Mar. 23--An ugly economy has affected more than Silicon Valley's residential real estate market; it's pummeling the commercial real estate market as well.

About 8.7 million square feet of Silicon Valley office space was vacant in the fourth quarter of 2008, or 14.7 percent of the total, according to Cornish & Carey Commercial/Oncor International. That's up from an office vacancy rate of 13.7 percent at the end of the third quarter, and up from 11.9 percent in the final quarter of 2007.

As unappealing as the trend may be for landlords, the office vacancy situation is nowhere near as bad as it was following the dot-com bust, said Phil Mahoney, executive vice president of Cornish & Carey, one of the valley's largest commercial real estate brokerages.

"We don't anticipate this being anything like 2002-2003," in which vacancy zoomed to 30 percent and higher in some "micro-markets" like North San Jose, Milpitas and Redwood City, he said, as Silicon Valley shed more than 200,000 jobs.

An aggressive spurt of commercial building left the valley "overbuilt" when the dot-com bubble burst, he said. But that wasn't the case entering the current recession, which should help insulate the commercial market somewhat, unless job losses become much more severe.

Nevertheless, said Mahoney, "We certainly are embroiled in the global recession. We have issues."

For the valley's commercial real estate market, those issues include declining local

employment, scant access to mortgage credit for borrowers interested in buying -- or refinancing -- buildings or land, and uncertainty about the economic future.

Against that backdrop, leasing has slowed significantly in the past several months, experts said, and sales of commercial properties in Silicon Valley are at a crawl.

"There are still some going on, but very, very few. Alarmingly few," said Mark Ritchie, president of Ritchie Commercial. The biggest reason for the slowdown? "Conventional lending is practically none."

Commercial mortgage lenders have tightened their lending criteria in the past year, just as residential lenders have, and are requiring much larger down payments before they will agree to make loans.

According to First American Title Insurance Co.'s national commercial service division, just nine transactions for commercial property of all types closed escrow in Silicon Valley in January and February this year. Last year in the same period, there were 70 completed transactions.

When comparing all of 2008 with 2007, the results are similarly stark.