"The metro Phoenix office may be feeling the pinch a bit more with corporate headquarters downsizing and layoffs mounting," the report notes. "Over the past 10 years, Phoenix has become a significant player in the national economy, reaping many of the rewards. Consequently, the negative effects of this national presence are also evident and the Phoenix office market is expected to suffer through the turmoil of a potential recession in 2002."

Short-term, the metro-Phoenix office market faces a sizeable challenge as the slowdown in 200 put large amounts of subleased and vacant, newly constructed office space on the market, the report notes.

That resulted in softening rental rates and increased concessions, according to Grubb & Ellis.