"Tenants and select buyers should fare well," predicts Grubb & Ellis Co. in a year-end office forecast. "A sluggish national economy and the increase in vacancy levels to 12% to 14%, resulting from an oversupply of new office construction and slowing absorption, will result in tenants securing a larger concession package."

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

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