for Q3 2026 point to a market that is holding its ground rather than breaking out. All four major asset classes posted positive net absorption, but at a slower pace than Q2, while the cost of capital moved sharply higher.

Industrial led again, with 11.5% total vacancy, 180 basis points lower than a year ago. Office recorded a second straight positive quarter. Retail stayed among the tightest markets in the country. Medical office posted its second consecutive quarter of positive absorption, which makes Q1’s negative print look like a one-quarter event.

The pressure point is financing. The Fed raised its target range 25 basis points to 3.75%–4.00% on September 16, and the 10-year Treasury closed the quarter at 5.29%. That changes how every deal pencils, even in a market with strong fundamentals.

Five things every Arizona investor, owner, and healthcare operator should know from the ICRE Investment Team’s Q3 2026 Phoenix CRE Pulse:

Industrial is digesting supply. Direct net absorption was +2.85 million SF, but the pace roughly halved from Q2 as about 2.6 million SF delivered.
Office is stabilizing, not recovering. Total vacancy is 23.7% and rents are near a record at $31.66 per SF, but the construction pipeline is effectively empty and results vary widely by submarket.
Retail is repricing upward. Vacancy is 4.4%, rents are up 6.2%, and cap rates compressed 80 basis points to 6.3%.
Medical office is steady and supply-constrained. Direct vacancy is 15.2%, no new buildings delivered for a second straight quarter, and health care jobs are up 3.8% year over year.
Rates are the main variable. Underwriting discipline matters more than market timing this quarter.

This article walks through each of those findings, what they mean for Greater Phoenix submarkets from Scottsdale to Chandler, Gilbert, Mesa, and San Tan Valley, and how to respond.

Current Market Context

Phoenix’s demand drivers are intact but moderating. The Phoenix metro now has about 2.46 million nonfarm jobs, up 0.9% year over year through August. Unemployment rose to 4.9% from 4.3% a year earlier, and seasonally adjusted payrolls have been roughly flat since January.

Capital markets are the bigger story. CRE Daily noted the September hike was the first increase since July 2023, and the 10-year Treasury closed Q3 at 5.29%, up 33 basis points in the final week of September alone. National CMBS delinquency reached 8.02% in September, the highest since late 2020, with office loans at 12.16%.

The takeaway: Phoenix fundamentals are holding up, but buyers and borrowers now face a higher hurdle. Deals that worked at a 4.5% Treasury do not automatically work at 5.3%.

Phoenix Commercial Real Estate Market Report: Q3 2026 Takeaways for Investors

Industrial: still the leader, now digesting supply. Industrial added +2,854,020 SF of direct net absorption in Q3 and 12.8 million SF year to date, 8% ahead of 2025. Total vacancy edged up 10 basis points from Q2 to 11.5%. Direct asking rents for larger spaces held at $1.18 per SF per month NNN, up 5% year over year.

Glendale drove more than half of demand with +1.55 million SF, anchored by DHL’s 1.15 million SF lease at VT303 North. Datasets differ on levels: CBRE measures Phoenix industrial vacancy at 9.7% while Kidder Mathews shows 11.5%. They agree on direction, and our report discloses the range for every headline metric.

Office: a slow stabilization. Direct net absorption was just +23,620 SF, compared with +492,625 SF in Q2. Total vacancy held at 23.7%, with Class A at 28.3%, Class B at 18.5%, and Class C at 11.1%. No speculative office product delivered. Two positive quarters is stabilization, not recovery.

The submarket swings were large. Camelback Corridor absorbed +199,337 SF and commands the metro’s highest rent at $43.75 per SF. The 44th Street Corridor gave back 249,847 SF and now sits at 39.8% vacancy. That spread is why selectivity beats broad market exposure.

Retail: tight and repricing. Vacancy held at 4.4%, asking rents averaged $1.77 per SF per month, and the average sale price was $261 per SF, up 17.4% year over year. The pipeline shrank 19.9% to 2.55 million SF, though large East Valley projects along Signal Butte deliver in late 2027.

Medical office: steady and supply-constrained. Direct vacancy edged up 10 basis points to 15.2% with no new deliveries and about 405,000 SF under construction. Net absorption was +38,803 SF, mostly sublease space. Sales totaled $64.1 million in Q3, with year-to-date volume near $300 million, close to all of 2025.

Local Arizona Impact

Averages hide the real story. The best opportunities in this Phoenix commercial real estate market report sit at the submarket level.

Medical office is tightest in Scottsdale South (4.7% vacancy), Glendale (5.3%), Loop 303/Surprise (7.1%), and Tempe (7.3%). Chandler sits at 11.6% with rents of $37.30 per SF FSG, while Mesa East is at 12.7% and $23.13. Pinal County, which includes San Tan Valley, is at 1.6% vacancy on a small 285,739 SF base. Central Scottsdale is the outlier at 26.6%.

Industrial in the East Valley tells a split story. Chandler North/Gilbert absorbed +559,190 SF but still carries 21.4% vacancy, so demand is real but supply is catching up. On the retail side, Safeway took 64,000 SF at The Residences at The Gilmore in South Gilbert, and the Signal Butte corridor in the East Valley holds three retail projects totaling about 880,000 SF.

