The real estate industry's relative conservatism in the face of recent prosperity will pay off, he predicts, by keeping the current downturn from mimicking the disastrous erosion of real estate values last seen in the early 1990s.

"What building we did in the late '90s was just to meet demand," Korpacz tells Globest.com. "I think that's true of most of the real estate types we're talking about here. Otherwise we'd be wringing our hands worrying about another situation like we had 10 years ago."

Korpacz says he expected the industry to follow the economy's downhill slide, but what he didn't see coming was how quickly real estate has reacted to larger economic trends. "The big surprise is the abrupt nature of it happening," he says. "There was no transition. It was like somebody turned off a light switch. One day there was nobody coming in to rent."

He cites information technology as the factor that caused real estate markets to tumble right alongside the overall economy, rather than lagging behind as it has in the past. "The effect today is quicker because of the information sources out there," he says. "Information is so readily available, things track almost simultaneously."

The endless stream of fresh economic data, so much of it negative, has had a profound effect on how real estate executives run their businesses, Korpacz says. Caution is the new byword. Prudence is money in the bank.

"Two months ago, people I talked to were saying, 'The Fed is doing its job, there's going to be some kind of a soft landing,'" Korpacz recalls. "They're not saying that now. Industry people--owners, brokers, developers--are almost speaking with one voice."

The retail market has shown the most vulnerability to current economic conditions, the report says. Last year, 47% of the nation's retail stock was in a contraction phase. By the end of 2001, that figure is projected to be 75% and 2003 could find more than 80% of the retail market in contraction.

However, while retail vacancies are expected to rise over the next five years, the amount of available space will remain well below that of the early 1990s, when the amount of empty retail space spiked up to 18.6%. Korpacz predicts a 10.3% vacancy rate for the retail sector at year-end.

While the office market is also moving into a contraction phase, Korpacz says changes in demand, not overbuilding, are responsible. Employees, he says, literally are working more closely together. "Space per employee went from 218 sf to roughly 192 feet, and there's 11.6 million employees out there," Korpacz tells Globest.com. "We're stuffing people into less space. Corporate America is saying, 'We don't need those big fancy offices anymore. Everybody can do with a little less space.' "

Of course, the continuing trend of layoffs and closures, which, while led by the tech sector, has rippled throughout the economy, has also contributed to the rise in office vacancies. So far, however, industry players have remained calm in the face of rising vacancies.

"Developers are saying, 'We're not going to build now, we're going to watch,'" Korpacz says. "They'll watch for signs that the recovery is on the way. And when they see the economy start to come back, they'll be quick to get stuff back in the pipeline."

The report shows the amount of available office space nationally rose from 8.9% to 9.5% over the last year. While Korpacz expects vacancies to increase in the short term, he predicts a slow turnaround in the office market through 2005 for select markets including Columbus, Minneapolis, Fort Lauderdale, Austin and Las Vegas.

Conversely, the Miami, Hartford, Tampa, Washington, DC, and San Jose markets are predicted to experience increased vacancy rates through 2005, possibly dipping into recession.

Industrial markets are taking a slight hit but should rebound more quickly than the retail and office sectors, despite the demise of many e-tailers, the report says.

The study's sole bright spot is in the multifamily market, with demand predicted to remain particularly strong in the South and West regions. Moderate rental growth is expected to continue throughout much of the nation.

"The wild card in this whole thing is the consumer and the consumer right now is still buying," notes Korpacz. "Consumers are probably going to back off a little, might get a little conservative. How long will that last? We'll have to wait and see. Is the lack of excess supply going to do the job this time? It should.