The Central Business District (CBD) submarket’s year-to-date absorption to 147,989 square feet, owing to the second quarter’s absorption of negative 3,204 square feet. After vacating 215,000 square feet in the previous two quarters, Qwest Communications vacated an additional 129,000 square feet at 1801 California, from which the quarter’s major contraction came. Vacancy is down from 19.3% at second quarter 2010 but unchanged from the previous quarter at 17.8%.

The SES submarket posted absorption of 162,277 square feet, bringing year-to-date absorption to negative 36,672 square feet. Growth in the Class A sector, which logged quarterly absorption of 178,583 square feet, was driven by flight to quality. Overall vacancy is down from last quarter’s 20.0% to 19.5%.

In the first half of 2011, buyers were looking for core and value-add assets, increasing investment sales activity. Quarterly sales totaled 2.1 million square feet valued at $350.7 million, which brings year-to-date totals to 3.2 million square feet for a total value of $606.9 million. American Realty Advisors purchased 1515 Wynkoop in the CBD, marking the quarter’s major sale at $118 million, or $385/sf. Sales velocity will increase as the year progresses.

The 30,000-square-foot Garrison Station I in the Southwest submarket is the only new project being delivered this quarter, with no speculative development in the pipeline. However, DaVita’s 270,000-square-foot build-to-suit headquarters broke ground in the CBD.

The market continues in a U-shaped recovery, but the market has stabilized. Absorption in 2011 will be solid and positive but similar in magnitude to the 1.2 million square feet logged in 2010 as flight to quality creates corresponding move-outs in lesser office product.