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PORTLAND, OR-With class A vacancies in the central business district hovering around 4%, Internet companies have turned to class B and C buildings in their search for space, according to a third quarter market report by Grubb & Ellis.

The downtown posted 80,000 sf of net absorption, accounting for more than 90% of the activity in class B and C buildings in the third quarter, according to the report. “Much of this activity is due to the culture downtown, offering workers access to transit, amenities and public spaces,” concludes the report. “These companies will endure the higher cost of taxes and parking to stay in the central city so that they may retain their most critical asset – their human capital.”

Meanwhile, very few large blocks of space are available in the high-tech haven located west of Portland, and vacancy rates remain below 7%, according to a third quarter report from Grubb & Ellis. Despite negative net absorption, activity remains strong, with significant amounts of square footage leased prior to completion.

Intel has leased two buildings yet to be completed at AmberGlen, and at Suntek Corporate Park Merant committed to a 60,000-sf build-to-suit and while Sun Microsystems is building a 90,000-sf facility. The early activity has speculative projects racing to be the first to market to suck up the demand. PS Business Parks is in the ground for Greystone Two and Three at Woodside, and Insignia has broken ground on two additional speculative buildings at Suntek. Cornell West is nearing completion, however, and should be the first to market early next year with more than 120,000 sf of class A product.

Average class A rental rates are nearing $23/sf. For top floor space in new downtown projects, asking rates are bumping up against $30/sf. High for Portland, but quite inexpensive compared to Seattle and San Francisco, where base rents for some new product is reaching $50/sf and $100/sf, respectively.

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