SAN FRANCISCO-Improving economic indicators kept office vacancy on the decline and rents on the rise here during the first three months of the year, according to the first batch of quarterly reports to come out of the national brokerage houses. For the 11th consecutive quarter, the San Francisco office market experienced a net absorption of office space.

Number crunchers at Colliers International report 288,742 sf of net absorption, a 30 basis point drop in the vacancy rate to 12.9%, and big spikes in effective rents. The average class A effective rent in the North Financial District shot up 13.4% to $38.35 and class B effective rents jumped by 8% to $26.85.

Cushman & Wakefield’s first quarter report on the market puts net absorption at closer to 350,000 sf, producing a 100 basis point drop in the CBD class A overall vacancy rate to 13.8%. The overall office vacancy rate fell 120 basis points to 14.8%, according to the report. One year ago, the overall vacancy rate stood at 18%. In the South of Market district, vacancy hit a five-year low of 19.9%.

The current CBD class A asking rent of $38.16 per sf is up 4.6% from the fourth quarter of 2005 and up 22.3% from the first quarter of 2005. “Tenants who delayed their real estate decisions are now paying the price as the landscape has changed in just one year’s time,” states the report. View space remains in high demand and continues to command top dollar, with two recent upper-floor law firm renewals being inked in the mid $50s per sf.

San Francisco recorded nearly 4.1 million sf of sales activity in the first quarter, an 11.7% increase over one year ago, according to C&W. Most notably, Hudson Waterfront Associates purchased Bank of America Center (555 California) for $1.05 billion. It was San Francisco’s first billion-dollar sale since 1998.

“With only a few new office developments in the pipeline, most of them pre-leased, the office market is poised to experience further vacancy rate reductions,” states the C&W report. “Combined with an improving job market, the San Francisco office market is sparkling with momentum and optimism.”

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