Principal Real Estate Investors, Real Estate Research Corp. and CBRE Torto Wheaton Research have released “Expectations & Market Realities: 2008 – The Caution Flag Comes Out,” the fifth comprehensive annual forecast for the commercial real estate industry by the companies.

The report found that commercial real estate investing has been changed by the decelerating U.S. economy and volatility in the global credit and subprime mortgage markets. Because the effects of this instability are likely to be felt soon, the report advises investors to be cautious in 2008.

The report reviews the impact of the global credit market choppiness on commercial real estate and capital markets pricing and investor’s risk tolerance levels.

“Heightened investor caution is critical, given increased volatility as the era of cap rate compression comes to an end,” said Randy Mundt, president and chief investment officer of Principal Real Estate Investors. “While the capital markets disruption has increased the level of uncertainty over the short term, increased investor focus on risk pricing and risk management will be a positive for the health of the real estate asset class over the longer term.”

Some key findings of the report: commercial real estate has the opportunity to demonstrate its relative value and resilience in the face of volatility in the capital markets; the disruption in the capital markets has brought the era of cap rate compression to a close; and the 2007 global credit crunch provides a reminder that downside variances and reversal of investor sentiment can occur quickly and unexpectedly.