Dennis Yeskey, principal of Deloitte Consulting LLP and nationaldirector of the Deloitte & Touche LLP Real Estate CapitalMarkets pointed out both the good and bad economic messages thatare fueling the debate. Record prices, strong corporate profits, aresilient economy and low interest rates are all positive factorsfor the sector.

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"If you are a Goldilocks person you had a huge bump last weekwith the fourth quarter numbers," Yeskey said. While the numbersare still preliminary, it appears that the GDP rose to 3.4%, whichis both significantly higher than Q3 results, which averages 2% ofthe GDP, and the Q4 forecast of about 2.2% GDP. "There is a rosyscenario going on here."

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On the other hand, business consumption declined in 2006,dragged down by the lag in residential construction. Yeskey said,"A lot of people are predicting goldilocks based on this going up."Those predicting recession, point to low personal savings rate,corporate scandals, falling home building and the huge tradedeficit, which is likely to come back into focus.

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To back-up the Goldilocks predictions, Yeskey said that vacancyis continuing to decrease across property types and geographicmarkets. Cap rates, which have been falling for the last severalyears, will continue to decline in 2007 but at a much slower andless dramatic rate.

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Additionally, each year there is more money coming into themarket, although the amount of new money has slowed down. In 2004,$150 billion of individual dollars came into the US real estatemarket. In 2005 and 2006 that number was around $215 billion.Yeskey says this is primarily because of the lack of newconstruction in the states – a fact which further backs his pointfor the Goldilocks continuation.

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In the middle of 2006 there was a shift in the countriesinvesting the most within the United States. Until that shiftAustralia and Germany were the largest investors, but now, Yeskeysaid investors from the Pacific Rim and the Middle East are moreprevalent. "The single biggest investor was Hong Kong and Dubai," afact that is likely to continue into 2007.

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US investors, on the other hand, will continue to look outsidethe country for investment opportunities, especially in the largerglobal cities, because institutional investors are looking forgeographic diversification.

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