Commercial real estate investors and developers should brace for more uncertainty in 2008 as fundamentals and pricing continue to soften, based on the newly released Emerging Trends in Real Estate 2008 report.

The bellwether survey, which polls 600 U.S.-based real estate executives, is conducted annually by trade group Urban Land Institute (ULI) and accounting firm PricewaterhouseCoopers.

Much of the report states the obvious. For instance, more than 78% of all respondents expect to see more stringent underwriting practices in 2008.

Even so, more than half of respondents believe that real estate investments will still outperform U.S. stock and bond markets next year. They also expect “ample capital sources” to cushion the property markets, a view that’s hardly synonymous with prospects of tighter underwriting.

“The commercial real estate market has been going full throttle for several years with easy money and low interest rates [leading to] questionable lending practices and highly leveraged spending,” says Tim Conlon, who leads the U.S. real estate practice at PricewaterhouseCoopers. “But the run went on too long for some participants.” That explain why Conlon believes a correction could be good for the industry by curbing over-development and flushing out naïve investors.

Beyond general trends, respondents were also asked to pinpoint markets that are poised to outperform in 2008. All of the top picks shared the following traits: a major international airport, an educated workforce and walkable residential neighborhoods. These “markets to watch” have attracted corporate headquarters by luring so-called business elites into their cities.

Emerging Trends survey respondents chose New York City as the nation’s “hottest commercial real estate market.” Judging by its low vacancy and extremely expensive rents, respondents did suspect that the New York City office and apartment markets have already peaked. Many respondents even viewed New York City as a leading bellwether for the rest of the U.S. commercial real estate market.

Other markets to watch include:

• Seattle: Growth controls and geographic barriers have helped drive concentrated mixed-use developments
• Washington, D.C.: Because the government “never stops” and the “ever-churning” Washington machine insulates real estate owners from sudden downturns
• Los Angeles: Orange County may have one of the most overbuilt office markets in the nation, but L.A./Long Beach is the most active port area in North America
• San Francisco: Resurgent technology businesses have driven office and apartment rents into the stratosphere
• Boston: Another victim of the “tech wreck” is now drawing a diverse range of office-using tenants such as professional services and biotech firms
• San Diego: A leading indicator for a market correction as businesses flee the city’s high rents for Del Mar and Oceanside
• Denver: The only landlocked city on the list, Denver has successfully created an exciting urban core in the midst of a sprawling suburban area that’s connected to downtown by light-rail transit

View the full report of Emerging Trends in Real Estate 2008, at Urban Land Institute online.