"Tenants aren't making decisions until the market softens further," observes Staubach Midwest managing principal Steve Stratton. "Decisions are just difficult to get."

Of course, how much softer the Downtown and suburban office markets can get is the $1 per sf question. The answer may be apparent sooner than some tenants think, says CB Richard Ellis senior vice president John Dempsey.

"Users are making short-term decisions, more capital-neutral decisions," Dempsey says. "In '03, I think they'll be a point when they'll absolutely will have to do something."

Much depends on employment, says Goodman, whose Goodman Williams Group's work includes market feasibility analyses and consulting on redevelopment projects. She points to an economy,com report that indicates the market has lost 79,000 jobs in the past two years, including 27,000 office workers, which is enough to account for the jump in available space Downtown.

Meanwhile, the market can expect a hefty amount of lease expirations in 2005 and 2006, Stratton notes.

Goodman believes United Airlines' bankruptcy is causing concern among potential tenants, and the state's $3-billion budget shortfall also looms large. However, Dempsey downplays Elk Grove Township-based United Airline's troubles, and Goodman's view that another Gulf War is less a concern draws disagreement from Eastdil Realty Co., LLC managing director Blake Johnson.

But then, Johnson's focus is on investment sales, and his firm has been involved in some of the market's largest in a spate of deals fueled by an abundance of capital chasing a shortage of deals.

"People want to put money into real estate as a safe harbor," Johnson says. As a result, he adds, investors are settling to 10% internal rates of return rather than 12%, as well as buying in at 7% and 8% capitalization rates rather than 9% and 10% seen a few years ago.

Unlike the downturn 10 years ago, better capital and more sophisticated owners are keeping the supply of assets for sale down, Dempsey notes. "Owner's vacancy is more an inconvenience than one of dire straits," he says.

Instant Insights /

Decision Time Could Be Coming for Tenants

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