"It's not a great surprise," he tells GlobeSt.com. "There is a continued flight to quality."

New York, Los Angeles--including Orange County--Boston, Chicago and Washington, DC continue to account for the majority of all office investment activity nationally. According to Granite, these five markets accounted for 59% of all investment activity year-to-date 2003, which is a significant increase above 2002, when these same markets accounted for 53% of all investment volume. However, two transactions skewed the statistics for total investment volume recorded year-to-date. The recent sale of the GM building and the sale of the John Hancock portfolio in Boston earlier in the year accounted for $2.3 billion, or 8.8% of the $26.1 billion of total transaction volume recorded during the first three quarters of 2003.

Granite points out that the office investment remains highly competitive with all sources of capital active in the market. However, cap rate compression and low interest rates have made it increasingly difficult for equity funds, REITs and offshore buyers to compete with private REITs, such as Wells, Inland and CNL, and high net-worth investors. Interest rates remain the primary driver for real estate investment activity with rates and spreads at historically low levels.