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SAN FRANCISCO-Throw a rock out a window in this city and you’re bound to hit someone with a horror story to tell about the fierce competition for space and the premium pricing that it inevitably comes with. With office vacancies falling and rents rising for some time now, a recent report by Whitney Cressman Limited shows the first three quarters of 2000 have helped property owners put up some pretty serious numbers.

Overall vacancy rates are at an all-time low 2.16% after falling for the sixth consecutive quarter, according to the report. Indeed, vacancy rates in the Financial District have fallen almost 60% in the first nine months of the year, settling at just under 1.5%. Additionally, absorption hit the roof in the third quarter, at 653,000-sf. By the end of 2000, total absorption will hit 2.5 million sf, the report predicts.

With supply down and demand still there, rental rates for class A Financial District space increased 50% in the first six months of the year. At the end of the third quarter, the market was bearing an average of $81.96 per sf, though several transactions at high-profile addresses came in well above that average. In the third quarter, however, things slowed up, showing more modest (some would say more reasonable) growth with class A rents up only another 11.5%.

A large part of the slowdown may be due to increased wariness on the part of dotcoms, which have been eating up big chunks of San Francisco office space in recent months. According to Mike Hamasu, director of market research at Whitney Cressman, “The market will soften toward the end of the year.” Hamasu points to the slower pace of IPOs, and the increase in sublease space available as factors that will play heavily as the year comes to a close.

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