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SAN FRANCISCO-According to Grubb & Ellis’ Second Quarter 2002 report, there is little hope for those hoping to see the bottom in today’s depressed San Francisco commercial market, as rents continue to fall and vacancies continue to rise.

Grubb & Ellis reports that the overall vacancy rate in San Francisco has risen one percentage point to 22.1%, while the average asking rental rate also dropped to $31.28 per sf for Class A space and $22.32 per sf for Class B space.

However, the company says that there is a brighter side to the gloomy market. Colin Yasukochi, Research Director at Grubb & Ellis says that the office market is starting to show some signs that the end of the depression is near. These signs include a significant reduction in the rate of increase in vacancy and rate of decrease in average asking rents, an increase in the gross amount of leasing or basic market activity, and positive net absorption or demand for class A buildings.

Although the vacancy rate is higher, negative net absorption has significantly improved from minus 920,000-sf during the first quarter 2002 to minus 196,000-sf during the second quarter 2002.

“As expected, the new supply pipeline, which added approximately 760,000 square feet, was the primary contributor to the 110 basis point rise in vacancy to 22.1 percent during the 2nd quarter 2002,” says Yasukochi. This was approximately half the rate of increase experienced last quarter.

Yasukochi adds that, for the first time since the 4th quarter of 2000, there has been a substantial increase in gross leasing activity. “During the 2nd quarter 2002, there was approximately 1.4 million square feet of office space leased, compared to 900,000 square feet last quarter,” he says.

According to Yasukochi, the bottom of the market seems to be in sight but any significant recovery should not be expected for two to three years.

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