Investors in new survey say 'I'll take Manhattan'.

With solid market fundamentals, Manhattan rates as a top market for commercial real estate investment. So says the just-released third quarter edition of PricewaterhouseCoopers' "Korpacz Real Estate Investor Survey."

The survey reports that transaction activity is accelerating after a brief slowdown earlier this year that stemmed more from a decline in the quality of buildings on the market than a decrease in investor interest. Insurance companies, private partnerships and foreign investors are all active buyers, with REITs also participating.

Constraints on new construction, prices generally below replacement cost, substantial near-term lease expirations, a shortage of space and continued job growth are all factors leading investors to take advantage of this hot market.

Nationwide, commercial real estate investment overall continues to be strong and active. New construction continues to occur, albeit at reduced levels, and transaction activity is on the increase - although below the peak levels experienced 15 to 18 months ago. And while the recent increase in interest rates has put some upward pressure on overall cap rates, overall trends appear healthy, and any immediate concerns about a recession are probably unfounded.

"REITs are far less dominant in the role of buyers than they have been in the past," observed Peter F. Korpacz, editor-in-chief of the survey. "Their role continues to evolve as they concentrate increasingly on their internal operations and on attempting to acquire properties through joint ventures."

Nationally, central business district (CBD) office space is showing strong investor interest, according to the survey, with most major CBD markets reporting single digit vacancy rates that in many areas translates to declining rental rate growth. Many suburban office markets, by way of contrast, are seeing a looming threat of over-building and properties that are nearly fully priced.

Favorable office market conditions are also evident in the West Coast markets of San Francisco, the Pacific Northwest and Los Angeles, as well as Manhattan, the survey said.