Q2 Sneak Peak Shows Valley's Vacancy Leveling Off

PHOENIX-It’s all preliminary, but the second-quarter reality is the metro Phoenix office market is leveling off from the sharp vacancy climb of recent quarters, according to Insignia/ESG’s research team. The Valley’s overall vacancy is 21.20%, up from 20.35% just three months ago.

Insignia/ESG research director Mark Dancer tells GlobeSt.com that the leveling off is primarily due to a slowdown in the construction pipeline. Under construction is 772,000 sf in comparison to the 4.5 million sf rising last year in the second quarter. It’s a clear sign that the speculative streak is over. With supply of new product in check, Dancer believes vacancy rates will remain stable until the improving economy boosts demand.

“Another indication that supply has stabilized,” Dancer says in a prepared statement, “is the lack of a net increase in sublease space during the second quarter, which remained at 1.4 million sf from the end of the first quarter 2002.”

Despite the vacancy check, absorption across the Valley posted to the negative, 432,000 sf, as the second quarter draws to a close. Three of the city’s four submarkets–the “Core,” northeast and southeast–had negative absorption rates. The western tier pushed a positive 166,000 sf. From a historical perspective, the numbers aren’t that bad, says Dancer.

The second-quarter reading on rent has yet to be released. But, Dancer says, he fully expects rent to decrease “ever so slightly” before following suit with the market in a leveling off. More good news is that he’s noticed concessions are dwindling.