The report provides detailed trend data on sales and leasingactivity across the world's office, retail and industrial sectorsfor the periods both preceding and following the onset of theglobal credit crisis. Newmark Knight Frank executive managingdirector Peter Kozel points out the subprime crisis in the US isnot the only factor in the downturn and says resolving the UScrisis will not necessarily improve the global pattern.

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"The collapse of the US subprime residential mortgage market wasthe wind that resulted in the current rough seas, but eventuallosses...are expected to total [only] $200 billion. This is a verysmall portion of the equity and reserve base of the globalfinancial system," he says.

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Looking regionally, the report says favorable conditions thatpreceded the current decline could soften the blow to the office,retail and industrial property sectors in North America. "Thecurrent downturn follows three years of robust gains in operatingperformance and market valuations," Kozel notes, adding that thepace of new construction also was not excessive in most propertysectors. "These conditions should help to cushion the impact ofdeclining demand.".

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In Europe, Knight Frank says most markets continue to exhibitpositive dynamics despite the climate of uncertainty and acontinuing fall in vacancy rates. "Overall, the levels of takeuprecorded across Europe during 2007 were very strong, with citiessuch as Madrid, Munich and Dublin recording all-time high volumes,"reports Knight Frank partner Joe Simpson. Nonetheless, the firmpredicts economic growth will slow significantly this year,dropping a full point to around 1.6%. It says downside risks stemprimarily from weakness in the US economy, the continuing creditmarket squeeze, rising food and oil prices and lowered exports dueto the strength of the Euro against other currencies.

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The report says the outlook for South American is much strongerthan elsewhere, as surging demand for industrial and agriculturalcommodities lifts the region's economies. According to the report,even though construction activity is up dramatically, it can barelykeep up with demand. "The current rebound has touched virtually allof the countries in the region, most notably Brazil," says Kozel,but he adds that Argentina's economy has also staged a strongrecovery, while Mexico has benefited from a growing level offoreign direct investment.

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As for the Asia-Pacific region, Knight Frank says commercialreal estate markets there have weathered the global credit crunchrelatively well with robust demand, tightening availability andcapital value growth. It projects China will continue to seedouble-digit growth, while India should record around 8% GDP growthfor '08. The majority of other countries in the region are expectedto grow at a slower rate over the medium-term. However, the reportnotes that further weakening of the US dollar has the potential tocurtail Asian growth by slowing exports. It emphasizes this couldbe compounded by weakening consumer demand in other major Westerneconomies.

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In Australia, Knight Frank reports yields forcommercial/retail/industrial properties appear to be at a cyclicallow. It says a convergence of yields between sectors and grades ofassets that has made many assets appear fully priced could subjectthem to greater price and value volatility if interest rate and thecost of debt continue to rise. "Given the financial marketvolatility, possible recession in the US and falling propertyvalues in Western Europe and the US, the Australian market is nodoubt exposed to greater risk and volatility in 2008," says MattWhitby, research director for the firm's Australian office.

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