According to Transwestern's 2007 year-end report, the officeinvestment market chalked up $3.1 billion in total sales volume or$1.1 billion more than 2006's total sales. In fourth quarter 2007,investors spent $594 million, which averaged out to $195 persf.

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Researchers caution price appreciation should level off as newsupply comes on line in the next 24 months. For the past coupleyears, Melinda Korth, an executive vice president in Phoenix for CBRichard Ellis, says "buyers were getting great loans and securingdeals, meaning sellers realized they could push prices." As aresult, she there were sharp spikes in asset prices. "If 2008 slowsdown from those levels, it won't be a catastrophe, but the way tobring things back into balance," Korth says.

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Eric Wichterman, senior vice president with Grubb &Ellis/BRE Commercial LLC's Phoenix office, points out office mostlikely will weather an economic downturn better than other producttypes because deals weren't based on pure speculation. "People wereoptimistic in their assumptions when the cap rates dropped," heexplains, "but it wasn't anything like the catastrophicirrationality we had in the housing markets."

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Wichterman also believes that the office market will beprotected due to the investors it attracted. Although many of lastyear's trophy asset trades were done by institutional investors andpension funds, the majority of investors were individuals, privatefund managers or syndicates.

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"We're not like New York City, where practically all officebuildings are high-rises topping $100 million and more," Wichtermanexplains. "Institutional investors are looking for a minimumexpenditure of $20 million."

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Wichterman points out that much of Phoenix's office supply fallswithin the $2-million to $19-million range, which is moreattractive to the private sector. And, he says the private sectorwasn't quite so leveraged and was better able to perform when thecredit crisis hit.

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Regardless of the fallout, neither Wichterman nor Korth see ahuge fall off in office investments. Korth believes buyers andsellers are simply being more cautious when it comes to evaluatingrisk for returns. In other words, buyers are more interested in asure thing when it comes to investments rather than going for thevalue-add assets that were so popular even a year ago. "Thebetter-located, better-occupied and more diversified rent rolls aregetting better dividends and are more popular among buyers," Korthconcludes.

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