The region's apartment market "has clearly been the bright spot," according to the newly released study, which says that "effective rents continue to rise steadily" and predicts "continued rent gains" because "there are simply not enough new projects under development to satisfy near-term demand."

LA's office, industrial and hotel properties have all felt the impact of the slowing economy, the report says, but it says those three sectors are all "fundamentally sound." Office vacancies in Southern California stand below the national average, it notes, while the industrial market "will remain one of the healthiest in the nation."

Authored by Doug Herzbrun, Lee Menifee and Jane H. Dorrel, the report describes 2003 as a time of transition because it will be marked by a curtailment of investment activity by some capital sources at the same time as more properties come onto the market. The combination of the two "will temporarily result in a less competitive acquisition environment," the report says. However, it expects an eventual business expansion to boost the economy, taking up where consumer-led spending left off, so that the outlook for the economy and property markets will have improved by 2004. When that happens, the report says, "US institutions will accelerate their acquisition activity."

The recovery of the property markets also will boost interest in REIT stocks, according to the report, which forecasts: "Capital flows into REITs will pick up and they will return as major buyers of stabilized properties."

The report notes, as many in the commercial real estate world have observed, that investor interest has grown in the past two years despite an economic downturn that "slashed tenant demand for nearly all property types." Despite this decline in the performance of commercial properties, experts say, investors still like real estate because it still appears to be a safer bet than many other forms of investment.