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.

In the warehouse market, the group reports manufacturing weakness led to a drop in overall inventory growth. It projects the outlook for warehouse space to be strong but weaker than last year. Warehouse rents, adjusted for inflation are projected to rise 1.2%, with the hottest markets in Milwaukee, Palm Beach County, FL, Orange County, Riverside and East Bay CA.

In the retail arena, some 26 million sf was absorbed in the fourth quarter, down 17% from the third quarter, reflecting the closing of huge retailers including Montgomery Ward and Bradlees. The NAR considers the absorption level strong. The national vacancy rate for 2000 was 9.5%, down 0.7% from 1999, and is expected to rise to 9.9% this year.

Rents rose 3.2% in the fourth quarter, down slightly from the 3.6% growth the previous quarter, and overall, rents are expected to rise only 1.8% this year. Based on rent growth, the hottest retail markets are expected to be in Palm Beach County, FL, San Francisco, Portland OR, Denver and Houston.

In the lodging market, NAR expects growth to slow in 2001 as a result of a general softening in the market. Revenue per available room is expected to grow 3.3%. Based on revenue per available room, the hottest lodging markets this year are expected to be in Boston, Los Angeles; San Francisco, Orange County and Riverside, CA.

In the multifamily sector, renter population increased in the fourth quarter, resulting in the absorption of 42,200 units. At the same time, 52,300 new units were completed, according to the NAR. In the 54 markets tracked, vacancy rates were low at 5% and rents rose 5.2%. The NAR's outlook for multifamily housing projects shows solid growth for the first six months of this year, slowing in the second half. Vacancy rates are expected to slowly rise to 5.5%. Inflation-adjusted rent is projected to increase 2.9%. Based on rent growth, the hottest multifamily markets are expected to be in Austin, San Diego, San Jose, Northern New Jersey and East Bay, CA.