Brokerage Outlook: Arizona

• Scottsdale Retail  New!

• Phoenix Multifamily

• Phoenix Industrial

• Scottsdale Office  New!

• Phoenix Office

Scottsdale Retail Submitted by Mark Sunkel with the Scottsdale, Arizona, office of CORE Realty Partners — ONCOR International. What area is your expertise? Phoenix and Tucson What trends do you see presently in retail development in your area? Infill, redevelopment and lifestyle type centers. What type of retail product is doing well in your area? Grocery anchored, New Power Centers with added lifestyle hybrid, and Lifestyle Centers. What retailers are new to your area? Fresh N Easy, Cabellas, Bass Pro Shops, CineMark, Bloomingdales and IKEA. Who are the active retail developers in your area? Vestar, Macarich, General Growth, Kimco, DeRito Partners, and Pederson Group. Please name one or two significant retail developments in your area.  What impact will these projects have on the market? City North is a 5.5 million-square-foot, mixed-use development by Thomas J. Klutznick Co. and Related Urban. The retail center is anchored by Bloomingdale’s and Nordstrom. The site will draw shoppers from all over the city, while initially hurting other successful retail development sales, but in the long term it will be a great addition to the Phoenix area. Where is the majority of development taking place? Why is this area doing well? Southeast Valley and West Valley. The new retail development is following the housing growth. What area do you expect to be the next big retail development market? Why? Redevelopment and infill. Please describe the retail leasing activity in your area. Leasing as a whole has slowed significantly, with franchisee and Mom and Pop’s seeing the biggest slow down. What major leases have been closed recently? Bloomingdales at City North — Phoenix; Super Target (177,500 square feet) at Mountain Vista Marketplace — Mesa. Please give a measure of retail vacancy rates and a measure of available sublease space. According to Costar, fourth quarter 2007, the retail market vacancy was 6.3 percent for greater Phoenix. What types of retailers should look into your market in the coming year? What type of retail is needed? Pets, computers and specialty electronics.

Phoenix Multifamily Submitted by Julie Vaughn, senior vice president with the Scottsdale, Arizona, office of Sperry Van Ness. Posted 7-26-06. What area is your expertise? • The metropolitan Phoenix apartment market What trends do you see presently in multifamily development in your area? • New inventory was at an all-time low since 1994 with less than 5,000 units coming online in 2005. The forecast for 2006 is slightly above 5,000 but significantly less than the approximate 8,000/year that was the norm up until a couple of years ago. The pipeline is filling up again, however, with approximately 5,000 units already under construction and another 1,000 with approvals in place and construction scheduled to begin in the next couple of months. The largest number of new projects are clustered in the west and north of Phoenix along the new Loop 101 highway. There are no new projects scheduled to come online in Scottsdale. This part of metro Phoenix saw its largest expansion in the late '90s and early 2000s and is probably overbuilt. Who are the active multifamily developers in your area? click to view construction chart • Fairfield Residential and Trammell Crow Residential have the most units already under construction — 624 and 715 units, respectively. Fairfield also has 232 units in the pipeline, while Trammell Crow has 251. Gray Development, however, has the most aggressive agenda with 5,176 units in various stages of approval, of which 529 are already under construction. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • The most significant multifamily development is in the luxury condo arena. Where is the majority of development taking place? Why is this area doing well? • The largest expansion is in downtown and on the west side of Phoenix. • Downtown Phoenix boasts the highest employment concentration in the metropolitan area, with nearly 35,000 workers. Major employers include Bank of America, Chase Bank, Phelps Dodge Corporation and Wells Fargo Bank. Additionally, offices for the city of Phoenix, Maricopa County and the state of Arizona are located in downtown Phoenix. The 90-square block Copper Square area of downtown Phoenix draws more than 10 million visitors each year with its numerous attractions. The area houses more than 95 restaurants and bars and more than 20 arts, cultural and entertainment venues. Copper Square is home to Chase Field, US Airways Center, Heritage Square, Arizona Science Center, Collier Center, Phoenix Civic Plaza, ASU Downtown Center, and the Dodge and Orpheum theatres. Additionally, hundreds of cultural festivals, block parties, farmers markets and other special events are held in Copper Square each year. Approximately 1 and 1.5 miles west of the property is the International Genomics Consortium (IGC)/Translational Genomics Research Institute (TGen), which is a $46 million facility that will perform large-scale gene research. TGen will also collaborate with the Morehouse School of Medicine (MSM) of Atlanta to combine research projects in the fields of bioinformatics, diabetes, neurogenomics, cancer