Typical deals are being done at 20% to 25% off asking rates, according to the report, with concessions averaging four to six months free rent and TI's in the $25- to $30-per-sf range for first-generation space and in some cases second-generation space. "Tenants have not seen a more favorable leasing market in 15 years; now is the time to upgrade space, move into a better building or better neighborhood," according to the report. "Tenants with good credit will hold all the cards and will be able to improve their space and reduce their occupancy costs."

With slight employment growth penciled in for 2003 and real growth expected over the next few years, G&E predicts landlords will begin insisting on shorter-term deals as they try to ride out this period of heavy competition. "They do not want to lock into discounted rates for more than five years; secure in the knowledge the market will be much different when these tenants are up for renewal," states the report. "Most landlords have already made it their mission to keep their existing tenants; those that have not will be the ones holding all the vacant space."

The expected modest growth will come from government, medical, biotech, finance, insurance and real estate as well as business services, according to the report. At that same time, with speculative development all but off the table until 2004 at the earliest, construction is not expected to add to the office market woes.

As a result, vacancy rates are expected to stabilize in 2003, peaking at 13% Downtown and 20% in the suburbs. As well, net absorption is expected to rebound from (480,000 sf) in 2002 to 300,000 sf in 2003.

On the investment side, low interest rates and money fleeing the stock market has kept values high despite rates and occupancies. According to G&E the current situation also may be an opportunity for local investors to add to their holdings in 2003 as some institutional and national owners begin to re-evaluate holdings in "second-tier" markets like Portland.