The vacancy rate rose to 15.3% in the fourth quarter of 2007, upfrom 8.8% a year ago, according to a CB Richard Ellis Q4 officemarket report for Palm Beach County. The rise was attributed to thedelivery of speculative office space under construction in 2006,the softening residential market and the subprime lendingcrisis.

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According to a report by NAI/Merin Hunter Codman, the officemarket showed no absorption, but rents continued to increase withgross rents reaching $50 at the top end for class A space inDowntown West Palm Beach, and approximately $35 to $40 per sf forprime space in the suburbs.

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NAI/Merin Hunter Codman chairman Neil Merin tells GlobeSt.comthat mortgage- and housing-related tenants had been driving leasingactivity in recent years, but with the housing market softening,both tenants are shrinking. "About one-third of the increasedvacancy can be attributed to that factor and the other two-thirdscan be attributed to the new space that came on the market," hesays.

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NAI/Merin Hunter Codman is predicting flat to slightly negativeactivity for the first two to three quarters in 2008, with modestgrowth towards the end of the year as the housing market begins torecover. "Palm Beach County continues to attract institutionalinvestor interest," Merin says. "We're seeing more value-addedplays lately, with investors preferring underperforming propertiesin need of repositioning or upgrades, rather than trophy propertieslike the many that changed hands in previous years."

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The CB Richard Ellis market report says there is 945,000 sf ofnew space expected to be delivered in 2008, with expectations for astable year with good employment.

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