During the first quarter, more than 650,000-sf of industrial space was absorbed, but that figure is well off those posted in prior quarters, according to a new survey by the Phoenix office of Grubb & Ellis. Most of the recent quarters have seen more than one million square feet of industrial space being taken off the market.

As a result, the overall vacancy rate rose to 6.3%t, up 0.3 percentage points from the prior quarter. The Valley has 13.6 million-sf of vacant space. Similar to the prior quarter, more than 1.1 million-sf of new industrial space was completed during the first three months of 2001, and another 6.2 million-sf of new space is under construction.

"The south side of metro Phoenix is proving to be the hot spot of the Valley, as the Sky Harbor and Southwest submarkets saw the most absorption once again," says Don Morrow, the regional managing director for the Phoenix office of Grubb & Ellis. "Reasonably low rental rates and prime location are two factors in driving the demand in these submarkets."

During the quarter, the Sky Harbor submarket, an area that surrounds the main airport in the Valley, experienced net absorption of more than 288,000 sf, while the southwest submarket had net absorption of 463,000-sf. The southwest submarket has become a hub for large warehouse and distribution users, with close access to Interstate 10 and cheap land.

The fallout of the high-tech bellyflop was seen in the incubator space across the Valley. Incubator space in seven of the 10 submarkets experienced negative net absorption during the quarter, putting an additional 217,000 sf back onto the market.

Several submarkets were hurt by new space that came onto the market during the quarter, which resulted in negative net absorption and higher vacancy rates. The northwest Valley was hurt the most during the quarter. The submarket, which covers the area around Interstate 17 north of Northern Avenue in the Deer Valley area, has more than 717,000 sf of new space under construction. The area had negative net absorption of 115,000-sf during the quarter, which pushed its overall vacancy rate to more than 11%, the highest of any area in the Valley.

"The southwest submarket also witnessed most of the new construction coming online this quarter, followed closely by the northwest and Deer Valley submarkets," Morrow says.

In the southwest submarket, nearly three million sf of new industrial space is under construction, while there is 972,000 sf under construction in Chandler and another 932,000 sf under way in the Tempe submarket. Each of those submarkets had negative net absorption during the quarter.

Rents were mostly stable during the quarter, with a slight increase in the Tempe submarket and a slight decrease in the Scottsdale submarket.