and cardiovascular disease. • Local experts expect this project to generate a major boost in the economy of both downtown Phoenix and surrounding areas. The addition of TGen to the Arizona economy has been compared to the arrival of Motorola after WWII, in which thousands of jobs were created and billions of dollars in private business were generated. • One main reason that residents are flocking to the west valley is space! Buckeye alone is five times the size of Scottsdale, and Scottsdale's home prices have climbed to an average of $550,000. The median price of a Glendale home is $247,200, Peoria is $280,000, Surprise is $260,750, Goodyear is $289,000 and Sun City is $243,500. Another reason is the freeway growth. The west valley freeway, also known as the Estrella Freeway, will eventually link Interstates 17 and 10 through the far west valley, and from Interstate 10 it will continue south, linking with a new road that will run parallel to the interstate. In April, the councils of Avondale, Buckeye, Goodyear and Litchfield Park met and agreed to work together to push ahead the freeways' accelerated plan for the widening of Interstate 10. The four communities will be responsible for as much as $66 million in added interest charges: Goodyear, 43 percent; Buckeye, 31 percent; Avondale, 23 percent; and Litchfield Park, 3 percent, but all agree that having an enhanced freeway system will help increase growth in the west valley. • Another reason valley residents are moving to the west valley is that many are big on being outdoors. Metro Phoenix has 300 sunny days a year and an average temperature of 74 degrees, therefore bringing many residents to seek out cities with hiking paths and trails. Prevention magazine, in association with the American Pediatric Medicine Association, recently put out a list of the top walkable cities in the nation and has Glendale ranked 12th, the highest ranking of all Arizona cities on the list. Along with that, Surprise will complete a series of capital improvement projects by next summer, including a three-field youth baseball complex, a 25-court tennis facility and a new recreation center conducive to the performing arts. The city will also build offices for Surprise's Community and Recreation Services Department to house personnel for each new facility. Together, the Surprise projects total about $11.7 million. On another outdoor note, town leaders of Buckeye are preparing to annex 108 square miles to set aside for parks and recreation, filled with trails where people can ride horses and families can hike. • Job growth is another factor in attracting residents to the west valley. Many companies, such as Banner Health, Wells Fargo, AAA , Honeywell, Arizona State University, Qwest Communications, US West Communications and Swift Transportation are all settling into Glendale due to its friendly Business Assistance program. What area do you expect to be the next big development market? Why? • The west side is going to continue to grow because that is where all the available land is. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • The entire metro area is doing very well in terms of occupancy. It is a good time to be an apartment owner, since many aspects of our economy work in apartment owners' favor. For instance — population increase. Arizona is the fastest growing state in the nation, trading places only with Nevada for the top spot from time to time. Population is growing because we have the highest or second-highest job creation in the country (Nevada is again the other state in competition with us for the top spot.) In addition, the low interest rates and high demand for housing have increased the median price of single-family homes beyond a point where the decision between renting or buying is a no-brainer. When the gap between the monthly mortgage payment and the monthly rent is only a couple of hundred dollars, the decision is easy. Currently, the spread has increased to twice the average rental rate. (click to view rent vs. mortgage chart) In addition, the condo conversion activity has taken, or is in the process of taking, approximately 20,000 units off the market. That, in addition to fewer new units coming online for the last couple of years, has caused vacancy to drop from the double digits to around 6 percent. Please give a measure of apartment vacancy rates. click to view vacancy rate chart What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in 2006? • It is no secret that interest rates will continue to increase and that the increase is not a good thing either for investors in income properties or for buyers of condos. Currently, for condo buyers, the interest increase issue has been softened somewhat by the condo converters' incentives. The buyers who are ultimate users of the units are therefore less impacted than the investors. Investors on the other hand are less aggressive in their appetite for more properties and are more sensitive to the interest increase. Capitalization rates are therefore beginning to increase. When cap rates increase, prices decrease. However, since the Phoenix economic environment is very strong, I believe that the increase in cap rates will be offset to some extent by the increase in income due to higher rents and lower concessions. Prices will flatten out and may decrease somewhat, but it will be a softer landing. