South E.V. doing best in commercial real estate

The south East Valley remains a bright spot in an otherwise severely struggling commercial real estate market across most of the region, according to a study by brokerage giant CB Richard Ellis.

Its second-quarter market analysis of the Valley's office, industrial and retail sectors shows much of the Valley saddled with unusually high vacancy rates and falling occupancy rates.

Valleywide, the office vacancy rate continued to increase, rising by more than 1 percent to 16.3 percent, more than 3 percentage points higher than at the same time last year. For the first time in nearly 10 years, the amount of newly occupied office space was in the red by more than 170,000 square feet.

"It is a very bad quarter," said Jerry Noble, first vice president of CB Richard Ellis. "We're in waters that Phoenix hasn't been in a long time."

The Central Avenue, Piestewa Peak and Camelback corridor office markets in Phoenix are all in bad shape, and Scottsdale has also slowed, Noble said.

"As far as the south East Valley goes ... quarter over quarter even through these slower times, we're seeing some of the biggest leases in town signed in the Chandler market, some of which are in that Chandler-south Loop 202 market," he said.

Tempe and Chandler recorded the two highest rates of newly occupied office space, "so we're continuing to see bigger employers trend down to those freeway-served markets," Noble said.

"There's still a ton of excitement and energy on the south Loop 202 down there, and I think there's going to continue to be tenants looking for space in that area of town, as well as the south Loop 101 in the Price (Road) corridor," he said. "You've got fantastic demographics, very good retail amenities, your work force, freeway access and an abundance of employers that are managing the economy. You're continuing to see technology companies emerge."

As for industrial, the south East Valley again presents a better picture than the rest of the Valley, said Mark Krison, senior vice president of CB Richard Ellis.

"The south East Valley has a different picture than the entire marketplace, and it's substantially better," he said.

Valleywide, there are 6,831 industrial buildings encompassing 260 million square feet with an 11.12 percent vacancy rate. The south East Valley includes 2,253 buildings encompassing 78.8 million square feet with a 9 percent vacancy rate, he said.

"The south East Valley has always been more of a demographic core relative to the supply of human beings for employment," he said. "There's more bodies, there's better bodies for what you're looking for than historically on the west side of Phoenix."

And now with fuel prices, and therefore the cost of commuting, on the rise, employers want to locate closer to their employees, Krison said.

"If you're going to look for a job, and you can go to work in Metrocenter or you can go to work in Chandler, and you live in Chandler, why would you go to Metrocenter and drive?" he asked.

Concerning retail, companies in that sector are continuing to curtail expansion plans throughout the Valley. The vacancy rate has increased for five consecutive quarters to 6.53 percent at the end of the quarter, according to the brokerage.

Apache Junction and the Mesa/Chandler/Gilbert submarkets remain the Valley's top performers, with higher rates of newly occupied retail space.