Growth projections support the long view. The University of Arizona’s Economic and Business Research Center forecasts Phoenix-area population growth of 1.5% in 2026 and 1.4% per year in 2027 and 2028, with job growth of 1.0% to 1.1%. Metro population reached 5.23 million, the fourth-largest numeric gain in the nation. Arizona also logged a record 26,225 projected jobs and more than $109 billion of announced investment in FY2026, per the Arizona Commerce Authority.

TSMC’s second Arizona fab is installing equipment for 3nm volume production targeted for Q3 2027, with a third fab under construction. That keeps West Valley industrial and supplier demand strong.

National Impact

Nationally, Q3 was defined by rising rates and credit stress. A 10-year Treasury above 5% puts pressure on cap rates, buyer leverage, and refinancing across every property type. Office CMBS delinquency above 12% signals more distressed sales and recapitalizations ahead.

Industrial credit looks very different. National industrial CMBS delinquency is just 1.14%. That gap explains why capital keeps flowing to Phoenix industrial and necessity retail even as office lending stays tight.

Key Risks

Higher-for-longer rates. Debt costs pressure pricing in every asset class, especially for 2026–2027 maturities.
Softer labor market. Unemployment is 4.9% and job growth is tracking below the 1.0%–1.1% forecasts.
Industrial supply and concentration. 14 to 21 million SF is under construction depending on how build-to-suit is counted, and Glendale drives more than half of demand. Tolleson turned negative at (591,444) SF.
Thin office recovery. Submarket swings are large, and datasets disagree on year-to-date direction.
Power and data centers. Arizona paused data center tax incentives for three years in June 2026, and the largest utility proposed a roughly 45% rate increase for large users.
Medical office data limits. Q3 MOB figures rest on a single published dataset, and other datasets show lower vacancy on larger inventories. Treat direction as the signal.

Key Opportunities

Small-bay medical office (3,000–8,000 SF) in the tightest submarkets, which remains undersupplied.
Office-to-medical conversions. A medical operator bought the 81,000 SF Three Scottsdale Landing for $10.27 million ($126.79 per SF), and Woodside Health bought Surprise Office Center for $13.4 million.
Second-generation industrial in Goodyear, Glendale, and Chandler North/Gilbert at roughly $105–$150 per SF, versus $256 per SF for the newest product.
Grocery-anchored and necessity retail in East and West Valley submarkets at 6.0%–6.5% going-in cap rates.
Discounted suburban office for buyers willing to underwrite conservative lease-up and rising owner-user demand.

The ICRE Perspective

What are we seeing? A market that rewards precision. The headline numbers look calm, but the submarket data is not. Camelback office gained 199,000 SF in the same quarter 44th Street lost 250,000 SF. Industrial vacancy is 9.7% or 11.5% depending on the dataset. Investors who underwrite on a single quarter or a single source will get hurt.

What are investors missing? The healthcare story is about supply, not just demand. With no new MOB deliveries and construction costs requiring committed tenants before groundbreaking, well-located existing buildings hold the advantage. Dignity Health’s planned outpatient campus of up to 300,000 SF near Loop 101 and Scottsdale Road, targeted to open in 2028, is the competitive supply to watch.

What risk is being underestimated? Refinancing. A 5.29% Treasury changes loan sizing, and a recent ICRE analysis of the Fed hike showed how quickly debt service coverage tightens. Map your maturities now, not 90 days before they hit.

What opportunity is emerging? Owner-user buyers. Medical operators and national users are buying real estate they occupy, which creates a live exit for older office and large-format retail.

Investor Takeaways

Underwrite to current rates. Do not assume Treasury yields fall back soon.
Buy submarkets, not metros. Spreads of 20 points or more in vacancy exist within the same asset class.
Favor supply-constrained assets. Medical office and necessity retail have the tightest pipelines.
Be conservative on new industrial lease-up. Tolleson and the Southwest Valley need patience.
Use ranges, not single numbers. Cross-check vacancy and absorption across datasets before you bid.

Conclusion

Strategic takeaway: Greater Phoenix is a durable market in a tougher financing environment, so the winners will be investors who pair submarket precision with conservative debt assumptions.

Future outlook: we expect industrial vacancy to hold in the 10%–12% range as new supply is absorbed, office to stabilize gradually with demand concentrating in modern buildings, and medical office to stay tight as no new supply arrives. Rates are the swing factor for pricing across all four asset classes.

Action item: get the full data. This Phoenix commercial real estate market report article covers the highlights, but the complete Q3 2026 Phoenix CRE Pulse includes submarket tables for office, medical office, and industrial, notable transactions, and the cross-check of every headline metric across multiple datasets.

Download the Q3 2026 Phoenix CRE Pulse report here →

How ICRE Can Help

At ICRE Investment Team, we specialize in helping investors, healthcare providers, and developers navigate the commercial real estate landscape — including tracking how the Phoenix market moved from Q1 to Q2 2026. Whether you’re exploring your first medical office investment, evaluating a portfolio opportunity, or looking to understand how healthcare campuses fit into a broader CRE strategy, our team has the market knowledge and relationships to help you move forward with confidence.

Healthcare real estate is not a passive play. It requires the right guidance, the right location analysis, and the right understanding of tenant needs. That’s exactly what we bring to every transaction.

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Q3 2026 – Phoenix Commercial Real Estate Market Report