"Right now we need to see more of a separation between the better and less capable companies. The valuations are very rich right now," he says. "Investing across-the-board or in a (real estate) index fund is a big mistake right now ... You're better off, I think, buying into one of the better mutual funds with a track record and presumably people who can figure out how to handle all this."

On a sector-for-sector basis, fund managers say one of the better places to be in 2003 was retail, and that may again be the case this year. They note that the sector, in general, has benefited from consolidation and a continued spending by consumers.

"We have more people in this country in their sort of peak earning and spending years than at any other time history," says Grupe of NAREIT. "Those are slowly changing demographic trends and are not going to change any time soon."

The view on rental apartments is not as bright, as owners of existing properties are being squeezed by low interest rates from two directions. On the demand side, vacancy rates continue to increase as more consumers take advantage of low mortgage rates to buy homes. The jobless economic recovery has also hurt rental demand, analysts note. On the supply side, the cheap availability of financing has apartment owners confronting robust construction of new units-an infusion of new competition despite the low demand.

The environment has forced landlords to cut rents, as well as offer tenants numerous concessions and freebies on lease renewals, says Lieber. "Most of them don't expect an upside until 2005, and that's a hopeful outlook," he says.

By contrast, Lieber says, single-family homes have a brighter outlook. Demand for homes continues at a healthy pace, he says, and homebuilding stocks are trading at about eight times this year's earnings. Most companies, he adds, already have nine months of production in the pipeline.

The office sector is still weighed down by vacancy rates of 17% to 18%, with companies scrambling to reduce rents to retain tenants, says Lieber. That's a trend that's bound to continue, he adds. The term of leases in the sector average about seven years in length. As renewals continue in an environment of high vacancy rates, further earnings declines are likely.

"Tenants are going to be in the drivers seat for a couple of years," Lieber says. "That means a net operating income decline for many office companies for the next two if not three years. We don't think it's a terribly interesting place to be."

Kramer, of Kensington, agrees, saying, "I don't think you're going to see a lot of near-term improvement in office revenues."

Grupe feels the outlook for the industrial sector is a bit brighter because it stands to rebound faster as the economy picks up. Even with the low rate of job growth and the decline in manufacturing, warehousing and transportation stands to fill some of the gap, he says. "Sooner or later products need to be shipped over here, and it all has to be temporarily positioned someplace," he says.