Absorption:  Due to the combination of moderate new leasing activity in the Class A office market and a significant give back of class B and C space, Citywide overall net absorption was a negative 956,000 RSF last quarter.

Vacancy: CBD and Citywide vacancy rates climbed to 13.1% and 15.6% respectively due to the aforementioned "give backs" and tepid demand. Vacancy will remain high as long as the labor market stays flat.

Rent: Asking rents fell marginally across the board for all classes except Class A - SOMA, which increased 2.7% in the CBD and 3.8% non-CBD. Direct asking rents in the CBD for Class A averaged $37.94/rsf.

Activity: Transaction activity fell in the CBD and Citywide in the second quarter. The drop offs measured 21%+ in the CBD and almost 27% Citywide. The technology sector accounted for 30% of total demand, most of any sector.

Forecast: San Francisco's office market will continue to be driven by demand from new and existing technology tenants. However, until hiring happens, the office market will see minimum growth. The unemployment rate is forecasted to remain flat (9.7% in June) for the remainder of 2010. This can also be interpreted positively, as the job losses have stabilized. Economic and regulatory uncertainty, taxes, deficits and lack of access to capital will continue to drag on the market.

Please contact me if you would like to discuss strategies that will maximize your opportunity to take full advantage of today's market conditions or if you would like additional, detailed market information.

Mike Tobin
Senior Vice President, Partner
GVA Kidder Mathews
July 15, 2010