The overall Peninsula office market experienced 20,340 sf ofpositive absorption in the quarter. The top performer was the 3.5million-sf Foster City submarket, which posted 103,567 sf ofpositive net absorption to lower its direct vacancy rate to 1.5%and its overall vacancy rate (including sublease space) to 2.7%,according to the report. The average asking lease rate in FosterCity is $4.22 per sf per month, within a couple of pennies of theweighted average market-wide.

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The worst performer in the quarter was the 10 million-sf RedwoodShores/Redwood City submarket, which posted 91,000 sf of negativenet absorption, raising its direct vacancy rate to 10.4% and itsoverall vacancy rate to 14.4%. The weighted average asking leaserate there is just under $3.98 per sf per month. Both Foster Cityand Redwood Shores located in central portion of the Peninsula.

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The largest submarket on the Peninsula, the 8.2 million-sf PaloAlto/East Palo Alto area at the southern end of the Peninsula,posted approximately 27,500 sf of positive net absorption, takingits direct vacancy rate to 4.7% and its overall vacancy rate to5.4%. The weighted average asking lease rate there was $5.68 per sfper month.

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The most expensive area on the Peninsula, the 3.6 million-sfMenlo Park submarket, just west of Palo Alto, posted 33,000 sf ofpositive net absorption to drop its direct vacancy rate to 6.9%.Its overall vacancy rate is 9.3% and its weighted average askinglease rate is $5.98 per sf per month.

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The Peninsula-wide office market lease rate remained unchangedat $4.24 per sf per month, but is up 33% from this time last year.Southern Peninsula submarkets saw a 2% asking rate increase, up$0.12 to an average of $5.78. The Northern Peninsula, whichincludes the South San Francisco, Brisbane and San Brunosubmarkets, saw average asking rates fall 3% to $3.12.

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Gregory DeLong, a broker in CBRE's Palo Alto office, tellsGlobeSt.com that the Peninsula is in healthy shape, generallyspeaking, with limited new construction helping keep lease rateshigh and vacancy low. Many Peninsula submarkets that had vacancyrates in the in the 20% rage one year ago are now sportingsingle-digit vacancy rates, he says.

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"One of the signs of health is a decreasing amount of subleasespace, and that has been happening," he says. "A lot of the keyindustries -- law firms, professional services – are continuing toexpand."

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