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BOSTON-As home sales in Massachusetts continue to tank, the state’s commercial market is on the threshold of another record year with rising sales having already topped the $3-billion mark, real estate professionals tell GlobeSt.com.

“The way it looks right now, I think we’re set to have another record year,” David Begelfer, chief executive officer with the Boston office of the National Association of Industrial and Office Properties, tells GlobeSt.com. In the Downtown office market alone, sales for the first half of 2006 have already topped $1.3 billion and are on par to exceed the more than $2-billion record for commercial sales set for Downtown in 2004. Sales of suburban office properties are also up, surpassing $600 million in the first six months of the year.

“The first half of the year came out booming,” Richard Bradbury, a vice president with Richards Barry Joyce and Partners’ Boston office, tells GlobeSt.com. Fueling investor interest in the Bay State is a lack of new commercial product, rising rental rates and Massachusetts’ historically strong investor market, Begelfer and Bradbury say.

While rising interest rates contributed to a 27% drop in Bay State home sales in July and created the steepest plunge in residential real estate since 1995, higher interest rates have had little impact on the state’s commercial market. That’s because rising rents have offset increasing interest rates to keep cap rates flat, Bradbury says.

“As interest rates go up, investors expect cap rates go up but that hasn’t happened yet,” he says, noting that cap rates have remained flat and are expected to continue at that level, at least for the near future.

Also helping to fuel the state’s commercial market is investor uncertainty over the stock market, Bradbury adds. In comparative studies, real estate investments have outperformed the stock market in the last eight years, making commercial real estate a better return for investors, he notes.

With a large amount of capital available for investment and pent up demand for properties, the state’s commercial market has become a hot commodity for institutional investors, even those from out of state. “It’s such a strong market that if you are an owner, you really have to wonder how much better you can do by waiting” to sell, Begelfer says.

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