The vacancy rate increased for the first time in 18 months, andspace absorption was negative for the first time in two years,according to the report. Despite that, world-class rents continueto be asked and paid in core submarkets such as the Rincon andFinancial districts, where rates have surpassed the $80 mark fornew class A space, with $100/sf deals being made for the top floorsof the best addresses.

Class B and C space, which experienced a slight increase inrents as class A vacancies hovered around 1%, saw those rates comeback down as more class A space became available as tenants who hadleased for growth, began subleasing space for profit. In March,subleases accounted for 6% of all available space. Now, it accountsfor more than 20% of all available space.

Citywide vacancy increased from 1% in the second quarter to 2%in the third quarter, with total availability increasing from 3.6%in the second quarter rate to 4.9% in the third. As for absorption,class B and C space respectively posted negative absorption of78,381 sf and 158,853 sf. Thanks to the 385,000-sf 199 Fremontproject coming on line fully leased in the third quarter, class Aspace saw positive absorption of 31,950 sf. Rents on class A spacecitywide topped $77/sf on average, with class B and C space at$66.58 and $57.69, respectively.