Phoenix's office vacancy rate increased from 11.21% to 11.79% between the second and third quarters of the year, due to the quantity of new space coming on the market. And with new product coming onl-ine matching demand, overall average rental rates increased very little, from $20.75 per sf to $20.80 per sf.

The report notes, however, that historically demand increases during the fourth quarter of the year, which should bring the vacancy rate back down by year-end. The Phoenix market has absorbed more than two million sf of office space year-to-date, so beating last year's 2.5-million-sf of absorption "no longer appears to be such a tall order," the report says.

Projects completed during the third quarter added 450,000 sf of available space, of which 50% has already been leased. The west Valley gained the most space--160,000 sf--with the opening of the Kitchell Metrocenter and Northern Business Center. As has been the trend, the majority of absorption during the third quarter involved class A properties. About 500,000 sf was leased during the quarter, of which 450,000 sf was class A office space.