The focus of the particular REIT will be key. BMO Capital Markets has an overall neutral position on REITs. "But within that overall neutral position, we favor specific sectors and individual stocks that we think will be able to outperform their peers, even in this kind of sluggish economy," says Adornato. He likes REITs that concentrate on developing retail and mixed use space in downtown areas of the largest cities.

He would avoid office space in suburban areas. "The reason we're cautious there is that demand for office space is very directly related to job growth. With a recovery that so far has not had much job growth, we think the outlook for suburban office is likely to lag the economic recovery," Adornato says.

Another promising sector is warehouses. "We're starting to see demand rise for warehouse space from global trade. It might seem a little early to go into something that's so related to the level of economic activity, but we think now's the time to get bargains in this sector," he says.

Weak Link
Historically, real estate has been a cyclical industry in which property values often reflect fluctuations in the economy. A recovery in commercial property in 2011 will hinge on whether the economy continues to improve. As Adornato puts it, "If there is a double dip, then investing in a whole range of assets, including commercial real estate, is going to look way premature."

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