Emerging trends change the way we work, shop and live.

"Give me small and ugly at 10 percent cash-on-cash any day over big and beautiful at 6 percent," sums up one leading real estate industry executive in the just-published Emerging Trends in Real Estate: 1997. With real estate markets now collectively more than halfway toward their next cyclical peak, real estate investors are looking for short-term performance from strong property incomes and are shying away from acquisitions that promise only future appreciation.

Suburban office and industrial warehouses stand at the top of investors' 1997 shopping lists, while retail investments - particularly regional malls - languish. But for next year, the report urges investors to buy downtown office in strong 24-hour markets and upscale luxury hotels, while large discounts to replacement cost can still be achieved.

Underlying investors' restiveness and short-term perspectives are unmistakable changes in the way people want to live and work. The nation's metropolitan areas are increasingly dominated by suburbs. In fact, many fast-growing metropolitan areas especially in the Sunbelt - are no longer cities, but rather "suburban agglomerations," diffuse expanses of subdivisions with embedded commercial centers and no cores. The report points out that investors are increasingly concerned about the "unsettled landscape" in the suburbs - their unrestrained growth, political fragmentation, and traffic congestion, as well as poorly aging housing stock and infrastructure.

The technological revolution, meanwhile, blazes through every aspect of life, reducing growth rates for office space, transforming how warehouses are used and potentially changing the way people shop. Under the circumstances, no one is comfortable making long-term investment decisions.

Published jointly by Equitable Real Estate Investment Management, Inc. and Real Estate Research Corp., Emerging Trends in Real Estate is based on in-depth interviews and surveys of more than 150 leading industry investors, analysts and experts. The report has been published annually since 1979 and is recognized as one of the industry's foremost outlooks.

Among the report's key findings and predictions:

* Through the end of the decade real estate will outperform the bond market but fall short of stock market returns.

* Opportunities for "vulture-like" annual returns of 20 percent-plus have largely evaporated as markets have improved and investors looking for big returns "are up against the shot clock." But there is still time remaining in the current cycle for acquiring properties at significant discounts to replacement costs in certain markets and property sectors - specifically downtown office and top-tier hotels.

* Once a very private business, real estate is being usurped by traders and money managers as traditional lenders (banks, insurers) make fewer whole loans and enter the securitization markets as both buyers and originators of commercial mortgage backed securities (CMBS). On the equity side, real estate investment trusts (REITS) carve out a larger market share, but at a slower pace as these stocks seek to increase market caps through consolidation and acquisitions in order to attract institutional investors.

* Like the best downtown markets, suburbs with the best investment prospects feature 24-hour market dynamics, similar to those discussed for urban cores in last year's Emerging Trends. These characteristics include: attractive neighborhoods, multi-dimensional cultural and recreational environments, nearby shopping, relative security, and established mass transportation alternatives.

* Computer and technological applications are enabling corporations to downsize space per capita and slowing the rate of office growth. Emerging Trends interviewees expect a near-term 20 percent-plus reduction in space per capita for office workers. For retail property owners, the Internet threatens a shopping format that should inevitably "gnaw" into market shares.

* Emerging Trends identifies suburban office as the most favored property type, followed by industrials, hotels, apartments, research & development, downtown office, community shopping centers, regional malls and power centers.

* Retail properties lag as the nation is awash in space, concepts and formats, although Class A regional malls should bottom out during 1997. It appears that Emerging Trends 1993 prediction - 15 percent of regional malls in business at the beginning of the decade will be out of business by 2000 - is coming true.

* Downtown office buildings are rated good, if risky, plays provided they are located in 24-hour markets. The report recommends a strong buy in 24-hour central business districts.

* San Francisco is the nation's strongest real estate market, followed by Seattle, Boston, and Chicago, all 24-hour markets; Philadelphia and Detroit bring up the rear. Some recently hot Sunbelt agglomerations - in particular Atlanta and Phoenix - lose ground, but Southern California markets rebound strongly.

* Development will continue to be controlled in 1997. Investors with stakes in "first-out-of-the-ground" suburban office "will make killings." Industrial and apartment development is underway in many markets and is justified.

* European real estate holds little excitement at present for U.S. investors, with only 11 percent of respondents indicating any interest in investing overseas. The "lone bright spot" is London, now in a recovery mode.

"Everyone has an eye on the horizon looking for construction cranes," said Douglas A. Tibbetts, president and COO of Equitable Real Estate. "There is an understandable distaste for getting the markets over-heated with too much new development. Some selective projects can be justified, but they are the exceptions."

While Emerging Trends says the overall real estate market is 60 percent of the way toward its peak, different property sectors are at different points in the cycle. Industrial is closest to peaking, followed by suburban office, hotels, research & development facilities, and downtown office. Apartments have leveled off after peaking last year, and power centers are in decline. Community shopping centers and regional malls are still trying to find the elusive bottom.

Hotels are predicted to lead in value upticks in 1997 at seven percent, while hotels and suburban office will show the highest value increases over the 5-year and 10-year horizons, according to the report. These two property types will also lead to rent upticks in the coming year, at 6.3 percent for hotels and 6.2 percent for suburban office, the report predicts.