UNITED STATES - Principal Real Estate Investors feels that time of the cap rate compression in the United States has run its course, according to a report investigating current real estate market potential.

Principal put together a report, entitled Expectations & Market Realities: 2008 - The Caution Flag Comes Out, along with real estate research firms Real Estate Research Corporation and CBRE Torto Wheaton Research, which reveals since 2003, cap rates have been falling for most of the major property types to historical low levels, according to the study, with some industrial deals trading in the high 4% range.

However, this situation has now come to an end, according to Andy Warren, managing director for research at Principal.

"Going forward, cap rates are no longer going to be dropping. We are now seeing them move in the opposite direction. And the increase over the next year could be as much as 100 basis points," he said.

The main reason for this is believed to be many of the highly-leveraged buyers have been taken out of the marketplace by changes in the debt markets over the last few months. Such change is expected to force both property buyers and sellers to re-think their pricing in the future.

As there really is no real capital source to could come into the market to replace the highly-leveraged buyers, Principal anticipates high-quality real estate assets in the major markets will typically be able to hold their own on pricing.

That said, it is thought value-added could be more affected the most.

From a property type perspective, retail will be affected, suggested the report, as many segments of the US population have reduced their consumer spending, meaning retail sales volumes could be down in the future.

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