A wave of capital continues to flow into commercial real estate as investors remain cautious about other investment vehicles in a tepid economic recovery. The total value of assets in real estate investment trust (REIT) mutual funds increased by more than $5.5 billion through the first half of 2003, with the flow of new funds accounting for more than one-third of the gain, according to Lend Lease Real Estate Investments.

Increasingly, both institutional and private equity investors perceive commercial real estate as a safe haven. Lend Lease estimates that annualized returns for real estate over the next four to six years will be in the 7% to 8% range. While that may not sound spectacular by historical standards in real estate, battle-weary investors who have been burned in the stock market have come to value stability.

"This cycle has been unusual with prices rising, or at least holding, while rents and occupancies were declining. This has been a result of historically low interest rates, availability of capital and lack of alternative investments," says Harvey Green, president and CEO of Marcus & Millichap Real Estate Investment Brokerage Co. "As the dynamics change, with an improving economy, higher interest rates and better stock market performance, the real estate investment market will experience a transition. However, the last two years have reignited long-term interest in real estate as a hard asset," adds Green. Click here for more of Marcus & Millichap' special report.