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PHOENIX-As further evidence that the Valley office market is as hot as the weather, vacancy rates dropped 2% during the second quarter to 14% in comparison to 16.1% at the end Q1, according to the latest report from Cushman & Wakefield of Arizona Inc.

Downtown showed the most improvement in the 60-million-sf inventory. At the quarter’s close, the downtown vacancy was 13.9% versus 16.6% in the first quarter, with Midtown getting credit for the change. Midtown slashed its vacancy rate by 5% to end the quarter at 17.1%, according to the report. One of the larger Midtown leases closing in the quarter was the Arizona Department of Water Resources’ four-year lease for 74,495 sf of class A space in Meridian Bank Tower.

C&W’s senior managing director James Wentworth says the Phoenix market has reached its healthiest point. “The healthiest conditions for an office market are when direct vacancy hovers between 10 and 15%,” he said in the report.

The suburban submarkets posted a vacancy rate of 14% at the end of the second quarter, a drop of 2.4%. The Arrowhead and Chandler submarkets posted the lowest vacancy rates, 4.1% and 6.4%, respectively. In contrast, Central Phoenix performed the worst of the suburban markets, ringing up a 23.6% vacancy, researchers said.

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