"Tenants and select buyers should fare well," predicts Grubb& Ellis Co. in a year-end office forecast. "A sluggish nationaleconomy and the increase in vacancy levels to 12% to 14%, resultingfrom an oversupply of new office construction and slowingabsorption, will result in tenants securing a larger concessionpackage."

Face lease rates are expected to remain relatively stable, butmonthly effective rates should drop about 4% from where they wereat the beginning of 2001, researchers predict. "As the officemarket softens into 2002, cap rates will increase providing buyerswith opportunities with respect to under-performing properties,"the report says.

The company noted declining vacancy rates from 1998 through 2000led to a significant growth in office development this year.Consequently, that new product, totaling 1.5 million sf to 1.8million sf, "significantly outpaced absorption to raise vacancylevels to 12% to 14%," according to Grubb & Ellis. "Withadditional office product in the pipeline, the double-digit vacancylevel is expected to remain through 2002 as absorption will remainvery modest in recovering economy.