Commercial Sector Faces Cloudy Future.

Is the bloom coming off the commercial real estate investment rose as the opportunistic capital moves towards a reviving technology sector? According to an outlook report for 2007 put out by PricewaterhouseCoopers and the Washington-based Urban Land Institute, the boom in commercial real estate investments is likely to slowdown next year. Home prices are also seen declining.

The emerging trends report, based on a survey of over 600 industry professionals, expects that while the industry is likely to experience a slowdown, returns on most property types are likely to remain satisfactory while reverting to levels closer to their historical averages.

"Most respondents expect to sleep well at night, and are comfortable with high-single digit returns for core properties," according to Stephen Blank, ULI senior resident fellow.

"There may be some who still want to believe that halcyon returns will last indefinitely, but most sense the boom is over."

And William E. Croteau, U.S. real estate practice leader for PricewaterhouseCoopers, noted, "Nothing lasts forever. The fact is that real estate has enjoyed a very healthy 'up' cycle for a longer period than normal.

"Even so, real estate is still viewed favorably as an asset class and there is still a lot of money - especially from private funds and institutional investors - looking for the right opportunity. Although we don't expect any major downturn in the marketplace, it's likely that real estate's overall performance will be more modest in 2007."

The report identifies New York, Washington, Los Angeles, San Francisco and Seattle - which it dubs "global gateway" metropolitan areas - as the top major U.S. markets for real estate investment prospects. The most promising opportunities are seen in the "investment meccas" on both coasts.