However, rents at EOP buildings will remain at least 15% over market next year, cautions president and chief executive officer Richard D. Kincaid. On the other hand, soft markets are creating more buying opportunities for the REIT, he notes during the company's second quarter earnings conference call.

EOP officials expect occupancy to continue rising the rest of the year to around 88%. Fifteen of the REIT's top 20 markets have shown positive net absorption. "We believe our occupancy has bottomed for this cycle," Kincaid says. "The only market not to see any sign of improvement is Chicago CBD."

Kincaid predicts Downtown vacancy rates to peak as high as 18% next year as 2.2 million sf of new office space is delivered on top of 1.5 million sf coming to market this year. "This is going to be a soft market for several years," says Kincard, whose company's 6.6-million-sf Downtown Chicago portfolio is outperforming the market.

Equity Office Properties collected $8.6 million in early lease termination fees in the second quarter, down from $22.8 million in the first three months of this year and $27 million in the fourth quarter of 2003. "We're encouraged that both the number and size of our lease terminations are declining," says chief financial officer Marsha C. Williams, adding lease terminations are unpredictable.

"We're not seeing a whole lot of work-outs or credit issues, but it's difficult to predict them," Kincaid says.