NEW YORK CITY-“The unknown speed and strength of the recoveryhave many in the industry anxious,” comments an investor in thelatest PricewaterhouseCoopers Korpacz Real Estate Investor Survey.Combine that with a relative dearth of institutional-grade assetson the market, and the result is what the report calls “calm” dealflow.

However, a majority of commercial real estate investors seelight on the horizon in the form of shrinking cap rates. Averagecap rates declined in 17 of the survey’s 30 markets over the pastquarter, with declines ranging from two basis points for San Diegooffice to 58 for Pacific Northwest properties in the same sector.Over the next six months, survey respondents expect cap rates tohold steady in 18 markets and foresee further declines in 13others, by as much as 100 basis points.

In particular, investors surveyed by PwC cited 100-basis pointpotential declines in near-term overall cap rates for Manhattanoffice, national warehouse and national apartment. For the 18individual office markets in the survey, average overall cap ratesremain lower for central business district submarkets than in thesuburbs. This suggests that investors continue to see less risk andbetter investment potential in CBD assets.