Approximately 766,000 sf was delivered in the thirdquarter--including the 285,000-sf Molasky Corporate Center inDowntown Las Vegas--while net absorption totaled 459,000 sf.Through the first nine months of the year, some three million sfhas been delivered while only slightly more than two-thirds of thetotal was soaked up. Looking forward, an additional three millionsf is under construction and set to be delivered over the next fourquarters, according Applied Analysis principal Brian Gordon, whoforecast the increasing vacancy in his mid-year report.

"The modest market imbalance is a function of adeveloper-friendly environment present two years ago--interestrates were low, land values were rising and relatively low officevacancy rates prevailed," Gordon says. "Additional increases invacancies are likely through next year, followed by a stabilizedsupply-demand balance post-2008."

Meantime, Gordon says owners will be adjusting their pro formaincome statements to account for slower rent growth and increasingconcessions. "While rent growth has declined for six consecutivequarters, pricing remains somewhat elevated," he says. "Longerlease-up periods, incentives and above-average tenant improvementallowances must also be considered for new supply entering themarket."