PHILADELPHIA-The office market here, with a 14% vacacy rate, isone of the strongest in the country, according to a Marcus &Millichap report. In the Center City and University Citysubmarkets, vacancy rates are actually below 10%.

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Fundamentals aren't expected to improve much more with a lack ofnew jobs coming into the area. Researches say that vacancy rateswill increase by 40 basis points by the end of the year.Additionally, landlords' are seeing net operating income decreasedue to the rent concessions they are handing out. Rents are seendropping by 2% this year.

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These strong fundamentals make up for the fact that transactionsare pretty stagnant in the area. Trasaction velocity declined 30%in the last year alone, according to the report. It's still asituation where buyers are looking for lower prices and ownersaren't yet ready to sell.

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Of course, construction is also down, with 243,000 square feetof new office space coming online this year. That is far below thefive-year average of 1.3 million square feet.

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But if things turn around, that could change. There is more than19.7 million square feet of development planned in the area,representing 18% of what exists in the market today.

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