Great year for sellers predicted by Landauer.

The year 1998 will be a great one for sellers of commercial property. Investors and lenders have a surfeit of capital, and strong market fundamentals will be promoting optimism, according to the just released 1998 Landauer Real Estate Market Forecast.

Activity in the office, retail, hotel and residential sectors indicate favorable growth through the end of the decade. However, a flattening trend is detected in the industrial sector. Buyers should be prepared to be long-term players because the easy money in this cycle has already been made, the report concludes.

Landauer expects the following to characterize the U.S. real estate market in 1998:

* Real estate is poised for a significant new construction cycle in the 1998-2000 period, and the industry's fortunes will depend upon disciplined management of the cycle.

* REITs were among the most aggressive buyers of office buildings in 1997 and should be even more aggressive in 1998.

* Investment capital is refocusing on shopping centers as returns become more attractive in both high-quality malls and smaller formats.

* Industrial properties are strongly positioned at the start of 1998, but speculative construction is limiting further improvements.

* Investment returns for the wide-ranging senior housing market look excellent.

* Forces in the capital markets imply an extremely active year for hotel transactions at high price levels.

These and other national and regional trends are discussed in the 1998 Real Estate Market Forecast, published annually by Landauer Associates, Inc., a leading international counseling firm. Its 16th annual Forecast analyzes conditions in the U.S. economy and the five major categories of real estate.

"This will be an exciting year for real estate," predicts Hugh Kelly, executive managing director of Landauer's Research Group. "Gains in the property markets could outstrip the Dow Jones averages for 1998. Some inflection points can be seen as well, with near-term improvements in retail a good bet. For offices, we see a cyclical peak coming around the year 2000."

The 1998 Landauer Real Estate Market Forecast has this to say about the major segments of the market:

Office Market Continues Its Vigorous Performance

Once again this year the explosive growth in technological industries is having a positive effect on the nation's requirements for office space, and there is an intense investor commitment to office properties. Large downtown buildings are in demand, particularly by pension funds and REITs increasing their stakes in this sector. Twelve months' total return to offices was 13.3 percent, well above the all-properties return of 11.4 percent for the period and exceeding every other property type with the exception of the small ($2.6 billion invested) R&D office sector.

With prices rising and occupancies strengthening, this is definitely the time for office deals. However, buyers now need to think strategically, beyond the coming occupancy peak, in evolving their holding periods and exit points in a maturing cycle. Phoenix, Denver, Seattle, Boston and Minneapolis are prime examples of top markets benefiting from a strong weighting of technology in their local economic bases.

Interesting Plays Await Retail Investors

Retail real estate represents 1998's top opportunity for contrarian investors and it will be a highly competitive environment for a long time thereafter. Retailing alliances are being formed as capital ventures as well as operational teams. There is considerable flux in the retailing sector, however, and ongoing concern about the high level of consumer debt that still overshadows the economy.

Industry segmentation - strips, power malls, big box, entertainment theme stores, etc. - now rival hotels in defined niche strategies. In-line merchants, shifting to superstore formats, will force the classic shopping center to re-invent itself. Landauer's Market Quality Ratings placed Portland, OR, Chicago and Pittsburgh as the top three retail markets among 60 rated cities.

Industrial Market Shifting, But Still Attractive to Astute Investors

Investors with interests in industrial markets need to be alert to fundamental shifts now underway which will impact the industry during 1998. Warehouse/distribution facilities, the bellwether for the light industrial sector during the '90's and now fully priced, appear to be flattening due to overabundance. Conversely, light assembly plants and R&D facilities are strengthening in their supply/demand fundamentals and investment performance.

Some of the risks lacing the industrial sector are: export growth may be compromised by weaker economies in some parts of the world; tightening of interest rates by the Fed; and possible production disruptions due to a reinvigorated labor movement.

Los Angeles-Long Beach, Riverside-San Bernardino, Seattle and Houston, the cities keyed to international trade, were ranked among the top 10 markets in Landauer's Industrial Market Power Ratings.

Multi-Family Properties Popular with Investors

Again this year, multi-family properties are popular among investors, with an emphasis on large, higher quality properties. REITs and pension funds are attracted by the sector's average 11.2 percent total return. Basic supply/demand conditions are strong, with the mean vacancy rate in the 58 metro areas surveyed by Landauer at 5.1 percent for the past 12 months. An overall increase averaging 1.15 million households annually through 2010, and a steady flow of new renters, is enough to sustain multifamily building volumes at about 325,000 per year.

The wide-ranging senior housing segment of the market is fast-growing, as developers and health care providers are partnering to offer seniors an attractive mix of services. West Coast areas head Landauer's Apartment Consolidated Indicators Scale for multi-family, with San Diego and San Jose leading. Seattle, Portland and Sacramento are also ranked in the top 10.

Key Trend in Hotel Industry is Competition for Market Dominance 

For the coming year, merger and acquisition activity should be lively in the hotel sector, with some multi-billion dollar deals involving whole property portfolios. While the majority of the country will see new hotels, the net effect will be only marginal in room rates and occupancy levels in most places. Forces in the capital markets imply an extremely active year for transactions.

In Landauer's Hotel Equilibrium Forecast, an index of relative market strength, Orlando, Las Vegas and New York lead the list of 42 rated cities.