Figures released from Grubb & Ellis Co. show absorption slid573,630 sf, pitching vacancy to 12.4%. The region's total inventoryis 266 million sf, with an additional 3.4 million sf underconstruction.

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Cushman & Wakefield of Phoenix Inc.'s Q3 report paints asimilar picture. Out of a total inventory of 267.3 million sf, theyear-to-date negative direct net absorption was 635,062 sf, puttingvacancy at 10.4%. Year to date, overall net absorption was 1.3million sf. C&W logged 3.9 million sf as being underconstruction.

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John Werstler, senior vice president with CB Richard Ellis inPhoenix, says the negative absorption is due to space give-backsand more buildings coming on line. The give-backs are coming from across-section of tenants, he explains, adding it's not necessarilyone particular product type.

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Despite the setback, there are some areas posting positiveabsorption and single-digit vacancies. The Grubb & Ellisreport, for example, has West Central Phoenix, with its 27.5million-sf inventory at 5.6% vacant and 167,819 sf absorbed. TheCushman & Wakefield figures show South Central Phoenix's 22million sf has a 6% vacancy and absorbed 1,828 sf.

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"This still indicates there is some deal activity and the marketisn't completely dead," Werstler tells GlobeSt.com. "There arestill a few tenants in the market, and others completingbuild-to-suits."

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Werstler points out that negative absorption doesn't necessarilymean tons of space is flooding back onto the market. For example,C&W's team puts vacancy at 11.4% in the 34.9-million-sf airportsubmarket. Its year-to-date absorption is down 344,760 sf. Grubb& Ellis' team calculated a 9.2% vacancy for a 44-million-sfinventory, with a negative absorption of 441,203 sf for thequarter.

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Werstler says the airport submarket's vacancy won't go muchhigher because there's no more room to build. "You can't reallydevelop any new product in the area," he says. "Consequently, wemay see vacancy go up a little more in that area, but certainly notmuch higher than it is now."

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As for the remaining product coming on line in other submarkets,Werstler says it'll take time for the space to get absorbed intothe market. He continues that any future construction projects willbe user-oriented as opposed to spec.

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"It's typical of what happens when you have a market cycle likethis. At the end of a market, you have 80% of the product beingbuilt is spec while 20% is user-oriented," he says. "That will nowflip back. Eighty percent of the new construction, maybe more, willbe users building build-to-suit, with 20%, if that much, spec."

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