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PHOENIX-The Valley’s soft office market is slowly showing signs of recovery as tenants take advantage of cut-rate deals to move out of back office space into prime, class A locations.

“We did see some positive activity in the third quarter,” Larry Downey, senior director of Cushman & Wakefield of Arizona Inc., tells GlobeSt.com, noting the firm’s analysis shows that many companies are taking advantage of the soft market to move to more prestigious addresses.

Tyler Smith, senior associate of Grubb & Ellis Co., which released its office market study, emphasizes to GlobeSt.com that while some areas have listed negative absorption, the corridors surrounding the Valley’s freeway systems remain strong. West Phoenix, North Scottsdale and Tempe as well as Mesa and Chandler are seeing positive absorption rates, Smith said, while the CBD continues to suffer from negative absorption.

But there are signs that things are improving along Phoenix’s central corridor. “We’ve already seen a couple tenants move back into the midtown corridor because of the economics,” Downey said. He said the CBD’s attractive rental rates are giving tenants upscale office space at prices well below that of newer buildings.

While rental rates have fallen significantly, dropping one percentage point to an average of $23 per sf in suburban areas and less than $22 per sf in the central corridor, the decline has created a glut of more affordable luxury office space for tenant users. With lower lease rates, coupled with a decline in the construction of new office buildings, both Downey and Smith said they expect to see positive office growth in the future.

Overall, the metropolitan Phoenix office market has shown negative absorption of 473,999 sf in the third quarter, according to Grubb & Ellis. Class A office absorption, however, has show a positive third quarter showing, increasing by 198,978 sf. The metro’s overall vacancy is 21.8%, up a full percentage point from Q2.

But that positive influence won’t be felt anytime soon. Both men said they expect it will be well into 2003 before there’s a turnaround in the metro Phoenix office market.

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