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PHOENIX-According to two market reports, the soft office market definitely continued throughout the second quarter. Overall vacancies, ranging from 17.2% to 18.6%, have led to ideal conditions at least, for tenants, while forcing building owners to become a little more creative with their deals.

“In a market like this if you’re representing an owner, you’re encouraging short-term deals and encouraging them not to spend a lot of money in terms of tenant improvements,” says Thomas Johnston, senior managing director and branch manager with Cushman & Wakefield of Arizona Inc. “Conversely, if you’re representing a tenant, you’re encouraging that person to do long-term leases, more concessions from the landlord, more TI dollars and a lower rent.”

C&W’s midyear statistics show overall vacancy at 17.2% in the 70.6-million-sf inventory. At this time last year, vacancy stood at 14.8%. Net absorption for the Q2 ’08 stood at 61,583 sf.

Grubb & Ellis’ Q2 report shows a similar story: vacancy at 18.6% in a 63.3-million-sf inventory and net absorption of 27,414 sf. Year to date, net absorption is in the red by 178,795 sf.

Jerry Noble, first vice president with CB Richard Ellis’ Phoenix office, tells GlobeSt.com that higher vacancies and slow absorption have meant more concessions for tenants, a trend that is likely to continue for awhile. “We’ve seen free rent coming into the market substantially and rental rates backing down from 5% to 15% depending on the part of town,” he says.

Johnston points out that today’s environment is keeping tenant representatives busy, but it also means building owner brokers have their work cut out for them. “This presents an opportunity to start sowing seeds and building relationships,” he adds. “One of our brokers said the other day that he’s giving a lot of free advice right now.”

Although Johnston and Noble agree that the market is soft, both have different predictions as to when Phoenix will come out of it. Johnston says the first part of 2009 will be tough, but things should move forward by 2010.

Noble, however, isn’t quite as optimistic, pointing out that the core markets continue to under perform and the housing market is still in flux. “If we could get back to an absorption number between 400,000 sf and 800,000 sf and stay on the positive side of that ledger, we’ll be in a decent spot,” he says. “With construction slowing down, that will give the market a chance to catch up with itself.”

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