Office occupancy, which ended the year down 2.3 percentage points at 86.3%, would have been 4.4 points higher without the early lease terminations, suggested chief financial officer Marsha C. Williams. Meanwhile, the space given back usually is at above-market rates, said chief executive officer and president Richard D. Kincaid, exacerbating a roll-down in the rental rates across the portfolio. New leases in the fourth quarter were signed at rates nearly 14% lower than deals that expired or were terminated during the same period.

The REIT is betting most US office markets bottomed out last year, and expects office job growth of 2.5% this year. However, Equity Office Properties Trust is budgeting up to $65 million in early lease terminations in 2004, although the square footage is expected to be less.

"In 2004, we hope to see fewer terminations from financially troubled tenants," Williams said during the REIT's earnings conference call Thursday. "However, we expect to see more requests from financially sound tenants who want to reduce their future rent liability under above-market leases."

Williams reported the REIT is in talks with "a number of tenants" about potential lease terminations but indicates Equity Office Properties Trust is inclined to play hardball, especially if the tenant seeking relief is financially sound.

"The weaker tenants seem to be flushed out of the system," Williams said, adding any lease restructurings will be done only if they are on "very favorable economic terms" for the company.