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? click to view unemployment rate chart click to view projected job growth chart • Being Number 1 or 2 in the country for both population and job growth and having one of the lowest unemployment rates in the country gives Arizona and more specifically metro Phoenix the economic strength that investors desire. More people and more jobs result in more occupied apartments where rents can increase, therefore producing higher income for the owners and thus increasing the overall value of the asset when it comes to selling it. Would you like to make any additional observations about the multifamily market in your area? • The main decrease in prices for income properties, if it happens, will come in part from the increase in interest rates; however, the condo market will have had a more significant impact on this than interest rates. The aggressive acquisition of quality condo product in our market had a major pull on the pricing for the entire market by pushing the pricing higher than justifiable by the income level of the properties. A lot of owners who sold in the last year benefited from the investment euphoria created by the condo market. Sellers that have not yet sold expect to receive the same kind of pricing, if not higher, and to a large extent disregard both the increase in interest rates and the fact that a lot of the prices paid during the last year were influenced by emotions rather than basic investment good sense. Because of that, there is now a disconnect between what sellers still expect to get, despite the softening of the market, and what investors are willing to pay. Properties will stay on the market longer, prices will adjust to levels that are more commensurate with their income potential, and buyers and sellers will have to work more within the confines of the fundamentals of investment.

Phoenix Industrial Bodeman Submitted by Steve Bodeman, executive vice president/principal with the Phoenix office of GVA DAUM. Posted 12-12-05. What area is your expertise? · Phoenix--Industrial (also investment for industrial and office properties). What trends do you see presently in industrial development in your area? · There is currently a great deal of demand for owner/user buildings. Since many users are unable to find industrial properties that meet their individual needs, they are acquiring parcels of land and employing design/build contractors to develop build-to-suit buildings that that are custom-designed for their specific business. Two variables are currently fueling this trend. First, there is an overall shortage of available properties in the market. Second, modifications can often require an even greater capital than constructing a new facility, making ground-up development a better alternative. A more widely known trend in the Phoenix area is the continued increase in values throughout the market. There continues to be an increase in sales prices, which is expected to continue throughout 2006. What type of industrial product is doing well in your area? · Since many businesses in the Phoenix market are experiencing tremendous growth, they are actively seeking larger buildings. This has generated strong demand for industrial properties in the 15,000- to 40,000-square-foot range. Competition for these properties is very strong across the market, as there is currently a very low supply. Who are the active industrial developers in your area? · LGE Corporation -- A design/build company with more than 100 projects currently underway (50 in the construction phase and 50 in the planning phase). · Sun State Builders -- Focused on acquiring large parcels of land for design/build projects. Sun State is currently addressing the shortage of properties in the 25,000- to 40,000-square-foot range. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? · GVA DAUM represented LGE Corporation in the purchase of 72 acres of land, which will be developed as the Chandler Corporate Center, in Chandler, Arizona. LGE will focus on small to medium-sized build-to-suit projects for owner/users as well as investors. This $9 million dollar acquisition is just one of the many land banking scenarios we are seeing in the Phoenix real estate market. · Other notable transactions include: First Commerce Center Phoenix LLC purchased the 407,000-square-foot, three-building property at 405 N. 75th Street for $24 million, or approximately $59 per square foot, from First Industrial Realty Trust. In Chandler, Countrywide Home Loans Inc. purchased three buildings totaling 200,300 square feet in McShane Chandler Industrial Park from McShane Industrial Park LLC for $19.5 million, or approximately ($97 per square foot). The buildings are located at 2700, 2710 and 2730 W. Frye Road. In Phoenix, Scottsdale-based Foothills Corporate Centre Two sold the 144,910-square-foot facility at 14601 and 14605 S. 50th Street for $16.1 million ($111.10 per squarer foot) to Crown-Phoenix VI. In Phoenix, Voit Superstition Springs Multi-Tenant Phase I sold the 62,018-square-foot flex building at 7307 E. Hampton Avenue to Hampton/Mesa LLC of Clinton Township, Michigan for $7.49 million ($121.00 per square foot). Where is the majority of development taking place? Why is this