As Kent Goodwin of GIC Real Estate responded, "I don't remember the office investment markets ever being filled with so many contradictions. Whether to buy or sell right now is more a reflection of financial strategy than market timing. ... The worrisome aspect is the declining fundamentals, and the deep, market vacancy hole that has been dug and could take years to fill up to stabilized levels. ... More downside risk than upside potential in this asset class."

What makes this down cycle interesting (unique?) is that it is demand driven. Property & Portfolio Research summed it up in a report earlier this year. "Unlike the previous real estate cycle, overzealous development is not the main culprit behind the market's current malaise. Rather, it has been the rapid erosion of demand that has deluged the market with a flood of sublease space while leasing activity has dried up." (Questions? Contact George Manthous.)

Likewise, Chris Hartung at WR Hambrecht + Co writes in a report on California Office REITs this week, "We expect most office stocks will experience price contraction over the remainder of 2003, as the lack of office space demand is more dire than projected in the market, in our opinion."

--Peter Pike