Wachovia Securities predicts that the yield on 10-year Treasuries will rise in the near term, pushing up fixed-rate borrowing costs for real estate investments. Although the 10-year Treasury yield has actually dipped in the last few months to 4%, Wachovia anticipates that robust economic growth will inevitably lead to job creation and higher rates.

Economic Forecast 2004

	1Q 2004*	2Q 2004*	3Q 2004*
GDP	4.0%	4.6%	4.4%
Unemployment	5.8%	5.7%	5.6%
Consumer Price Index Inflation	1.6%	2.0%	2.1%
Fed Funds Rate	1.0%	1.25%	1.5%
3-Month LIBOR	1.25%	1.4%	1.65%
10-Year Treasury	4.5%	4.7%	4.9%
Note *Forecast
Source: Wachovia Securities

Tight markets with high barriers to entry and chronic housing shortages — such as Southern California and the Bay Area — are predicted to maintain low vacancy rates in 2004 despite the addition of new units, reports Marcus & Millichap.

There's a light at the end of the tunnel for hotel owners: occupancy is expected to grow by 3% to 4% in every region of the country in 2004. In South Atlantic cities, such as Baltimore and Raleigh, N.C., occupancy is projected to jump from 61.8% in 2003 to 65.2%.

Hotel Occupancy Projections

	Occupancy
	2003*	2004*
New England/Mid-Atlantic	66.0%	68.8%
North Central	58.9%	61.4%
South Atlantic	61.8%	65.2%
South Central	58.1%	61.1%
Mountain and Pacific	64.3%	67.8%
National	61.8%	64.9%
*Forecast
Source: Smith Travel Research, Torto Wheaton Research, Hospitality Research Group of PKF Consulting

Good news for the industrial sector: deliveries are decreasing, while absorption is growing. In the third quarter of 2003, 17.5 million sq. ft. of industrial space was delivered, down from 20.4 million sq. ft. in the second quarter of 2003. In contrast, absorption shot up from 1.4 million sq. ft. in the second quarter to 10 million sq. in the third quarter.

Discounters, take note. Between 2000 and 2002, the percentage of households with incomes of $70,000 and greater that shop at dollar stores rose by 8%.

Percentage of Households by Income Group that Shop at Dollar Stores

	2000	2002
Less than $20,000	67%	74%
$20,000 - $29,000	62%	71%
$30,000 - $39,000	57%	67%
$40,000 - $49,000	54%	64%
$50,000 - $69,000	48%	58%
$70,000 and over	37%	45%
Source: ACNielson Homescan Panel, 2003

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