SAN FRANCISCO recorded the strongest leasing activity in the US last year after a freeze on the construction of new buildings thawed. The Californian city's decision to lift a five-year moratorium in the third quarter of last year saw the amount of property available for lease soar from 2.7 million square feet in December 1995 to 4.5 million sq ft a year later. The moratorium had been implemented due to an oversupply and a depressed market. Alec Monaghan, Marlin Land director of US/Asia business, said as a result of the moratorium vacancy rates decreased while achievable rental yields increased, making for solid investment opportunities. Midtown Manhattan in New York led the United States in class A rental rates per square foot per annum (downtown property) at US$35.68, while San Francisco was third behind Chicago at $27.96. By comparison, Hong Kong had the world's most expensive leasing rates at $105.96. 'In San Francisco, we have seen a fair amount of investment activity both from Asian buyers and US pension funds,' Mr Monaghan said. 'With a lack of new product, what we are seeing is an increase in rental rates which is encouraging investment in existing properties. People are buying them expecting rental yields of 7, 8, 9 per cent and then realising something much higher than that.' Mr Monaghan said Asian buying activity had primarily been restricted to the purchasing of existing buildings on North America's west coast. He said most of the transactions were in the $5 million to $6 million range, while larger transactions were in the region of $100 million to $150 million. 'Unless there is 90 per cent lease and a local partner, most of them [Asian buyers] don't want to get involved. They don't want to get involved in intensive management or leasing operations. They want to buy based on current returns and have it [their building] 80 to 90 per cent leased so it is a stable asset.' With the hi-tech computer business located in neighbouring Palo Alto, San Francisco has benefitted by a spill-over effect of companies setting up offices in the central business district. In the past year, Ernst & Young, Rabobank and Anderson Consulting have established offices in the city. Mr Monaghan said the city presented a good investment opportunity as its lifestyle was conducive to attracting a skilled workforce. 'There is also a cluster mentality with Asia Pacific and the Chinese population. Typically, they are not pioneers in going into a brand new city. They might have residential projects in Dallas, but it is unlikely they would live there.' Los Angeles, where the market has been depressed and no new construction taking place, was also recommended for investment as it was considered undervalued. Property was leasing for an average $21.48 per sq ft in December.