Real estate still seen as strong investment in 2003.

Commercial real estate will be an attractive investment alternative in 2003, according to Cushman & Wakefield. The reasons are low interest rates, the availability of capital and the stability of real estate as an investment.

"Other investment alternatives such as the equity markets and fixed income remain unattractive," said Tim Welch, executive managing director, financial services group, Cushman & Wakefield.

"In today's market, real estate generates an annual return of 8 to 9%. As a result, real estate continues to be of interest to investors," the veteran real estate executive said.

Institutional investors, private investors, REITs and off-shore capital have been investing in real estate in recent months. The competition for properties has bid up prices in many cases.

There is a strong preference for well-leased office buildings with good credit tenants. This, combined with advantageous use of low interest rates from the debt markets creates a profitable scenario for the investor. The recent sale of 399 Park Ave. in New York City for $1.06 billion by Citigroup to Boston Properties, demonstrates that investors can structure acquisitions with little risk, with a low interest rate mortgage and attractive income stream from tenants paying market rents on long term leases.

"When you can borrow at less than four percent, and you have credit-worthy tenants with long-term leases, it's a great investment," Welch said. "We expect these types of transactions to continue to get completed in 2003."

Industrial real estate never seems to go out of favor. A low risk asset class, industrial properties seldom stay vacant for long periods. Atlanta, Dallas, Chicago and Northern New Jersey are the hubs of industrial activity.

Welch said one of the fallouts from the Sept. 11, 2001 terrorist attacks was a re-thinking of manufacturers trend to the "just in time" process, wherein manufacturers kept inventory for a minimum number of days. As a result of delays in shipping due to heightened security, manufacturers have come to realize they need to keep more inventory on hand "just in case" there is another terrorist event, or a serious threat of such an event. This will increase the demand for industrial space as the overall economy improves in 2003.

Retail as an asset class has been holding up well during the economic downturn.

Demand for grocery anchored retail projects has been particularly vibrant, and power centers (a collection of big box and small box stores) are back in favor with investors.

"A well-located project with high consumer traffic in a medium to high income area will be looked upon favorably by the investment community," Welch said.

The retail sector has experienced a significant amount of building in recent years.

According to F.W. Dodge, 52.1 million SF of new retail construction was added in 2001, and another 18 million SF was been added through the first half of 2002.

There are vulnerabilities in this market. Second and third-tier malls have fallen victim to competition as new mega-malls have been built. And some grocery anchored centers are facing competition from Wal-Mart's, which has begun selling food in its stores.

Cushman & Wakefield recently reported in "Main Streets Across the World," its survey of retail rents globally, that rents have reached $700 per SF in Midtown Manhattan's most desirable corridors, the highest in the world.

"This data is highly site specific and the decision to locate in Midtown is driven as much by promotional as sales considerations. Nevertheless, that statistic reflects well on the strength of the retail sector," Welch said.

Multi-family continues to be an attractive investment, but more caution exists in the market than 12-18 months ago. A first mortgage for a home is more in reach for a young family as a result of low interest rates. First-time home ownership competes directly with the rental market.

At the other end of the demographic scale, Welch sees the growing group of "empty nesters" as future growth potential for the apartment market. Also, the largest group of teenagers in American history will be entering post-college apartments over the next few years. "The long-term potential of the multi-family market is strong," he said.