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

The report notes, however, that historically demand increasesduring the fourth quarter of the year, which should bring thevacancy rate back down by year-end. The Phoenix market has absorbedmore than two million sf of office space year-to-date, so beatinglast year's 2.5-million-sf of absorption "no longer appears to besuch a tall order," the report says.

Projects completed during the third quarter added 450,000 sf ofavailable space, of which 50% has already been leased. The westValley gained the most space--160,000 sf--with the opening of theKitchell Metrocenter and Northern Business Center. As has been thetrend, the majority of absorption during the third quarter involvedclass A properties. About 500,000 sf was leased during the quarter,of which 450,000 sf was class A office space.

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