According to the report, GDP growth is expected to slow to 2.6%this year, the Fed will likely maintain its "wait and see" approachto interest rates, and developers will bring about 120 million sfof new projects online, as opposed to the 130 million sf opened in2006. Even the big-box chains such as Wal-Mart have announcedreduced expansion plans for 2007. Retail demand is expected tocool, the report says, as homeowners stop pulling out home equityand are faced with adjustable rate mortgages shooting higher.

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That's not to say that tenants won't do well, however. Lessconstruction means the demand will have limited choices, andvacancy is forecast to increase only 10 basis points to 8.9%.Bernie Haddigan, managing director of the company's National RetailGroup, says it should be a good year for quality properties.

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"We've seen this trend in the past six months, there's moresensitivity to quality," Haddigan tells GlobeSt.com. "In 1998-2001,there was a standard market. In 2002, value-driven started movingup, and the cost of capital fueled the frenzy. Starting late 2006,everything has been priced to perfection. There's an enormousdemand for high-quality."

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The report also focuses on specific US locales and ranks the NewYork City area as the nation's strongest retail market. Theremaining top five are rounded out, in descending order, by FortLauderdale, FL; Phoenix; Oakland, CA; and Seattle.

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Lifestyle centers are one of the more successful and developedproperty types across the country, attracting the sought-after babyboomers in record numbers. On the other side have beengrocery-anchored centers, which have struggled. "Now everyone goesto Costco or Wal-Mart, you can find food everywhere, evenconvenience stores," Haddigan says. "People go to grocery storesnow for just very specific items."

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Though most retailers are looking to expand, Haddigan saysthere's going to be some slowdown by the end of the year. Like thehousing market, Haddigan says it's going to take a littlecorrective action on the side of most retail center sellers tounderstand the new pricing expectations. "Buyers are having anincreasing resistance to nosebleed prices, unless you're the bestof the class," he says.

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