area doing well? · Currently, all four corners of the Phoenix industrial market are experiencing substantial development. Under construction activity is currently highest in the southeast submarket, with more than 1.6 million square feet under construction as of third quarter 2005. West Phoenix, however, offers the best opportunity for developers, as land prices are most affordable. The northwest submarket had more than 1.5 million square feet under development as of third quarter 2005. What area do you expect to be the next big industrial development market? Why? · Pinal County in South Phoenix, which was formerly a quiet, rural area is currently experiencing a great deal of residential development due to affordable land and a convenient location near Interstates 10 and 8. This influx of residential development may help transform the area into a strong market for industrial properties as well, as developers continue to seek affordable land in strategic locations. Please describe the industrial leasing activity in your area. · Leasing activity has increased over the last 9 moths. A decrease in vacancy rates has caused lease rates to rise, with landlords offering fewer concessions. In third quarter 2005, standard industrial rental rates increased 8.2 percent, year over year, moving from 49 cents NNN to 53 cents NNN. Of the five major submarkets within the Phoenix market, the northeast submarket ended the quarter with the highest standard industrial rental rate of 90 cents NNN, followed by the southeast at 59 cents NNN, northwest (56 cents NNN), airport (48 cents NNN), and the southwest at 42 cents NNN. Average industrial asking rates remained unchanged from the previous quarter. Please describe the industrial sales activity in your area. · Sales activity continues to be very active throughout the Phoenix market. While interest rates have gradually increased, competition remains remarkably high among prospective buyers. Currently, every building that comes on the market has at least three competing buyers. These bidding wars continue to make Phoenix a strong seller's market. Please give a measure of industrial vacancy rates. · Vacancy rates in the Phoenix industrial market are currently at a 4-year low. In third quarter 2005, overall vacancy rates (including sublease space) declined from 10.2 percent to 9.2 percent. Of the five submarkets within the Phoenix market, the northwest submarket had the lowest total vacancy of 5.9 percent, followed by the airport and northeast at 8.2 percent, southeast (9.8 percent), and southwest (12.2 percent). What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? · As previously noted, the gradual increase of interest rates has not affected the volume of sales transactions in the Phoenix industrial market. Analyses continue to validate that owning industrial properties remains a more affordable option than leasing. As a result, even a continued increase in interest rates is not expected to substantially affect the volume of sales transactions. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? · The surge in residential construction has brought a great deal of related companies to the Phoenix market, such as plumbing and plastics manufacturers. Additionally, a more favorable tax structure and more affordable sales prices have attracted many California manufacturers to the Phoenix market.

Scottsdale Office Submitted by Ryan L. Mollen, ONCOR Manager with the Scottsdale, Ariz., office of CORE Realty Partners/ONCOR International. Posted 8-27-08. Mollen What area is your expertise? Phoenix metropolitan area — office What trends do you see presently in office development in your area? Deliveries of office buildings have slowed for the first time in several years. During first quarter 2008, only 66 buildings were delivered compared to 110 buildings second quarter 2007. However, there is still more than 6.8 million square feet under construction. Who are the active office developers in your area? Opus West, ALTER Group, Lincoln Properties, RYAN Companies, McShane Construction, DMB Associates and Higgins Development Partners. Please name one or two significant office developments in your area. What impact will these projects have on the market? Opus Pima Center — Scottsdale has virtually run out of land for new development. Therefore, developers chose to negotiate 65-year ground leases with the Native Americans to develop on their land. This project is part of a master development totaling over 3.5 million square feet of office, industrial, and retail. The project is a 209-acre, mixed-use business park located along the Loop 101 Freeway (major Valley freeway) at the Via De Ventura / Pima/90th Street interchanges in Scottsdale. The underlying land owner is the Salt River Pima-Maricopa Indian Community. The master developer is a joint venture, which includes Opus West and Ross Brown Partners called Main Spring Capital Group. Opus Pima Center is home to several national headquarters including Cold Stone Creamery, Rural/Metro Corporation, Hacienda Builders, and Canadian-based Zaio Corp. One of the largest impacts this project has had is new competition for fee simple projects in the Scottsdale area. Located on Native American land, there are no real estate taxes, which has clearly been their competitive advantage with tenants, automatically having a lower operating expense base. Where is the majority of development taking place? Why is this area doing well? North Scottsdale because of the demographics, retail amenities, and convenient access to the major freeway system. What area do you expect to be the next big development market? Why? The continuation of the development located on the Native American land. The main factors are that Scottsdale has virtually run out of undeveloped land and the land prices for Class A fee simple sites are too high for most developers to make new projects work. