On a trailing four-quarter basis, which is the sum of allleasing activity over the last four quarters, overall leasingtotaled 4.7 million square feet, a slight increase as compared tothe previous four quarters, according to the report, however it wasa 16.2% decline as compared to one year ago.

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"Class A deal volume was particularly anemic, reaching only421,295 square feet, a quarterly decline of 36.5%," says MikeLabelle, senior vice president and co-branch manager of Studley'sSan Diego office. "The market has yet to see the pervasiveflight-to-quality that generally kicks off a recovery and, withspace still in ample supply, most tenants see little need to rushleasing decisions."

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Studley's report echoes other reports from the area. Accordingto Chris Wood, managing director of Voit Real Estate Services' SanDiego region, "Buyers, sellers, landlords and tenants are allgaining confidence that there are good deals to be made right now"in San Diego. But Voit, for one, reported an increase inleasing and sales activity across all commercial property types,having completed more than 30 transactions encompassing upwards of240,000 square feet for the month of February alone.

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According to Studley, tenants continue to streamline operations.According to the report, for those tenants who have executedtransactions, the focus continues to be on reducing operating costsand minimizing out-of-pocket expenditures. Many firms, whetherrelocating or restructuring an existing lease, are consolidatinginto more efficient layouts. "Additionally, companies are hedgingtheir bets and opting for shorter-term leases, a strategy thataligns with many landlords' interests, who hope that the marketrebounds in a couple of years," notes T.D. Rolf, a Studley vicepresident who co-manages the San Diego office.

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However, according to the report, some tenants are takingadvantage of the heavily discounted rents to expand—and, in somecases, sign longer-term deals—indicating that more companies areregaining their confidence in the economy.

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The report points out that banks and investment firms in the SanDiego region have made a strong comeback in the last severalquarters, and have lately been responsible for some of thelonger-term leases. For instance, UBS Financial Services signed aseven-year, 10,251-square-foot lease at 17140 Bernardo Center Dr.Also, accounting firm Grant Thornton LLP doubled its space,completing a 10-year, 10,544-square-foot lease at 12220 El CaminoReal.

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Law firms were also quite active, accounting for much of thefirst quarter's relocation activity, says the report. LewisBrisbois Bisgaard & Smith LLP signed for 29,940 square feet inthe Merrill Lynch Tower in Downtown San Diego. The firm will movefrom 550 Corporate Center in the next few months. Additionally,Latham & Watkins inked a 28,726-square-foot lease renewal at12636 High Bluff Dr. However, the firm only extended its lease termby three years, in line with the overall market trend.

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Studley notes that the overall rate for vacant available spacein the San Diego region has remained flat for the last twoquarters, and currently stands at 16.4%. The class A rate, 19%, wasalso stable. The I-15 Corridor posted the largest quarterlyincrease in the class A category, rising 3.4 percentage points to24.6%. Overall asking rents inched up slightly to $2.27 per squarefoot while class A asking rents were basically unchanged at$2.68.

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Studley's outlook? Much like other company reports, Studley seesSan Diego's primary industry sectors—technology, life sciences,biotech, and education—as showing signs of improvement. "Still,given the significant supply of office space on hand and tepidtenant demand, we believe the market will continue to be extremelyfavorable for tenants through 2010," Labelle says.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.