As a result no one is building on spec anymore, MacIntosh says."It is all build-to-suit or with significant preleases already inhand."

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Washington, DC, though, bucks the national trend as usual, JohnKevill of Jones Lang LaSalle Washington Capital Market's team tellsGlobleSt.com. "We are seeing positive absorption across the board.Of course, there are some exceptions, probably for the same reasonsthat they are occurring on a national level: tenants move to newbuildings and it takes time to back fill old space."

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According to Kevill, in the large DC submarkets vacancies areall dropping. In the CBD, rates have dropped from 8% a year ago toa little more than 5% currently, he says. In the East End, thosefigures are 8.5% and 7%, respectively.

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The government's presence has a lot to do with this of course,especially in some of the Northern Virginia submarkets. Kevill saysthat there is a wave of leasing activity expected over the next 60days due to newly won Department of Defense contracts andsubcontracts.

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Another point in the DC markets' favor: the economy is so strongthat vacancies are viewed as an opportunity by investors tocapitalize on growth in the area. "Vacancies are, in fact, beingvery aggressively underwritten," Kevill says.

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To a lesser extent this is also true on a national scale. NAR'sMacIntosh notes that sales are strong, with investors stillinterested in both income producing, stabilized properties and thevalue add or opportunistic plays that a partially vacant buildingoffers.

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"Transaction volumes for office were up 32% last year. Thattrend appears to be continuing this year," he says. What's more,MacIntosh says, pricing is still trending up and cap rates stilldeclining, albeit not as much as in earlier years.

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According to NAR, office vacancies are expected to rise to anaverage of 13.9% by the end of the year from 12.6% in Q4 2006. Netabsorption of office space across 56 markets is projected to be21.9 million sf this year, down from 76.2 million in 2006. Areaswith the lowest office vacancies include New York City; Seattle;Honolulu; Orange County, CA; Washington, DC and Miami, averagingvacancy rates of 9.7% or less.

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Vacancy rates in the industrial sector are expected to average10.1% by the end of the year, from 9.4% in Q4 2006. Net absorptionof industrial space is estimated at 75.9 million sf in 2007, downfrom 189.1 million last year. Los Angeles; West Palm Beach, FL;Orange County; Ventura County, CA; Tucson; and Tampa, FL have thelowest levels of vacancies, at 5.7% or less.

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Retail vacancies are expected to drop to 8.1% in the fourthquarter of 2007 from 8.2% the preceding quarter. Net absorption ofretail space is expected to be 19.9 million sf this year, comparedwith 8.4 million in 2006. Retail markets with the lowest vacanciesinclude Orange County; San Francisco; San Jose, CA; Las Vegas;Honolulu; and Miami, at 4.4% or less.

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In multifamily vacancy rates are expected to remain unchangedfrom the fourth quarter of 2006, at 5.9%. Northern New Jersey; SanJose; Salt Lake City; Los Angeles; Miami; Washington, DC; andNorfolk, VA, all have vacancy rates of 3.1% or less. Hoteloccupancies should average 68.1% in 2007, up from 67.8% last year.RevPAR is projected to be $82.30 this year, up from $78.40 in 2006.Markets with the highest RevPAR are West Palm Beach; New York City;Honolulu; Miami; Fort Lauderdale, FL; and Phoenix, with RevPAR of$125 or more.

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