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SCOTTSDALE, AZ-Real estate experts can look forward to two years of improving office fundamentals. The vacancy rate will continue to decrease over the next two years and absorption will exceed two million sf in 2005 and 2006.

Jerry Roberts, senior vice president of CB Richard Ellis Inc., made the prediction at NAIOP’s Trendwatch 2004, held yesterday in Scottsdale’s Camelback Inn at 5402 E. Lincoln Dr.

Roberts says the Phoenix office market is much stronger than people think; activity is up and tenants are competing for space. He expects to end this year with 2.2 million sf of net absorption and a vacancy rate of 16.5% versus the 18.4% at the end of 2003.

The next two years look even better. Roberts predicts more than 2.5 million sf of office space will be absorbed in 2005, pushing the vacancy rate down to 13.7%. In 2006, another two million sf will be absorbed, causing vacancy to drop to 12.6%, he estimates.The construction pipeline will stay steady. This year, about 1.3 million sf of office space is under construction. Next year that number will drop to less than one million sf and the 2006 call is 1.5 million sf, Roberts forecasts.

Roberts points out Scottsdale is the hottest submarket. It is, he says, performing exceptionally well at 12.7% vacancy, recorded at the second quarter’s close.

Roberts cautions Phoenix’s office market will be impacted by increasing construction costs, increasing land costs, high-rise residential developers competing for land and increasing effective rental rates.

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