Wachovia snapshot.

Wachovia Securities released its inaugural SectorView forecast featuring forward-looking snapshots of property sectors in the 50 largest metropolitan markets.

With office vacancy rates nationally heading above 17 percent, and sublet space continuing to drag on the market, Wachovia expects further erosion in rents well into 2004. Property values in the Central Business Districts are weathering the storm better than in the suburban markets generally due to stronger rent and vacancy performance and capital flows.

In the apartment sector, Wachovia expects declining revenues through 2004 in just over half of the 50 largest metro markets it covers. Vacancy should peak above 7%, with revenue turning positive at around 1.1% next year. Property values have been supported by declining cap rates, but capital flows are slowing, shifting the sector toward a buyers' market for the first time in years.

The retail sector has seen a brisk pace of property sales, which were up 25% heading into the third quarter year-over-year. Revenue for the sector, we believe, will be flat for 2003 and rebound slightly in 2004. With an overall stable outlook for the sector, we are watching closely for the impacts of increasing consumer debt and declining homeowner refinancing.

The hotel recovery is underway, but the sector is still watching for increased corporate travel to drive revenue per available room (RevPAR) higher. This key bench-mark remains down about 14% from cycle peaks in 2000, but Wachovia is forecasting a fourth-quarter recovery followed by 2-4% growth in 2004. Operating margin pressures from increased costs and a lack of pricing power will delay a measurable improvement in profitability to 2005.

The industrial market is experiencing cycle-high vacancy rates of 11.7%, which are expected to climb to 12.8% in 2004. Construction has all but shut down, with total delivery of new space forecast at about 1% of the market in 2003. A recovery in this sector will be driven by new demand.