Both cities experienced poor statistics during the previousmonths. Figures from CB Richard Ellis' Q4 2009 MarketView PhoenixIndustrial report showed an increase in vacancy to 16.1%, up from13.3% from a year ago. The area inventory stands at 269.6 million,while absorption was negative 572,227 square feet.

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Meanwhile, in Tucson, The CB report shows an inventory of 37million square feet, while net absorption for the second half of2009 stood at negative 331,372 square feet. The vacancy increasedto 11.7% from 9.8% at mid-year.

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The quoted average lease rates aren't all that far apart,either. Tucson's average ask is $0.53 per sf, while Phoenix is at$0.56. But here's where the similarities end. In reality, users arefinding better lease deals in Phoenix than Tucson.

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"Some companies have to be in Tucson, but some don't," explainsCB vice president Tim Healy. "The larger users can lease space inPhoenix for close to half of what they might pay in Tucson."

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Adding to the situation, Healy tells GlobeSt.com, is that100,000-square-foot users don't have a whole lot of options inTucson. "In Phoenix, they can find brand-new buildings that werenever occupied, and can have their pick," Healy comments. "Thisdefinitely has an impact on us for those larger deals."

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Pat Feeney, senior vice president with CB's Phoenix office, saysother users are coming from California. The reason? "Users aresaying they don't like the economy there and are afraid to makecommitments there," Feeney tells GlobeSt.com.

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Though Feeney isn't suggesting users from Tucson, California oranywhere else are coming out in droves for space in Phoenix, hedoes acknowledge activity picked up when the calendar pages turned.As an example, he discusses one user with whom he's working, whowants to buy space for more than 450,000 square feet.

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"It appears to me they've been in the doldrums for fivequarters, and are saying 'we get it, this is the new norm, we haveto go forward,'" Feeney explains. "They don't have time to do abuild-to-suit. That will take a year, and they want to beoperational in a year. I think that type of thing is going tocontinue."

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Healy, to the south, isn't quite so optimistic. The issue, hepoints out, is job growth; without job growth, real estatefundamentals will likely remain stagnant. "In our state, a largepart of our economy has been based on growth, in-migration ofpeople and things related to that, like homebuilding," he explains."In 2006, the homebuilding industry got clobbered."

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Feeney agrees that construction-oriented businesses were theones that got slapped around most during the economic meltdown. Asa result, what's suffering in the industrial sector is what hecalls "little-guy space;" which measures between 3,000 square feetand 5,000 square feet.

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"Most of those construction-oriented companies were garagebusinesses to begin with," he adds. "They have the luxury andability to go back to the garage and they haven't come outyet."

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Much like his Tucson colleague, Feeney says the smallerindustrial space will likely remain stagnant until job growth comesabout, along with more stabilization in the housing market. "Thesmaller businesses are not confident right now," he adds. "Theydon't want to commit to anything long-term."

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