Real estate, no longer the most attractive asset class on a risk-adjusted basis, will face multiple challenges in 2009. Though return expectations are tempered and capital will be restrained, investors have not turned their backs on the asset class, at least not completely.

It was just one year ago that plan sponsors — surveyed by Institutional Real Estate, Inc. and San Francisco–based research firm Kingsley Associates — were cautiously optimistic about the real estate market. They believed that despite a tightening credit market and a souring economy, they still might fetch returns in the 8 percent to 9 percent range, and so they said they would commit a projected $60 billion of new capital to commercial real estate investments.

In reality, plan sponsors would end the year committing much less — approximately $20 billion less — as the