Colliers forecasts that 2005 will be the transition year from a strong tenants' market to one in balance, and noted anecdotal evidence that landlord concessions such as short-term free rent and space improvement allowances are already being reduced.

The shift is expected in part from ongoing job growth, which helped companies expand and fill 224,000 square feet of empty O'ahu office space last year, Colliers said.

The leasing activity resulted in a second straight year of more space filled than vacated, which translated to a 10.3 percent vacancy rate at the end of 2004 compared with 11.8 percent at the end of 2003.

Colliers projected that if job growth projections for the next two years are realized, the vacancy rate should fall below 9 percent by the end of 2006.

Rent tenants pay likewise is expected to rise. The average gross rent per square foot per month being asked by landlords rose 8 cents last year to $2.22, a 3.7 percent increase that was the first in four years and the largest in a decade, Colliers said.

The real estate firm said landlords in Leeward, West and East O'ahu markets should begin to have the upper hand in negotiations, though the overall market should be in equilibrium.

"Landlords who have experienced an increase in tenant demand will begin increasing their asking rents and negotiating with a harder stance towards concessions," Mike Hamasu, Colliers consulting and research director, wrote in the report.