Economic growth in 2002 will be sluggish due to the weakened typical drivers of recovery, according to a Wachovia Securities report. "Commercial real estate will likely be characterized by further but moderating deterioration," the report says.

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Hotels have shown the most weakness overall, but now the multifamily sector is showing signs of strain, as well. "Absorption has turned negative for the first time in more than a decade," the report says, predicting that rental rates will decline this year due to increase vacancies in the office and industrial sectors.

"On a positive note, it is typically during this phase of the real estate cycle, when marked deterioration has set in, that better real estate loans are made," the report says. "Thus, although the CMBS vintage is expected to be smaller this year, it may be of higher quality, if history is any indicator." The report says that CMBS issuance will decline by 10% in 2002.

The report predicts this year will offer sluggish growth at a level of 1.3% GDP. Typical major drivers of robust growth either seem weak or appear to have little upside. "A robust recovery will likely be driven by an acceleration in sales to consumers, businesses and government," the report says. "Durable goods and residential construction account for almost half of the growth out of recessions."