PHOENIX-The demand for overall office space in metropolitan Phoenix rose to almost historic rates while vacancy rates continued to decline, according to the latest report by Grubb and Ellis Co.

The demand for office space was led by major tenant lease signings including Arizona State University, Richmond American, Wells Fargo, VistaCare and UTI to bring overall net absorption to 400,000 sf, researchers found. Those are levels not seen since the fourth quarter 2000.

The amount also brought the year-to-date total to more than 515,000 sf. “The key to the healthy market during second quarter 2003 was that the gainers topped 1.7 million sf absorbed and the losers only 1.3 million sf,” Grubb and Ellis researchers said.

The strong demand for space during the second quarter improved the overall vacancy rate for the Phoenix area for the third straight quarter to 20.5% or about 10 million sf. Seven of 11 submarkets experienced a decreased in vacancy with the northeast submarket (Tatum Boulevard and Cactus Road area) leading the way with the largest reduction in vacancy. Meanwhile, the downtown submarket recorded the lowest overall vacancy rate of all, 13.2% and has recorded its first vacancy below that of the metro average since first quarter 2001.

A strong demand for office space also is being credited with fueling 415,000 sf of new construction at the end of the second quarter, the study found. The most significant building cited was the Promenade Corporate Center in North Scottsdale. Four other buildings also came on line during the quarter, totaling more than 288,000 sf, in the Black Canyon Corporate Center in West Phoenix and the Santan Corporate Center in the Mesa/Chandler area, researchers said.

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