PHOENIX-A new report by industry watchdog Grubb & Ellis predicts that office space absorption for the year 2000 will actually exceed the previous year, despite a slight overall increase in vacancy rates during the third quarter.

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

The report notes, however, that historically demand increases during the fourth quarter of the year, which should bring the vacancy rate back down by year-end. The Phoenix market has absorbed more than two million sf of office space year-to-date, so beating last year’s 2.5-million-sf of absorption “no longer appears to be such a tall order,” the report says.

Projects completed during the third quarter added 450,000 sf of available space, of which 50% has already been leased. The west Valley gained the most space–160,000 sf–with the opening of the Kitchell Metrocenter and Northern Business Center. As has been the trend, the majority of absorption during the third quarter involved class A properties. About 500,000 sf was leased during the quarter, of which 450,000 sf was class A office space.

Additionally, the third quarter saw construction begin on 24 new office properties throughout the five-valley region, which will add another 3.2 million sf to the market.

Overall, the report suggests that the third quarter’s healthy absorption, along with construction starts and stable vacancy and rental rates, portend continuation of the region’s tremendous growth.<p<

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