Office vacancies continue to drop

Office vacancy rates around the Peninsula continued to decline in the first quarter of 2006, signaling a small but steady upswing in industry, real estate analysts and city officials said.

According to a soon-to-be-released quarterly report by NAI BT Commercial, San Francisco and every San Mateo County city except one saw a decrease in the amount of vacant office square footage in the first quarter of 2006 compared to the same quarter last year. The company’s reports are widely used by municipal economic development departments around the Peninsula.

The one exception was the city of San Mateo, where Redwood Shores-based Oracle put Siebel Systems’ 800,000-plus square feet of office on the sublet market after acquiring Siebel in 2005. That drove San Mateo’s vacancy rate up 7 percentage points, from 16.3 percent in 2005 to 23.3 percent in 2006. Vacancies dropped, however, for properties where tenants were signing a primary lease, rather than a sublease, following the overall trend.

“They’re going to consolidate the user group within Siebel onto the Oracle campus,” said Mike Moran, a managing partner at NAI BT Commercial.

Other vacant properties in San Mateo include a three-building campus in the Bridgepointe area, space in the Bay Meadows Park Place buildings and 800 and 900 Concar Drive. Moran predicted that the Concar offices would be snatched up by the year’s end.

San Francisco saw a small decrease in vacancy rates between the first quarters of 2005 and 2006, with 12 percent of office space vacant versus 12.6 percent. That was down from a 20.2 percent high in 2002. The new year kicked off with several major leases signed, including ones by Advent Software, Yahoo and Fenwick & West, according to a recently released report on The City.

Several San Mateo County cities saw more drastic vacancy drops. Life science, software and Internet startups and newly profitable companies are grabbing up some of the space, Moran said.

The largest change was in Redwood City, where the vacancy rate decreased 16.3 percent from 44.5 percent. “I believe it’s largely due to Stanford taking over the Excite@home campus,” Redwood City Economic Development head Pat Webb said. “They were part of the Midpoint Technology campus … a lot of it was vacant and that was adding to our vacancy list.”

The university is allowing some existing tenants to stay in the Excite building and filling vacant space with three ambulatory clinics, Webb said.

In Foster City, business expansion into vacant space seems largely spurred by smaller-sized rentals, but major leases, possibly in biotech, are rumored to be in the works, Economic Development Director Richard Marks said.

kwilliamson@examiner.combusinessLocalScience & TechnologyScience and Technology

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