David Lereah, the NAR's chief economist, said the fourth-quarter slowdown should stabilize during the first six months of this year, as the markets adjust to the slower economy. "The expected economic rebound in the second half of this year should bode well for all commercial real estate markets. Vacancy rates should remain generally low, while rent increases will be modest compared to the overall rate of inflation," he says. "The double-digit rent hikes we observed in a number of major markets will not be repeated in 2001, given generally weaker economic conditions."

In the office markets, dot-com failures and the slowing economy had a slight impact on the 54 major markets tracked during the fourth quarter, boosting inventory levels 2.9%. The vacancy rate was 9.9% for all of 2000, down from 10.3% in 1999. Its figures show inflation-adjusted office rent rose 7% last year. Construction climbed to 59 million sf in the fourth quarter, up 7% from 1999.

While the NAR predicts a moderate growth in office demand this year, it says new space will outpace it, boosting vacancy rates to 10.8%. Inflation-adjusted rents will grow at 3.8%. The hottest office markets this year are expected to be Boston, Austin, San Jose, San Diego and Orange County, CA.