I work with a diverse group of clients including investors looking to 1031 exchange into a different property.  Leonard Spoto of Asset Exchange Company is incredibly knowledgeable on the ins & outs of exchanges.  Here is an excerpt from his latest newsletter:

Many of our clients are taking advantage of the turmoil in the real estate market by trading up.  The theory is simple: a declining market favors investors who are trading up because the higher the property value, the greater the decline in real dollars assuming both properties are declining at the same rate.
There are also a lot more buyers who can come to the table with a 20% down payment on a $500K property than a $1MM property.  Bernard P., a recent Asset Exchange Company client acquired his first commercial building after selling a $550K rental property in South San Francisco.  Asked the motivation for his trade his answer was simple “there are great deals out there right now on the big stuff and we had plenty of interested buyers for our sale property.  The time was right to trade up.”
Trading up with a 1031 Exchange also allows you to keep all of your money working for you.  Taxes on the sale of an investment property can be as high as 1/3 of your total gain.  But by entering into a 1031 Exchange before the close of escrow on the sale property, those taxes can be deferred (and possibly avoided altogether) allowing investors to get maximum value out of their real estate transactions.