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? Tempe is faring the best with the lowest metro vacancy rate of 10.4 percent. West Phoenix is the slowest submarket with a vacancy rate of 22.8 percent. Please give a measure of office vacancy rates. Please give a measure of available sublease space. The Phoenix Metropolitan Area has an overall vacancy rate of 15.8 percent with over 1.6 million square feet of sublease space available. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year? The interest rates are not affecting the office market as much as the new lender requirements for qualified buyers. The new requirements have made it difficult for new buyers entering our market. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? Phoenix has been the national leader in job growth the past several years with a cumulative growth of 15.8 percent the past 5 years. Phoenix had an unemployment rate of 3.9 percent first quarter 2008, while the nation, as a whole, had an unemployment rate of 5 percent. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected? One of the office tenants absorbing a majority of the space is the biotech industry. The medical field has been the single most industry with the largest employment growth in the Valley. The areas that experience the most impact are the suburban areas including submarkets like Surprise, Avondale, Goodyear, Buckeye, and Chandler where there has been a significant increase in population.

Phoenix Office Becker Submitted by Laura Becker, senior associate with the Phoenix office of GVA DAUM. Posted 12-12-05. What area is your expertise? · Phoenix Metro - Office What trends do you see presently in office development in your area? • Demand in the third quarter continued to remain strong for Class A properties and Class B properties. Class A buildings had 555,540 square feet of absorption, Class B properties absorbed 437,624 square feet of space and Class C properties had 55,790 square feet of absorption.      Strong tenant demand, coupled with a desire to occupy the best space in the market, resulted in an increase in new construction. There was 2.7 million square feet of office product under construction across the Valley at the end of the third quarter. This compares with 821,000 square feet under construction at the end of 2004. At this time 1 year ago, there was 1.5 million square feet of new product under construction. Through three quarters, there has been 373,645 square feet of building completions.      Higher construction and land costs will push rents for new product to higher levels. Owners of existing product will follow suit and raise their rental rates, while further reducing concessions.      According to The Phoenix Business Journal, the Phoenix-Mesa-Scottsdale area was rated the second hottest job market in the nation. Developers are accommodating the increasing demand. While the job market continues to grow, the amount of available office space has tightened as building owners jump on the condominium bandwagon, converting properties to office and residential condos. In the past 12 months, Phoenix has seen as much as 1 million square feet of traditional, existing, multi-tenant office buildings undergo conversion to for sale space. Who are the active office developers in your area? · Opus West Corporation - currently developing North Scottsdale Corporate Center (150,000 square feet); The Weitz Company; The Alter Group; Hines; Shea Commercial; Cavan Commercial; and UTAZ (Southeast Office Condominiums). Please name one or two significant office developments in your area. What impact will these projects have on the market? · Hines, an international real estate developer, announced in November that it will develop a first-class, mixed-use project consisting of two office buildings with ground-level retail space and a hotel on a 10-acre site at the southwest corner of 24th Street and Camelback Road -- one of the most dynamic corners in Phoenix's Biltmore area. · The Alter Group has several projects including:      The Arizona Health & Technology Park was designed to accommodate first-class medical and research facilities. The 50-acre business park will be a unique high-tech environment with a spectrum of complex facilities, including a nationally recognized university, medical office buildings, specialty hospitals, and biomedical research-and-development facilities.      