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DENVER-Retail, the former darling for real estate investment, should slow down compared with other sectors next year, according to Emerging Trends in Real Estate 2007, released by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP at ULI’s fall meeting here. The report is the result of a survey of more than 450 investment and real estate professionals.

Though lifestyle centers in upscale suburban markets will continue to do well, slowing retail sales should take its toll even as new projects open, respondents say. “The only real doubt [respondents expressed] was about retail. When will the consumer stop spending?,” asked Stephen Blank, senior resident fellow of Washington, DC-based ULI, in a panel discussing the survey results. “Unemployment is low, but so are wage increases.”

Fortress malls and solidly anchored neighborhood centers remain strong investments. But the retail development pipeline is full just as the consumer is beginning to wobble, Blank added.

Even though real estate returns are past their peak and will revert to historical averages, investment remains solid. Capital will continue to pour into real estate, but financing standards will become more stringent. Apartments, particularly for mid-incomes tops the list for investment return potential, as higher mortgage rates and housing costs shut entry-level buyers out of the market. Hotels also are expected to do well, as business travel increases and Baby Boomers travel more for leisure. Office and industrial space also will remain strong.

“Buy warehouses,” said Peter Korpacz, director of the global real estate research group of PriceWaterhouse Coopers, New York City. “Owners of industrial properties have struck gold.”

Geographically, the top markets for investment will be “global gateways,” major cities with 24-hour activities, harbor ports and international airports, and geographic barriers limiting sprawl. The result–New York City will be the top market for investment, followed by Washington, DC; Los Angeles; Seattle; Austin, TX; and San Francisco. Orlando; Honolulu; San Jose, CA; and San Diego round out the top 10.

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