PHOENIX-Grubb & Ellis is projecting the overall Phoenix office vacancy rate will rise to 16.4% by the end of the year, up from 15.8% at the end of the third quarter. In fact, Phoenix likely will be hit harder than most cities by uncertainty in the national economy, Grubb & Ellis notes.

“The metro Phoenix office may be feeling the pinch a bit more with corporate headquarters downsizing and layoffs mounting,” the report notes. “Over the past 10 years, Phoenix has become a significant player in the national economy, reaping many of the rewards. Consequently, the negative effects of this national presence are also evident and the Phoenix office market is expected to suffer through the turmoil of a potential recession in 2002.”

Short-term, the metro-Phoenix office market faces a sizeable challenge as the slowdown in 200 put large amounts of subleased and vacant, newly constructed office space on the market, the report notes.

That resulted in softening rental rates and increased concessions, according to Grubb & Ellis.

On the supply side, new construction should slow in 2002, as lenders are enforcing heavy pre-leasing and/or equity requirements. In some cases, equity requirements are up to 50%, Grubb & Ellis says.

“Despite the short-term slowdown, the long-term outlook for the area is very strong,” Grubb & Ellis predicts.

The metro area should continue to attract regional and corporate headquarters and competes favorably on a national scale regarding rental rates and land prices, the report notes. In addition, new transportation corridors continues to open easy access to labor pools, the report says.

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