Vertical earth-to-air heat exchanger (VEAHE) systems have smaller land occupation and more efficient usage of geothermal energy than conventional earth-to-air heat exchanger (EAHE) systems. However, a large fluctuation in its outlet air temperature subject to ambient air temperature variations may occur, preventing it from meeting the indoor thermal comfort requirements. To address this issue, a novel VEAHE system integrated with annular phase change material (PCM) was proposed. The PCM can reduce the outlet air temperature fluctuation due to its ability to store and release energy. To evaluate its thermal performance, a numerical model was developed and validated by experimental data. The results showed a good agreement between the simulated and monitored data, with a maximum absolute relative error of 1.59% and 1.34% for the outlet air and PCM temperature, respectively. Then the validated model was applied to investigate the effects of PCM and its parameters on the system's thermal performance. Results showed that the annular PCM can decrease the outlet air temperature fluctuation of the system without PCM by 31% and 29% under air velocities of 1 m/s and 2 m/s respectively, enabling more stable outlet air temperatures to be achieved. The effect of PCM thermal conductivity depended heavily on the PCM thickness. Improving the system's thermal performance by simply increasing PCM thermal conductivity may not be an effective method, particularly when the PCM thickness was relatively small. As the PCM thickness exceeded 5 mm, an increase in the PCM thickness had a relatively small effect on the variation of outlet air temperatures. The outlet air temperature range decreased with the increase of PCM lengths, while a downward trend in the fluctuation decrease can be observed. In addition, an economic analysis of the proposed system was conducted, indicating that its static payback period was 20.8 years.