At the same time, a new report from Marcus & Millichap'sNational Office and Industrial Properties Group shows that despitethe clear decline in deal flow, the US office sector remains poisedto generate more than 4,000 transactions in 2008. That would rank2008 on a par with 2004 levels and well above the average from 1995to 2005.

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In its recent revision of GDP figures for the second quarter,the Commerce Department adjusted its estimate for the nation'ssecond-quarter GDP growth to 3.3% from its earlier forecast of1.9%. The new figures confirmed what Nadji had forecast during awebinar conducted by GlobeSt.com earlier this summer, and the GDPfigures carry significant implications for the commercial realestate industry.

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Nadji explains that he expected the 3.3% GDP growth for a numberof reasons. First, the economic stimulus checks that US consumerswere spending provided "a large boost in consumption" thatbolstered economic growth. Second, Marcus & Millichap expectedthat rising US exports would help to offset the drag that housinghas been exerting on the economy.

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Another factor that Nadji cites is the relatively mild loss ofjobs in this downturn compared with previous cycles. "Going intothe fall of '07, I thought we were headed for a milder loss of jobsthan we faced in previous downturns because payrolls remained verylean and companies stayed very conservative in their hiring duringthe expansion cycle that we had from December of 2003 to Decemberof 2007," Nadji explains. "Fewer jobs gained on the way up meansfewer jobs lost on the way down. From the standpoint of employment,which is what's most important for commercial real estate, itdidn't look to us like there were going to be massive jobcuts."

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Nadji is quick to point out that he is not trying to paint arosy picture or to deny that times are uncertain, but to put theeconomic data into perspective. "While it's good news that wedidn't have bloated payrolls and are therefore not going to havesevere job cuts, the bad news is that we don't have any impetus forgrowth right now, so it's not like a big rebound is waiting for usaround the corner," he says.

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Despite the relatively robust second-quarter GDP figures, Nadjisays that Marcus & Millichap is "quite concerned with the restof the year," expecting that GDP growth will settle at about 1% to1.5% in the second half of 2008. While those numbers are weakerthan the 20-year average of 3% for GDP growth, they are nonethelesspositive, the Marcus & Millichap research chief points out.

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Another salient point, Nadji notes, is that even without thebenefit of the economic stimulus spending, the economy would havegrown by nearly 2% in the second quarter. Housing is dragging downGDP growth by about 1% to 1.25%, he says, so if housing would justbottom out--which Marcus & Millichap expects to be the case byabout mid-year next year, "We would be back to pretty normal growthnumbers," Nadji says.

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Nadji's call to keep economic numbers in perspective echoes atheme in the report by the Marcus & Millichap National Officeand Industrial Properties Group, which although market velocity hasdeclined from the boom years, the office sector remains poised togenerate 2008 transaction levels "well above the average from 1995to 2005." The report advises that, "Given the volatility of thecapital markets, investors must separate the actual from theperceived to succeed in today's office investment climate."

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Alan L. Pontius, managing director of the Office and IndustrialProperties Group, comments that although deal flow has slowed incomparison with peak levels of 2005 to 2007, today's levels "do notjustify the 'market is dormant' perception that permeates theinvestor mind-set today." According to the new report on officetransactions, velocity declined 27% in the first quarter of 2008compared to the same period last year, with higher-priced tiersbeing hardest hit. And while velocity and dollar volume have bothdeclined, they are tracking toward levels well above the lastmarket bottom of 2001.

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The new report by the Office and Industrial Properties Groupalso observes that, while many industry experts focus ontransaction dollar volume when assessing the health of the market,focusing on dollar volume alone "generates an artificial high-tide"because it doesn't take into account unusual one-time deals likeBlackstone's purchase andsubsequent reselling of the Equity OfficePortfolio. "These transactionsinflated the average monthly dollarvolume during the first sevenmonths of 2007 by 27%," the Marcus& Millichap report notes.

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The report also makes the point that, "While there is noquestion that the credit crisis has made financing largertransactions particularly difficult and velocity may constrictfurther in the coming months, both equity and debt capital remainavailable for properly underwritten assets with positive cashflow." As examples it cites the recent closing of the GeneralMotors building and three other office assets in New York CitythatMacklowe Properties sold, plus the pending sale by Deutsche Bank ofseveral office assets it took back from Macklowe.

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