The largest US office REIT's 125.5-million-sf portfolio began the second quarter 88.8% leased, company officials report, nearly two percentage points off last year's mark.

Meanwhile, new leases and renewals are being done at rates nearly 15% less than the previous deals, according to the company's first-quarter report.

However, president and CEO Richard D. Kincaid notes the company has conducted record numbers of showings in February and March, and the 7.7 million sf leased in the first quarter is the most activity ever for the REIT. Vacancy across the REIT's top 20 markets is 16.6%, and Kincaid predicts it should bottom out at 17% this year.

The company also is beginning to reap the benefits of its EOPlus program, which consolidates management and leasing operations in fewer offices and takes advantage of the portfolio's size to control costs. The company will save $10 million this year, says CFO Marsha C. Williams. That will rise to $40 million or more next year, Kincaid adds.

The company has reduced the number of vendor contracts across several categories--22 janitorial contracts to 14, 200 for waste hauling to two, 75 for landscaping to 12, 24 for security to three and from five to four for elevator maintenance.

Kincaid says complaints about the program have been limited to labor unions whose members may have lost work as a result of the consolidations. Indeed, the Service Employees International Union has launched a web site in opposition to the initiative.

"The service is actually better, and no one is concerned that their costs will be going down," Kincaid counters.