Demand for office space is starting to slow in theTwin Citiesmarket and that could mean a rise invacancy rates next year, to9.7% from 8.6%, according to Jim Freytag, vice president ofCBRichard Ellis, who works in that firm'sBloomington, MN, office. Hepredicts a 5%increase in the inventory of space, adding 2.9millionsf of office space to the existing 60 million sf. Healsosees a slight dip in rental rates for both classA and class Bspace."I think we will take a breather after a tremendousabsorptionover the last few years," Freytag says.

But while Michael Perkins, a vice president at WelshCos.,anticipates even more new space will come on linethan does Freytag,Perkins predicts vacancy rates willdrop next year to 7.5%. Heforesees a slightincrease in class A rental rates, and aslightdecrease in class B rates."Even with new building, demandcontinues to exceedsupply," Perkins says.

In the 12 months through June, the Twin Cities markethasabsorbed 2.3 million sf of space, hesaid. Through June of nextyear, he thinks the marketwill soak up 3.2 million sf."This highabsorption includes space that is leasedbut not occupied, but evendiscounting that by500,000 sf, that's a lot of space," Perkinssays.