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SAN FRANCISCO-The 42.8 million-sf Peninsula office market that runs between San Francisco and the Silicon Valley was flat through the first three months of the year on an overall basis. CB Richard Ellis is reporting that net absorption for the first quarter was nominally positive, resulting in direct vacancy rate of 9.0% and an overall vacancy rate (including sublease space) of 11.2%.

The overall Peninsula office market experienced 20,340 sf of positive absorption in the quarter. The top performer was the 3.5 million-sf Foster City submarket, which posted 103,567 sf of positive net absorption to lower its direct vacancy rate to 1.5% and its overall vacancy rate (including sublease space) to 2.7%, according to the report. The average asking lease rate in Foster City is $4.22 per sf per month, within a couple of pennies of the weighted average market-wide.

The worst performer in the quarter was the 10 million-sf Redwood Shores/Redwood City submarket, which posted 91,000 sf of negative net absorption, raising its direct vacancy rate to 10.4% and its overall vacancy rate to 14.4%. The weighted average asking lease rate there is just under $3.98 per sf per month. Both Foster City and Redwood Shores located in central portion of the Peninsula.

The largest submarket on the Peninsula, the 8.2 million-sf Palo Alto/East Palo Alto area at the southern end of the Peninsula, posted approximately 27,500 sf of positive net absorption, taking its direct vacancy rate to 4.7% and its overall vacancy rate to 5.4%. The weighted average asking lease rate there was $5.68 per sf per month.

The most expensive area on the Peninsula, the 3.6 million-sf Menlo Park submarket, just west of Palo Alto, posted 33,000 sf of positive net absorption to drop its direct vacancy rate to 6.9%. Its overall vacancy rate is 9.3% and its weighted average asking lease rate is $5.98 per sf per month.

The Peninsula-wide office market lease rate remained unchanged at $4.24 per sf per month, but is up 33% from this time last year. Southern Peninsula submarkets saw a 2% asking rate increase, up $0.12 to an average of $5.78. The Northern Peninsula, which includes the South San Francisco, Brisbane and San Bruno submarkets, saw average asking rates fall 3% to $3.12.

Gregory DeLong, a broker in CBRE’s Palo Alto office, tells GlobeSt.com that the Peninsula is in healthy shape, generally speaking, with limited new construction helping keep lease rates high and vacancy low. Many Peninsula submarkets that had vacancy rates in the in the 20% rage one year ago are now sporting single-digit vacancy rates, he says.

“One of the signs of health is a decreasing amount of sublease space, and that has been happening,” he says. “A lot of the key industries — law firms, professional services – are continuing to expand.”

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