SAN FRANCISCO-According to Hans Hansson, president of Starboard/TCN Worldwide Real Estate, there is a continued decline in vacancy rates in small spaces. Today, the vacancy under 5,000 sf now stands at 6.95% down from 8.5% in February.

“The core traditional office tenant under 5,000 sf is already competing against multiple offers in Class A and strong Class B buildings,” says Hansson. “With an average deal size of only 3,500 sf, it is not going to take long before landlord will begin seizing the opportunity and start raising prices. Once this occurs, landlords will begin tackling, dividing larger spaces to meet this demand. This process is going to take time but it does show that things are getting better not worse.”

In February, combining direct space with vacancy space, the vacancy rate in San Francisco was approximately 14% direct and 28% with sublease space. Hansson reports that since February, what has happened is not that the overall vacancy has gone up, but that sublease space has been turned back to the landlords that are now included as direct space. Overall vacancy now stands at 24%, a 4% decrease with direct space now at 17%. Although still extremely high this does show that activity is starting to take a positive turn.