The vacancy rate in Center City is expected to beat the area's average and level at about 12%, according to Jeff Algatt, regional manager of M&M's office here. He attributes that to the recent decisions by several Downtown corporations and major law firms to re-up in Center City, either by staying put or moving to different buildings.

Because of overall lackluster demand throughout the region, however, just 677,000 sf of new space will reach the market this year, a decline from 1.4 million sf delivered in the past year. The market's continuing slide keeps tenants in the driver's seat. While M&M expects the area's overall average asking rental rate to drop just slightly, from $22.16 per sf a year ago to $22.09, the slide in effective rates will be much deeper, yet not as severe as the dive effective rental rates took between 2002 and 2003.

By the end of this year, M&M expects the region's average effective office rental rate to be $18.41 per sf, a drop of 1.2% in comparison with effective rates in 2003. That year, however, effective rates fell 3.4% in comparison with effective rates in 2002.

"Despite a difficult year for the office market, investors are interested in purchasing local properties now to take advantage of the favorable financing environment and the prospect of improving fundamentals in 2005," Algatt says. The majority of that investment activity, he predicts, will be for buildings in the under-50,000-sf category, particularly in suburban Philadelphia along major roads and the Main Line. "A strengthening economy," he says, "will boost demand for space in low- and mid-rise properties. Prices for these types of buildings will remain close to the $104 per sf."