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PHOENIX-The Valley’s office market continued to pick up steam during the second quarter with vacancies declining as demand for office space increased in response to the start of an economic turnaround, a recently released reportshows.

“The good news is that the market has stabilized,” Gordon Raguse, an office market specialist with Grubb & Ellis/BRE Commercial, which released the office market study, tells GlobeSt.com. “For the first time in three quarters we’ve had positive absorption. That’s a good sign.”

The numbers show that net absorption topped 400,000 sf for the quarter, bringing midyear levels to 516,000 sf and reaching quarterly levels not seen since the fourth quarter 2000. Performing at the highest levels during the first two quarters were the submarkets of West Phoenix and Tempe.

The strong demand for space also improved the vacancy rate for metro Phoenix for the third straight quarter, bringing vacancy rates to 20.5%, comparably lower than Chicago, Dallas and Denver, Raguse said.

The downtown submarket recorded the lowest vacancy at 13.2%, continuing a trend of reporting vacancy rates below the metro average ever since the first quarter 2001. North Scottsdale also made a strong showing as demand in that submarket continued to remain strong.But downtown’s good fortune did not rub off on the city’s uptown submarket where 24.5% of office space remains vacant.

‘The uptown market is still a down market with the loss of some major tenants,” said Raguse, noting that a major move of state offices out of three Uptown buildings during the last few quarters has put a real dent in uptown’svacancies. The CBD, however, which includes both uptown and downtown, averaged a19.9% vacancy.

But a rebound is in store. Raguse said developers are just starting to put together larger projects that will add nearly 300,000 sf of office space to the Valley mix during the next 18 months, a sure sign that things are improving. “I think if the economy gets better we’re going to see more than one million sfof absorption like we usually see here in the Valley,” he predicts.

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