PHOENIX-Leasing activity in the office market here slowed during the first quarter, with net absorption of institutional-grade office space at 76,000 square feet after totaling more than 1.1 million square feet in the last three months of 2012, according to a report from Colliers International. Still, despite the drop-off in the first few months of the year, net absorption is expected to accelerate in the coming quarters.

The anticipated activity is fueled by local employers making significant additions to payrolls, as GlobeSt.com has reported on in other markets. Greater Phoenix has been one of the fastest-expanding employment markets in the country for more than a year, ending 2012 adding nearly 50,000 jobs, the report states. This represented the seventh highest total of new jobs in the country in 2012.

Also revealed in the report, vacancy in institutional office space ended the first quarter at 21.1%, down from 23.5% a year earlier. The rate is falling more rapidly in class-A properties, where activity fell 370 basis points year over year to 20.1%, according to the report.

Among the largest submarkets in Greater Phoenix, nearly all have recorded year-over-year vacancy declines, with the 44^th St. Corridor, Chandler, Tempe and Scottsdale submarkets posting the most significant improvements. Despite the quarterly volatility, the long-term outlook for institutional-grade office space in the area remains largely unchanged: vacancy will remain elevated by historical standards, but business expansions and relocations will ultimately drive vacancy levels closer to equilibrium over the next 18 to 24 months, the report predicts.