The warehouse market, which saw its vacancy rate drop by a halfpoint to 7.9%, offset somewhat the troubled semiconductor andtelecom industries negatively affecting the flex market. Flexabsorption was a negative 132,000 sf--mostly in the SunsetCorridor--and vacancy rose more than one full point to 7.8%.

The potential problem is that the real estate market tends tolag behind the macro-economic cycle, making it hard to say when themarket will start to show tangible signs of recovery. The leadingeconomic indicators are suggesting a return to normal sometime in2002, once the Fed rate cuts have a chance to take effect.

"Indeed, the market is only now beginning to show the effects ofjob losses sustained over the last few quarters," states thereport. "Couple this slowing demand with steep land prices and theresult is slowing in construction activity as developers continueto be cautious, stalling construction plans and demanding at least30% pre-leasing before breaking ground."

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