"Leasing activity increased two-fold from fourth quarter 2001, and although the deterioration of the city's office market persisted, the velocity of the decline decreased dramatically from the first quarter," says Mark Bodie, head of Research for Insignia/ESG's San Francisco office.

For the sixth straight quarter, net absorption was negative. However, according to Insignia, the second-quarter total of negative 241,000 square feet is a significant improvement from the figures posted throughout 2001. Additionally, the second quarter showed that the flood of sublease space that drove the market downward is finally subsiding, as the sublease inventory decreased market wide by 395,000-sf.

The city's available inventory increased this quarter by 207,000-sf. Still, this number pales in comparison to increases seen last year: 1.6 million-sf in the first quarter and 803,000-sf in the fourth quarter 2001. Insignia reports that renewals have been the dominant source of transactional activity in the city thus far this year, as many firms have taken advantage of market conditions and signed early renewals at highly discounted rates.