Dozens of bidders for each property available. Eye-popping rates for even mediocre office space. Record-high prices.

It may sound like the area's office rental market circa 1999, but it is actually the market for buying and selling Washington office buildings circa 2003.

Tenants are hard to come by in this market; with the local economy in a lingering funk, few businesses are taking on more space, and plenty are trying to unload the space they have leased. But while that has driven down leasing activity, and in some parts of the region rents, investors cannot get enough of Washington area office buildings, especially in the District and close-in suburbs.

Kaempfer Co. and Real Estate Capital Partners have a contract to buy 1399 New York Ave. NW from DRI Partners. The building is said to have the highest rental rates in town, and fittingly, the buyers are to pay the highest rate ever paid for an office building in the region -- about $505 per square foot. The average price for office sales in the District was $277 per square foot in 2002, according to Cassidy & Pinkard, and that average was an all-time high, too.

Less flashy are the dozens of transactions occurring monthly across the area, including in the suburbs, with sales prices that are nowhere near as high as 1399 New York, but belie the down market nonetheless. Just Friday, Atlantic Realty announced the purchase of Sunset Business Park, a 120,000-square-foot complex of buildings in Herndon, for $14.5 million, and New Boston Fund said it acquired 6401 Golden Triangle Drive, a 78,000-square-foot office building in Greenbelt, for nearly $10.7 million.

And in the District, the preponderance of Class B buildings sold for Class A prices has led to them being called the "Killer B's."

The continued boom in investment sales has given pause to some in the market. Few would call it a bubble poised to burst, at least while speaking for the record, but there is increasing worry that this boom simply cannot be sustained, even, perhaps especially, among those doing the buying.

"At a minimum, we're probably approaching a peak," said Mitchell Schear, president of Kaempfer, soon-to-be owner of 1399 New York Ave. "We all need to watch carefully and make sure the fundamentals stay sound."

There are underlying reasons for the high building prices that are more grounded in reality than, for example, the reasons given for high-priced dot-com stocks in the late 1990s. Nonetheless, any of these factors could change direction in the years ahead, driving down values. Interest rates, for example, could rise, making it uneconomical to buy buildings at the high rates of today, or stocks could start climbing again, making real estate investment less relatively favorable.

Tax considerations, low interest rates and a lack of investment alternatives are the underlying drivers of the high prices.

They start with the conundrum facing investors -- wealthy individuals or institutions such as pension funds -- considering where to put their money in the past year.

"They're sitting around a conference table," said Steve Collins, a principal of Spaulding & Slye Colliers, of a hypothetical investment management group, "and the person in charge of bonds says, 'I might get a couple percent return.' And the person in charge of stocks says, 'I have no idea,' and all of a sudden the real estate guy says, 'I can get a 6.5 to 7 percent yield on an office building,' and his investment sounds pretty good."

"Just as individuals are looking around and wondering where to put their money, institutions are doing the same thing," said Mary Petersen, a senior vice president of Cassidy & Pinkard.

The incentives for foreign investors, especially Germans, can be even better. Under current tax law, German investors in American real estate must pay U.S. taxes on that revenue, but not the considerably higher German taxes. As a result, German citizens can readily put their money into investment pools for a single U.S. property at their banks, according to those familiar with the process. The major source of capital for Kaempfer's purchase of 1399 New York Avenue, for example, was German investors, according to sources familiar with the deal.

Moreover, interest rates are extremely low, meaning that investors can buy buildings with cheap money, thus requiring less of a yield to make a profit. And they are strongly favoring buildings that are mostly leased, rather than pouring money into speculative projects in the hope that a market or a building will turn around.

"In the old days, people would go in, buy a building, finance most of it, making a big bet on the turnaround of a market," said Paul Schweitzer, an executive vice president of Julien J. Studley. "If the market stayed soft, they would run out of rope. That's not how it is this time."

And among the places where investors, foreign or domestic, might buy office space, Washington has risen in popularity because of its lower vacancy rate.

The shift in perception is documented in a survey released last week by the Association of Foreign Investors in Real Estate. The group's members rated Washington their top choice among the cities of the world for investing money, a title that in the past has usually gone to London or Paris, which are Nos. 2 and 3 this year. Washington easily bests other U.S. cities -- New York and Los Angeles were foreign investors' next two favorite places for investing in the United States.

But there are reasons to worry that might change soon. Jim Fetgatter, the chief executive of the association, said that the group's members are intensely worried about the fevered competition for Washington assets.

"Most of their comments about Washington are that there's too many buyers, too much competition, and that the fundamentals basically are not supporting the prices," Fetgatter said .

Many leasing brokers, who are responsible for keeping those buildings full after the investors pay their high prices, say that the divergence between the sales and leasing markets for office space is worrisome. They describe a situation in which low vacancy rates in the District and inner suburbs mask increasing weakness in demand for smaller units of space. Demand for big blocks of space, greater than 100,000 square feet, is quite strong.

Rents have been relatively stable so far, but that may change as landlords enter the third year of a down market and older leases come up for renewal. And there are several buildings now under construction in the District on a speculative basis, including One Metro Center, 1309 L Street NW, and 1717 Rhode Island Avenue NW. If they cannot find tenants, the vacancy rate might move up a notch. And those new building projects that gain new tenants could simply draw existing tenants from elsewhere in the District, leaving space behind.

These are all ifs and worries; it all goes out the window if the economy picks up enough to drive significant new demand for office space. Moreover, because real estate investors are using less debt to buy buildings than they did in the late 1980s, the worst result for overpaying may be lower-than-expected returns on investment -- not foreclosure or financial catastrophe.

So for now, buyers are wary, even as they keep writing very large checks. "The question about this boom is sustainability," Kaempfer's Schear said.

Neil Irwin writes about commercial real estate and economic development every week in Washington Business. His e-mail address is irwinn@washpost.com.

Buyers for the building at 1399 New York Ave. NW are paying the highest rate ever for an office building in the region, about $505 per square foot.