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PHOENIX-Give-backs, move-outs and a move away from spec development led to negative absorption and double-digit vacancy during the third quarter. One local real estate veteran points out that, with more space coming on line, absorption most likely will continue to slow for the near to medium term.

Figures released from Grubb & Ellis Co. show absorption slid 573,630 sf, pitching vacancy to 12.4%. The region’s total inventory is 266 million sf, with an additional 3.4 million sf under construction.

Cushman & Wakefield of Phoenix Inc.’s Q3 report paints a similar picture. Out of a total inventory of 267.3 million sf, the year-to-date negative direct net absorption was 635,062 sf, putting vacancy at 10.4%. Year to date, overall net absorption was 1.3 million sf. C&W logged 3.9 million sf as being under construction.

John Werstler, senior vice president with CB Richard Ellis in Phoenix, says the negative absorption is due to space give-backs and more buildings coming on line. The give-backs are coming from a cross-section of tenants, he explains, adding it’s not necessarily one particular product type.

Despite the setback, there are some areas posting positive absorption and single-digit vacancies. The Grubb & Ellis report, for example, has West Central Phoenix, with its 27.5 million-sf inventory at 5.6% vacant and 167,819 sf absorbed. The Cushman & Wakefield figures show South Central Phoenix’s 22 million sf has a 6% vacancy and absorbed 1,828 sf.

“This still indicates there is some deal activity and the market isn’t completely dead,” Werstler tells GlobeSt.com. “There are still a few tenants in the market, and others completing build-to-suits.”

Werstler points out that negative absorption doesn’t necessarily mean tons of space is flooding back onto the market. For example, C&W’s team puts vacancy at 11.4% in the 34.9-million-sf airport submarket. Its year-to-date absorption is down 344,760 sf. Grubb & Ellis’ team calculated a 9.2% vacancy for a 44-million-sf inventory, with a negative absorption of 441,203 sf for the quarter.

Werstler says the airport submarket’s vacancy won’t go much higher because there’s no more room to build. “You can’t really develop any new product in the area,” he says. “Consequently, we may see vacancy go up a little more in that area, but certainly not much higher than it is now.”

As for the remaining product coming on line in other submarkets, Werstler says it’ll take time for the space to get absorbed into the market. He continues that any future construction projects will be user-oriented as opposed to spec.

“It’s typical of what happens when you have a market cycle like this. At the end of a market, you have 80% of the product being built is spec while 20% is user-oriented,” he says. “That will now flip back. Eighty percent of the new construction, maybe more, will be users building build-to-suit, with 20%, if that much, spec.”

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