"Puget Sound office owners are in for another tough year as employment figures fall into the red and sublease space and new product continue to enter the market," says Gregory Wendelken, regional manager in the firm's Seattle office. "Numerous start-ups have shut down, pushing some of the sublease space into the direct vacancy category and denting owners' expectations for NOIs this year. Unfortunately, even when the economy stabilizes, there will be fewer companies and the surviving businesses will be wary of taking on excess space in anticipation of expansion."

Vacancy will continue to rise this year, according to the report, but it will do so more slowly as most companies have already shed excess space. By year-end 2002, according to the report, direct vacancy will hit 11.5%. This forecast represents a 2.5% increase from 2001, which is just half of the jump in vacancy registered during calendar year 2001.

Asking rents, which declined 8% to $27.36 per sf over the last year, will continue to fall victim to the economic slowdown over the next year, according to the report, as the effects of high vacancy push asking rents down another 4%. This, of course, means net effective rents-- down 13% to 15% over the last year, according to the report--also will continue to fall, as owners continue to offer prospective tenants free rent, tenant improvements and moving costs.