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

The potential problem is that the real estate market tends to lag behind the macro-economic cycle, making it hard to say when the market will start to show tangible signs of recovery. The leading economic indicators are suggesting a return to normal sometime in 2002, once the Fed rate cuts have a chance to take effect.

"Indeed, the market is only now beginning to show the effects of job losses sustained over the last few quarters," states the report. "Couple this slowing demand with steep land prices and the result is slowing in construction activity as developers continue to be cautious, stalling construction plans and demanding at least 30% pre-leasing before breaking ground."

Over half of the construction completed this quarter was in the Sunset Corridor, according to the report, and nearly half of that was build to suit. Alas, two build-to-suit projects at Cornelius Pass Corporate Center that helped last quarter's absorption hurt it in the second quarter. Relera Inc. put its 78,000-sf on the sublease market without ever occupying the space and RCN Corp. is pulling out of the state and selling its property only a month after paying $3 million for it.

"Expect things to get a bit worse before they get better," concludes the report, "as the delayed impact of the dot-com implosion and the delivery of an additional 148,435 sf of new product hit the market next quarter."