"We, like other landlords, are trying to assess today's economic landscape and how the economy will affect business demand for our type of real estate,"PSB's president and CEO Joseph D. Russell Jr. commented to shareholders and analysts. Russell contrasted the current economic and real estate downturn with earlier slumps, saying current conditions are unlike other recent downturns in that "many of our markets remain in relatively good shape, with a mixture of positive absorption and limited spec construction of multi-tenant spec, office and industrial product."

The REIT's execs pointed out that diversity within its tenant base of nearly 4,000 customers, combined with the flexible nature of its buildings, allows it to capture a wide array of users and perform well even in weakening economic conditions. However, Russell and other PSB execs participating in the conference call said conditions vary considerably from one market to another in this downturn.

PSB's COO and executive vice president John Petersen cited net absorption was positive or flat in all of the company's markets except for Orange County, CA, where the office market--as reported by GlobeSt.com--posted more than one million sf of negative net absorption in the first quarter of this year. Petersen contrasted Orange County with the Northern Virginia market, which posted more than 900,000 sf of positive absorption during the quarter.

Petersen said the company is "still concerned about the more than four million sf of new class A office construction" under way in the Northern Virginia market. Dallas was cited as a strong performer, where occupancy in PSB's properties rose about half a percentage point to 93.1% in the quarter. Its holdings in the Dallas market include Westwood Business Park, an 111,807-sf combination of office and warehouse space with suites ranging from 1,400 sf to 17,000 sf, a range that typifies the company's product.

One possibly vexing market is Phoenix, the PSB execs said in answer to financial analysts' questions during the call. Phoenix is one of the toughest markets that PSB faces in its overall portfolio, the execs said. They explained this is the result of a number of factors, including the housing-based economy in Greater Phoenix metro and the tremendous impact that the housing industry has across the board on different types of businesses in the area, even businesses unrelated to housing.

In addition, a fair amount of construction continues in Phoenix, where one analyst questioned if the market will be able to absorb the new space. Petersen noted "construction is still modest for our product type," meaning that relatively little new space is coming onto the market to compete in the REIT's niche.But, Petersen also said that velocity has slowed and deals are taking longer to close. Customers today tend to "focus on their core operations and don't make real estate decisions until they have to," he added.

On balance, the PSB executives said they were pleased with the company's performance in the quarter in light of the changing economic conditions and the credit crunch, both of which are taking their toll on commercial real estate. "We have been pleased by the resilience that most of the markets are displaying," CEO Russell concluded.