Studley, a tenant rep firm, paints a cloudy picture, with EVPSteve Barker calling market performance "lackluster" and accusinglandlords of a "steadfast commitment to unrealistic asking rents."Grubb & Ellis, a more landlord focused brokerage firm, says theslowdown is relative to an overheated market and that the changesare merely a shift toward a more sustainable growth pattern.

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Studley's Barker says tenants are adopting a 'wait and see'attitude in the wake of the credit crisis, opting to executeshort-term transactions "with the expectation that asking rentswill drop over the next six to nine months." G&E acknowledgesthat tenants may be more conservative with their space commitmentsin 2008 but predicts that rent and occupancy gains willcontinue.

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As for new construction deliveries, including renovations andconversions, Studley says they may create some "downward pressureon asking rents." Grubb & Ellis says "strong demand shouldcounterbalance the adverse effect of new and renovated constructiondeliveries" and "supply should continue to tighten," but did temperits prediction.

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"For those owners with upcoming availabilities in competitiveareas, it may be a good time to button up deals before thecompetitive space hits the market," states the report. "Thoselandlords with more coveted vacant space at the higher end of thespectrum may take their time in filling it to achieve higher rents,especially with anticipated rent growth, though at a moderatedpace."

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In the fourth quarter, 92,752 sf of positive net absorption wasrecorded, 25% of the quarterly average over the past four years,but positive nonetheless, pushing the overall vacancy rate down to11.2% in the 62-million-sf market, according to G&E. By class,class B space saw most of the positive net absorption but still hasa much higher vacancy than class A space, 14.2% compared to 9.9%.Rent growth was flat, at 0.4% in the fourth quarter. At year-end2007, city-wide rents stood at $48.09 per sf and $34.04 per sf forclass A and class B space, respectively.

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In the CBD, positive net absorption totaled about 42,000 sf inthe fourth quarter, dropping vacancy in the 44-million-sf market to10.1%--8.2% in the 19-million-sf South Financial District and 11.5%in the 25-million-sf North Financial District, according toG&E. Asking rents in the CBD averaged $50.12 for class A and$36.05 for class B. Average class A rents in the North FinancialDistrict specifically are about $3 above the overall CBD averageand in the South Financial District they are about $3.50 below theCBD average.

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During the first half of the year, office building investmentsales reached a peak of $6.3 billion, pushing prices up 51% from2006 to an all-time high of $512 per sf, according to G&E.During the same period, rents experienced the highest rate ofgrowth since 2000 at 16.4%, and leasing activity pushed vacancydown 100 basis points.

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The second half of the year ushered in a period of markedlyslower growth, according to G&E. Reacting to the uncertainty inthe capital markets, investment volume in the second half of 2007was $1.4 billion, only 22% of the total volume in the first half ofthe year.

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That having been said, the fourth quarter of 2007 representedthe 18th consecutive quarter of positive net absorption, andyear-to-date net absorption surpassed one million sf for the fourthconsecutive year. Average rents increased 21% in 2007, thestrongest year of rent growth in seven years, according toG&E.

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Demand is being fueled in large part by the technology sector,according to G&E. Since 2004, over 475 technology companieshave committed to approximately 5.6 million sf. In 2007, 36% of thetotal transaction activity is attributable to tech companies, upfrom 21% in 2006 and 17% in 2005. Looking ahead, G&E saysanother 40 plus tech tenants are looking to occupy over 850,000sf.

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