2002 a challenging year for industry, panel says.

The only sector that promises to do well in the coming year is retail -- such, at least, was the outlook at Real Estate Weekly's annual review and forecast roundtable, which took place on Jan. 15. According to Kevin Danehy, senior vice president of CB Richard Ellis, and Brian Waterman, executive vice president of Newmark & Company Real Estate, Manhattan's office market has too much sub- lease space to hope for an upturn in the next few months, while the future of the residential marketplace remains unsure.

"In the begin beginning of last year, we had expectations for an increase in demand in the office sector, but the overall market increased in vacancy, rental rates have decreased, landlords are offering more concessions," said Danehy. "I don't think that will change dramatically this year."

According to Waterman, "We've reached a flat spot in the marketplace."

Both brokers were hopeful, however, that by 2004 the office situation will improve.

"2003 will continue to be challenging on the demand side of the equation, but I expect to see the market go up in 2004," noted Danehy.

What really worries the industry is the uncertainty over the fate of Downtown, which will be critical to the city's long-term economic health. While the area has enjoyed rental stability for a while, revived by various government incentives, there is concern about how much new office space will upset the equilibrium.

"Downtown is not going to be a 24-hour area as long as it is driven by office tenants," noted C. Bradley Mendelson, executive managing director of the retail group at Insignia/ESG. "There is no real dynamic there to attract people. And it seems to be developed by a public committee, which is a disaster in the making."

Bruce Fowle, senior principal of Fox & Fowle Architects and a member of New York New Visions, who has been involved in the redevelopment process since last September, agreed.

"It's been a struggle," he said. "The current proposals are, unfortunately, real fantasies, but the public is now expecting something of this magnitude. What they need is a plan and only one or two of those proposals could really work."

But while the office brokers are uneasy about Downtown, the retail sector would welcome a replacement to the World Trade Center mall.

"It was the most productive retail area in the city, maybe even in the country," said Mendelson. "It was what attracted traffic Downtown."

In fact, Mendelson is optimistic about the retail sector as a whole, taking last year's unexpected surge in activity as a good prediction of the future.

"Manhattan's retail market has been incredibly strong and I expect that it will continue to increase in value," he noted. "We are seeing retail markets expand and if landlords are careful how they lease their space, they can uphold the trend."

On the other hand, Waterman, Danehy, and Nicholas Stolatis, director of the mortgage and real estate division of TIAA CREF, have prepared themselves for some tough times ahead.

"We will come out of this cycle again, but 2003 will be just bumping along the bottom," said Stolatis. "2004 is when we'll see any tangible stabilization."

"If you look at what traditionally happened in the real estate market, we have at least 18 to 24 months of running flat, but I think that owners have positioned themselves for this environment," added Waterman.