The inaugural 43,000-square-foot facility at the new research triangle will be home to the 30,000-square-foot dental clinic of the Arizona School of Dentistry and Oral Care, the state's first dental school. · Also, there is a proposed full-block Downtown Phoenix development to combine Arizona State University, a 31-story residential condominium building and a 12-floor office building at the northeast corner of Central Avenue and Van Buren Street. Downtown will continue to gain momentum as the city of Phoenix, ASU, T-Gen and the Civic Center Expansion reshape the area for new development. Where is the majority of development taking place? Why is this area doing well? · Approximately half of the space currently under construction is located in the Scottsdale submarket, followed by the East Valley and northwest Phoenix submarkets. Under construction activity increased to a 4-year high during the third quarter, as 79 buildings totaling 4.2 million square feet are now underway. During the third quarter, 490,000 square feet of space was delivered, bringing total deliveries for the first three quarters of 2005 to 1.1 million square feet. What area do you expect to be the next big development market? Why? · Class A new development will continue, with rental rates of $30 per square foot. The challenge will be to find available land for building new developments, the lack of large blocks of office space available for lease and the lack of Class A space of any size in every submarket. Metropolitan Phoenix will continue to be a significant development market. Lastly, there is land available in northwest Phoenix for office developers but the focus is more on the Scottsdale and Metropolitan Phoenix at present. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? · The office market has shifted to a landlord's market due to strong demand and declining vacancy. The Scottsdale submarket ended the third quarter 2005 with the highest average asking rate of $24 per square foot, full service. The Phoenix office market witnessed vacancy levels decrease to a 4-year low during the third quarter, as average rents in the market increased 1.6 percent, year over year, reaching their highest level since the second quarter of 2002. Both total activity and occupied space gains reached new 4-year highs during the third quarter. Class B office space will continue to be the beneficiary of the lack of available Class A space. West Phoenix has the highest percentage of vacancy at 19.8 percent. Please give a measure of office vacancy rates. Please give a measure of available sublease space. Overall vacancy rates (including sublease space) declined from 17.1 percent to 15.6 percent during the third quarter, reaching a 4-year low. The Scottsdale submarket finished the quarter with the lowest total vacancy at 12.7 percent, followed by the East Valley (13.1 percent), Paradise Valley (15 percent), East Phoenix Corridor (17.5 percent) and West Phoenix (19.8 percent). Since the third quarter of 2004, overall vacancy has decreased from 18.7 percent to 15.6 percent. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? · The lower interest rates have made business owners able to purchase commercial property (owner/user) for the first time. Many of these properties are smaller, freestanding office buildings or office condominiums. Although the demand for for-sale office condominium properties is continuing, there still remains a strong requirement by corporate America for large blocks of for-lease space. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? · Since August 2004, the state has added 97,500 jobs, representing a year-over-year growth rate of 4.1 percent. The gains were the strongest in the sectors of government, private education and health services, professional and business services, construction and financial activities. The State of Arizona Research Administration is now predicting the state's job growth will be 4.6 percent this year, up from the previously forecasted 4.2 percent. The 2006 forecast is for job growth to slow to 3.7 percent. Over the 2-year period, there will be 202,200 jobs created, according to the forecast. Construction, trade and retail, professional and business services, education and health services will provide the big gains. Since no one anticipates a slowdown in the market's job growth, finding space to meet the needs of new and expanding companies will continue to be a challenge. For the building owners, the increased demand and decrease in availability creates a landlord's market where rental rates will continue to rise and fewer concessions will be offered. For the developers bringing new space on line in the near future, the prospective tenant base seems endless. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? · Year-to-date, the Phoenix office market has a net absorption of 2.5 million square feet, which puts the market on track with 2000 when a 14-year high of 2.8 million square feet was absorbed. Class A space continues to lead the way with nearly 1.3 million square feet of net absorption. A finite supply of available Class A space in the market, coupled with increasing rental rates, are directing tenants to Class B buildings. For the second straight quarter, the Phoenix office market experienced a 2 percent drop in vacancy rates. The market ended with an overall vacancy rate of 14.9 percent. Fifteen of the 22 submarkets recorded vacancy rates in Class A below 10 percent, including Downtown South, Scottsdale North and Scottsdale Airpark. The average vacancy rate for Class A buildings in the market was 10.5 percent, and Class B buildings was 19.3 percent.