Jul. 8--The East Valley's commercial real estate market remains plagued by rising vacancy rates in office, retail and industrial properties, according to commercial brokerage CB Richard Ellis.

Most of the south East Valley posted higher vacancy rates in office and retail than the overall Valley.

According to CB Richard Ellis, the Valley's office vacancy rate rose for the eighth consecutive quarter, ending the second quarter at 23.7 percent, 90 basis points higher than last quarter and 500 basis points higher than one year ago. The south East Valley's vacancy rate was 30.3 percent for the same quarter.

"The Superstition corridor in Mesa continues to be a pretty slow market ... but Chandler has been a bright spot compared to the rest of the Valley through this whole downturn, and there's a lot of good reasons for that," said Jerry Noble, first vice president of the brokerage. "You've got good employment, good transportation that is much improved with the completion of the Loop 101 and the Loop 202's progress, and there's just improving demographics down in the East Valley."

Gilbert's commercial real estate market is starting to show subtle signs of improvement along with increased home building activity, said Greg Tilque, the city's development services director.

"What's happened in the past, in both residential and commercial, is Gilbert's usually been the last community in the area to see the effects of a downturn, and we've also been, generally, one of the first if not the first to see the rebound," Tilque said.

Various projects on tap -- from new supermarkets to the M.D. Anderson Cancer Center -- are encouraging signs that Gilbert's commercial real estate market has turned a corner, Tilque said.

Valleywide, new office occupancy was 253,029 square feet in the negative, with more than half of the 25 submarkets reporting in the red. The south East Valley, however, experienced the strongest new occupancy, at 94,392 square feet.

"This is a mere blip," Noble said. "Not too long ago, companies like NCS Pearson relocated into 130,000 square feet, CDW leased 75,000 square feet and Ottawa leased 20,000 square feet. Here we are, to date, Chandler's leased 72,000 square feet, Tempe is negligible, Mesa is nothing, and the Superstition corridor is not that impressive. (New occupancy) is paltry."

The Valley's retail vacancy rate rose for the ninth consecutive quarter, ending the second quarter at 10.5 percent, fueled by cutbacks in consumer and business spending. New retail occupancy was 174,276 square feet in the negative.

Mesa/Chandler/Gilbert's retail vacancy rate was 11.6 percent for the second quarter with the addition of 258,644 square feet of vacant space.

"With the economy slowing down like it has, it's definitely impacted retailers," said Rick Murphy, senior vice president with the brokerage. "People aren't spending and people don't have confidence in the economy right now. Retailers are just trying to reposition themselves and they're trying to close weaker units to save money."

The second quarter represents the first time in seven years retail construction totaled less than 3 million square feet Valleywide. Availability of big box space has continued to increase, while Mesa/Chandler/Gilbert saw an additional 258,644 square feet of retail space vacated during the quarter.

"We're pretty much in a contracting market right now, and we'll continue to see that through the next six months," Murphy said. "Then hopefully at that time we'll start to slow down the pace of that contraction. Job growth has to kick in and then our housing needs to stabilize."

As for industrial, that sector ended the quarter with a 15.2 percent vacancy rate. All but five of the Valley's 28 industrial submarkets reported negative new occupancy in the second quarter.

The Southeast Valley's industrial vacancy rate was 13.9 percent in the second quarter as the region saw an additional 463,982 square feet of space vacated. Distribution buildings, freestanding buildings and general industrial buildings all lost tenants during the quarter.

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