Buoyed by the growth of electronic commerce, commercial real estate markets in long-established cities will prosper next year, but according to investment bankers at Sonnenblick-Goldman Co., second-tier cities in the South and Southwest face some risk of a downturn.

John I. Bralower, president of Sonnenblick - a boutique firm in New York that arranges financing for property investors and developers - noted a "widening gap" between "primary and secondary markets." The primary markets, which include Boston, New York, San Francisco, and others with 24-hour-a-day, seven-days-a-week economies, "continue to grow at rates that are astounding even the bulls," he said. Much of the growth is driven is by Internet companies, which have created a need for new kinds of warehouse and office space.

But secondary cities such as Atlanta, Phoenix, and Dallas "are having a harder time," Mr. Bralower said. Though their real estate is not performing poorly, "they don't have the same potential growth. There's not the same investor interest."

He added that his firm is "very bullish" on the Northeast, the Midwest will "probably remain stable," and that the South warrants "a little bit of a heads-up" because it tends to get overbuilt more.

Samuel M. Guss, managing director of Sonnenblick's multifamily practice, said demand for urban housing is likely to push prices and rents on apartments in major markets higher, particularly in cities such as New York and Philadelphia where the local governments have encouraged conversion of commercial properties into residential use.

Demand for suburban garden apartments in the Sun Belt, however, has "flattened," Mr. Guss said. There are "serious concerns about overbuilding" in those areas, he said, because it is so easy to build there. Also for that reason, multifamily investors who want to diversify their portfolios will be moving away from the Sun Belt and increasing their investments in the major cities, he said.

Generally, though, the capital markets have chastened the real estate industry in the last year, preventing it from succumbing to the excesses of the past. Lenders are requiring more equity and higher debt service coverage ratios, noted Steven A. Kohn, managing director of capital markets at Sonnenblick. While the mezzanine debt market, which bridges the gap between debt and equity financing, is "very active," it is not as active as it was a year and a half ago, he said. And whereas mezzanine lenders would finance as much as 95% to 98% of a building's cost, they are now "maxing out at 85% to 88%."

Lenders will not finance new construction without tenants lined up, Mr. Kohn added. Though Tishman Speyer Properties plans to build a speculative office building in Manhattan, it is a relatively small project and the development company is "well capitalized and could fund it all with equity" if need be, he said. Because of capital constraints, real estate investment trusts are not aggressively buying buildings, instead selling or taking out debt against their holdings, and that has "led to some flattening of values," Mr. Kohn said.

For the office sector, Mr. Kohn said, the only real danger is not from any potential glut of space, but the risk of a serious correction in the stock market. Internet companies leasing space in cities like Boston, New York, and San Francisco would be hit hard by a severe equity market selloff, which "could put some space back on the market."

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