A year ago, our forecast issue featured a picture of a milk carton with Baby New Year listed as missing. Experts we talked to predicted that 2009 would be a lost year for retail real estate, marked by depressed investment sales volumes, declining occupancies and rents and collapsing property values.

We took a lot of heat for the cover as some accused us of being far too bleak. Sadly, much of what our story predicted came to pass. The year that is ending was brutal. We saw rapid increases in the volume of distressed real estate debt, thousands of store closures and a handful of liquidations. Cap rates and vacancies leapt. Rents fell. Investment sales volume slowed to a trickle. The commercial mortgage-backed securities market was essentially shut down. Development came a halt. In all, the industry absorbed a terrifying blow.

Yet despite it all, companies have survived. The industry soldiers on even if the tune it's marching to isn't as triumphant as in the past. There are winners emerging, including publicly-traded REITs that have seen their prospects brighten faster than many would have guessed.

In March, REIT stocks hit all-time lows coinciding with General Growth Property's bankruptcy. Since then, share prices have more than doubled and REITs' cost of capital has reduced dramatically. Most not only dealt with 2009 debt expirations, but got a jump on 2010 as well and now are working on 2011 debt loads.

As we went to press, news broke that Simon Property Group had hired an adviser to help it evaluate the possibility of bidding on some or all of General Growth's assets. Westfield Group too seems like it has enough cash on hand to strike. Watching how that drama plays out will make for fascinating theater during the early part of 2010.

So what else does next year hold? Fortunes will not improve dramatically. It will still be a tough environment for retail real estate. Consumers have been squashed by unemployment, demolished housing values and the disappearance of credit. None of those factors promise to get a whole lot better in 2010. So don't look for retailers to experience much growth. We should see more closures and the pace of expansion will remain slow. That means rents and occupancies, at best, will bottom out.

Weak fundamentals will continue to put owners in jeopardy. Mortgages originated at the peak of the market with underwriting that assumed rental bumps, increasing occupancy and increasing property values will continue to go bad by the bushel next year.

But most of the damage is already done. Instead, the making of a bottom is occurring — one that will likely get established during the early parts of the year. That, in turn, will set the stage for recovery. Once investors know for sure that prices will go no lower, there should be a rush to acquire. And owners getting discounted properties will be buying with a lot of room for upside and, hopefully, with debt structured to enable them to ride it out.

It is for that reason that many we talked to think that the rebound ultimately will begin in 2010. It will be a slow turn, but a turn nonetheless. Let's just hope there are no more scares lurking around the corner.