Absorption rates also were strong in both the West and Southwest valleys, resulting in 196,883 sf net absorption for the second quarter. The areas of Chandler, Gilbert and Mesa was among the most active submarkets with 155,813 sf of absorption during that same period.

Construction also held steady in the second quarter with one million sf of new retail space completed and 3.8 million sf under construction. In addition, approximately 25 grocery-anchored centers are scheduled to be completed this year.

Older retail centers are feeling the pinch of mergers and bankruptcies in the retail sector, Butterworth noted. Currently, about 115 structures, each larger than 15,000 sf, are available for lease although some do have leases under negotiation.

Leasing activity in the office market was led by Scottsdale where 109,275 sf was absorbed in the second quarter. Valley-wide, net absorption in that same time period was 268,833 sf.

"Asking rental rates have remained relatively stable, even though vacancy has increased for the last two years, while concessions continue to play a big role in the market," said Jerry Roberts, senior vice president. "We're seeing class A space in more prestigious areas like Scottsdale, Camelback Road and Tempe's Hayden Ferry Lakeside project absorb more space."

More than 205,000 sf of new office space was brought on line in the second quarter and more than 850,000 sf of additional space currently is under construction. Roberts said the current economic conditions, however, have put a hold on a majority of planned projects.

In the industrial sector, the vacancy rate rose 0.32% in the second quarter to 10.32%. Bob Crum, senior vice president and industrial properties specialist, said the Southeast Valley saw the most growth with a net absorption figure of 429,081 sf. More industrial space was under construction in that area with 382,715 sf being readied for market.