Both total and net absorption will remain strong, according to Colliers, at 27 million sf and 5 million sf, respectively, despite a predicted rental decrease of 10% to 20%. After a 112% rise last year, such a decrease is in line, according to managing director Jeff Fredericks. "Given these expected outcomes, it would be difficult to argue that the wheels are falling off for Silicon Valley owners and developers of real estate."

The investment market shows healthy levels of interest, though it will likely not reach the $2 billion of activity that took place in 2000. In the office market, where vacancy at year's end was at 1.85% (compared to 3.72% at the end of 1999), demand is expected to remain strong. Of the 5 million sf of space under construction, nearly 85% is already spoken for.

Phil Arnautou, a partner in Colliers' investment advisory group, believes owners will be more selective this year when gauging the viability of tenants and will look for a more secure form of credit than a list of VC funders. He expects "this trend to grow this year but we still see the professional office sector dominated by technology companies."

The outlook for the R&D market is Darwinian, and Colliers' experts warn that 2001 would be the year that cleaned house, in which companies reporting profits will clearly have the upper hand. After years of above average absorption and soaring rents in the R&D sector, equilibrium will return. Tenants will see a number of solid sublease opportunities at below market rates, though some transactions will take place because owners are recapturing space. Industries that suffer downsizing in the first half of 2001 are expected to recover nicely in the second half.

South county rents will stay strong because the area is still below the rest of Silicon Valley. Along I-880 growth will approach a more sustainable level, particularly in Fremont, which has recently placed emphasis upon higher-density development near transit hubs, and has become a more central location served as it is by BART, AC Transit, and the Capital Corridor Train.