October 6, 2008 - 6:16PM
Edward Gately, Tribune
Chandler's office market this year has outperformed all other submarkets across the Valley, according to CB Richard Ellis' third-quarter analysis of office, industrial and retail real estate.
"I just continue to be surprised at how well the south East Valley (office market) has performed compared to the rest of the market during this slow time," said Jerry Noble, first vice president at the real estate services company. "And Chandler is the strongest market Phoenix has right now, and it's due to smart product being built along the freeways that offer tenants what they need today."
Valleywide, the office vacancy rate increased for the fourth consecutive quarter, rising nearly a full percentage point to end the third quarter at 17.1 percent. This is more than four percentage points higher than at the same time last year.
Net occupancy rebounded in the third quarter with a positive 65,656 square feet but remains at negative 54,778 square feet for the year. At its current pace, occupancy of office space in 2008 will be the lowest since 2002, when only 707,097 square feet was absorbed.
"The biggest problem we have right now is vacancies will continue to go up this year just simply due to the supply that ... was under construction well before our markets changed," Noble said. "All things considered, the East Valley posted plus (occupancy)."
As for industrial space, new occupancy still lags well behind the previous year's figures and is predicted to be the lowest since 2001, when the market occupied only 2.8 million square feet.
Vacancy has increased slightly from 11.12 percent in the second quarter to 11.5 percent in the third quarter and risen only 4.4 percent since the third quarter of 2007.
"If there's one shining area in the south East Valley, in spite of the vacancies that have gone up here from second to third quarter ... a couple of industries are actually looking and expanding," said Pete Wentis, senior vice president in the industrial division of CB Richard Ellis. "Biotech is one, and we're certainly seeing a strong, strong influx of solar-related companies looking and talking, and negotiating on land or buildings."
Speculative industrial space continued to decline in the third quarter, ending with only 4.3 million square feet under construction. One year ago there was 10.1 million square feet of speculative product under construction.
For the sixth consecutive quarter, the retail vacancy rate has ticked upward, from 6.53 percent at the end of the second quarter to 6.9 percent at the end of the third quarter.
Only 917,608 square feet of new retail product was delivered to the market in the third quarter, marking the first time since the second quarter of 2007 that completions dipped below one million square feet.
Uncertainty in the economy continues to erode consumer spending, which further delays tenant activity and the development of new retail projects, according to the report.
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