The quarter's net office absorption was a positive 288,526 sf, calculated on a positive absorption of 323,131 sf in the non-CBD markets and a negative absorption of 34,605 sf in the Phoenix CBD. The direct vacancy rate rose from 17.9% in fourth quarter 2001 to 18.7% for this year's first quarter.
"We believe this signals the beginning of a recovery for our real estate market as the national economy rebounds," said Chris Toci, director of Cushman & Wakefield of Arizona Inc. "Vacancies rose because of new buildings being completed. The good news is that construction activity has decreased with only 258,000 sf of new space under way. This is an impressive drop-off from the 2.86 million sf that was under way at the same time last year. Should the positive absorption continue, we will begin seeing lower vacancy rates as the year continues."
The positive absorption was experienced in many suburban submarkets. The strongest showings came in the Chandler/Gilbert submarket, 64,181 sf, and Metrocenter, with 63,883 sf. With a number of medium-sized deals being completed during the first quarter, none of the submarket had a six-figure net absorption.
"No single submarket or transaction dramatically affected the statistics," said Toci. "Sublease availabilities continue to plague landlords, as nearly 3% of the market's inventory is found in this category."
As for direct vacancy rates, the Squaw Peak, Mesa and Scottsdale Airpark areas experienced declines, with the Ranches scoring the lowest rate at 11.8%. The Deer Valley Corridor had the highest increase in direct vacancy with 36.5% of its space available.
Rental rates have dropped quarter to quarter from $21.05 per sf in fourth quarter 2001 to $20.99 per sf for the first quarter of this year. Incentives including free rent, increased tenant improvement allowances, longer occupancy and moving allowances are being used to attract new tenants.
"This is a great time for tenants to seek new space or re-negotiate leases. These market conditions are not likely to last long," Toci concluded. "We anticipate that the market will be much healthier at yearend. We're already seeing increased activity in the Scottsdale Airpark area, which will likely be the submarket to lead us out of this downturn."
Additionally, Stewart Park, director of market research for Cushman & Wakefield of Arizona, noted there have been signs of increased tenant activity in the marketplace over the past three weeks as brokers tell clients they can improve on current rental rates by anywhere from $1 per sf $5 per sf.
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