The researchers say velocity slowed the first half of yearcompared to the same period last year as investors and lendersmoved away from lower-quality assets and the secondary and tertiarymarkets that had experienced some of the most significant pricegains in recent years. While primary markets continued to registerappreciation, prices in lesser markets dipped to early-'06 levels.Similarly, the cap rate spread between primary and tertiary marketsnearly doubled over the past year to approximately 160 basispoints. Cap rates for high-quality propertiesin top markets average6%, while assets in other markets are selling at caps in the mid-6%to high-7% range.

The report points out that reduced CMBS lending has reduced thepace of large portfolio sales and REIT privatizations, majordrivers of industrial sales volume last year. At the same time, itsays there is still a significant amount of private equity seekingopportunistic plays. In addition, though foreign investors accountfor only a small share of total industrial sales, dollar volumefrom foreign investors was up 22% over last year, with capital flowinto US real estate expected to rise further.