For instance, it's "very hard to buy [office properties] in New York City right now," he confided, adding that while Trizec has bid on several office buildings in Manhattan over the past two years, it has often come out of those competitive processes as the low bidder.

But he added that the firm plans to dispose of "lots of our properties" and pursue joint-venture opportunities whenever the deal makes sense. At the moment, Trizec's portfolio is trading at a 9% cap rate.

Moving forward, Callahan said Trizec will pay close attention to investing in a few cities where office market fundamentals have deteriorated since March 1999, such as Seattle, Denver, Houston and San Francisco. In those markets, Callahan foresees "little or no new construction going on," but a healthy amount of office leasing taking place. In Dallas, Trizec completed nearly 60% of its planned leasing activity for the year and it's only March.

In terms of national office market conditions, he projects that overall vacancy rates will average 15% by March 2005, based on Torto Wheaton research. From a capital markets perspective, investors still value REIT stocks and should continue to have faith in them, he contended. Pension funds are starting to allocate, in some cases, 10% of their portfolios to real estate stocks.

But there are still some wildcards that could affect the office market, even though employment levels are starting to stabilize, Callahan noted. "When will economic growth equate to employment growth?" he pondered. "And when will there be productivity gains instead of no hiring?"

He also said global offshoring effects have begun to impact corporate America. In 2004, the office sector will improve, he said, but the real tangible recovery will come in 2005. "It will be a very uneven recovery based on where construction deliveries are."