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FOSTER CITY, CA-Supply continues to outstrip demand, but there is at least moderate activity for smaller deals in well-located areas, as evidenced by two recent leases that filled 30,000 sf in Foster City.

The California Teachers Association, setting up a new regional headquarters outside its overall headquarters in Burlingame, leased 20,055 sf on Hatch Drive in a 37,000-sf building that has been vacant for two years. A company called Formation Inc., moving from the Giftcenter building in San Francisco, took 10,300 sf in Metro Tower, the waterfront city’s most prestigious building, which has vacancy of around 25%.

The five-year lease by CTA is valued at roughly $2.3 million. The seven-year lease by Formation is valued at around $1.6 million. Paul Andrews, with Colliers International represented the tenant in both transactions. “I think there’s more people leasing space in San Mateo County right now because of the proximity to the (101) freeway and the (San Mateo) bridge,” Andrews tells GlobeSt.com.

For CTA, California’s largest professional employee organization, Andrews says it was all about location and building type. They wanted to be in a free-standing building with quick access to the San Mateo Bridge to support the CTA’s East Bay and Peninsula members, says Andrews. The 37,000-sf class B building at 333/343 Hatch Drive is owned by Limar Realty, which was represented in-house by Tim Castello.

For Formation, it was about a flight to quality. The building reportedly didn’t have running water and had very few operable windows. “They basically went from the doghouse to the penthouse and at the same time got closer to where their people live,” says Andrews. Moreover, because they had leased five different suites in the building during the dot-com boom when there was little space to be had, Andrews says they are paying less. Equity Office Properties, the owner of Metro Tower (950 Tower Ln.), was represented in-house by Ken Young.

As for concessions, Andrews says generally tenants are seeing free rents and a rather hefty amount of tenant improvement dollars. “Landlords are holding on asking rates and then skewing them down up front by back-loading leases or offering more free rent up front,” says Andrews. “During the dot-com boom, TIs were $5 (per sf) or less; now it’s anywhere from $15 to $30 along with one- to three-months of free rent.”

Current office vacancy rates on the Peninsula stand at 28.46% at the end of the first quarter. Vacancy rates were 26.61% at the end of the first quarter 2003 and 28.29% at the end of 2002.

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