PHOENIX-The average lease rates for retail, office and industrial properties in Phoenix have remained steady since the first quarter despite a slight upturn in vacancy during the second quarter of the year. According to a market report prepared by CB Richard Ellis Inc., both indicators are a positive sign for the region’s rental market.

“The stabilization in lease rates is an another indication that activity is slowly picking up across all sectors,” said Pete Bolton, CB Richard Ellis’ senior managing director.

Bolton said tenants currently are in a good position to upgrade their existing space and many are doing just that. “In some cases, we’ve been able to place clients in a new space and immediately backfill the one they just left with new tenants,” he said. “That’s the kind of activity we like to see.”

The retail sector showed only a slight rise of 0.03% in vacancy rates for the second quarter, the report showed. At the end of the quarter, gross leasable space in the metropolitan area was more than 102.4 million sf, composed of 799 retail properties, with a vacancy rate of 7.23%. Net absorption for the quarter was 591,771 sf, an increase from 320,192 sf from the first quarter and 368,666 sf from second quarter 2001.

Retail specialist Judi Butterworth, a first vice president with the firm, said the West Valley has been one of the most active submarkets during that three-month period. “We’ve seen several big-box retailers and free-standing restaurants commit to the area and more are looking,” she said.

Absorption rates also were strong in both the West and Southwest valleys, resulting in 196,883 sf net absorption for the second quarter. The areas of Chandler, Gilbert and Mesa was among the most active submarkets with 155,813 sf of absorption during that same period.

Construction also held steady in the second quarter with one million sf of new retail space completed and 3.8 million sf under construction. In addition, approximately 25 grocery-anchored centers are scheduled to be completed this year.

Older retail centers are feeling the pinch of mergers and bankruptcies in the retail sector, Butterworth noted. Currently, about 115 structures, each larger than 15,000 sf, are available for lease although some do have leases under negotiation.

Leasing activity in the office market was led by Scottsdale where 109,275 sf was absorbed in the second quarter. Valley-wide, net absorption in that same time period was 268,833 sf.

“Asking rental rates have remained relatively stable, even though vacancy has increased for the last two years, while concessions continue to play a big role in the market,” said Jerry Roberts, senior vice president. “We’re seeing class A space in more prestigious areas like Scottsdale, Camelback Road and Tempe’s Hayden Ferry Lakeside project absorb more space.”

More than 205,000 sf of new office space was brought on line in the second quarter and more than 850,000 sf of additional space currently is under construction. Roberts said the current economic conditions, however, have put a hold on a majority of planned projects.

In the industrial sector, the vacancy rate rose 0.32% in the second quarter to 10.32%. Bob Crum, senior vice president and industrial properties specialist, said the Southeast Valley saw the most growth with a net absorption figure of 429,081 sf. More industrial space was under construction in that area with 382,715 sf being readied for market.

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