us real estate review/05 v5/web · colliers research colliers research is a recognized knowledge...

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Colliers International US Real Estate Review

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Colliers Research

Colliers Research is a recognized knowledge leader inthe commercial real estate industry, and provides clientswith valuable market intelligence to support businessdecisions. Colliers researchers provide multi-level support across all property types, ranging from data collection to comprehensive market analysis.

Colliers Research has developed powerful technologicaltools to provide clients with valuable market intelligence.Our expansive databases house detailed information onproperties nationwide, including historical supply,demand, absorption data, and transaction comparables.Research uses this information to produce quarterly surveys of office and industrial markets in over 60 North American cities.

Colliers research reports provide standardized information for each market. Market highlights reportsbased upon quarterly surveys include inventory, vacancy,absorption and rental rates in side-by-side comparisonsfor these cities as well as quarter-to-quarter comparisonsand aggregated national statistics. Investment sales pricesand cap rates are reported as well.

Research groups across the country also have expertisein location and site analysis, geographic information systems, and financial modeling.To ensure that ourclients’ real estate decisions are thoroughly informed,our researchers perform numerous financial analyses.Options include comprehensive occupancy cost comparisons for potential lease locations and complexlease vs. own scenarios.

The information contained herein has beenobtained from sources deemed reliable.While every reasonable effort has beenmade to ensure its accuracy, we cannotguarantee it. No responsibility is assumedfor any inaccuracies. Readers are encouragedto consult their professional advisors priorto acting on any of the material contained in this report.

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1 Letter from the President and CEO

2 Letter from the Director of Research

3 Office Market

7 Industrial Market

11 Retail Market

15 Investment Market

21 US City Analyses and Forecasts

80 Global Office Occupancy Costs

82 Glossary

83 Colliers Office Locations

United States Real Estate Review Contents

colliers.com

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To Our Clients and Colleagues:

I am pleased to present Colliers International’s 2005 US Real Estate Review,our analysis of more than 57 commercial real estate markets. With the publication of this annual report, we renew our commitment to provide youwith the best market information available – information that goes beyondreporting statistics and provides sound analysis that you can use to guide your business decisions.

As a partnership of independently-owned firms, Colliers’ collaborativeapproach means that you can trust your local advisor to provide the information you need, no matter where in the world your business takes you.Our goal is to provide the best of local market information combined with the global reach only available from a firm with nearly 250 offices worldwide.As local business owners ourselves, we know that you will benefit from theentrepreneurial spirit and creativity that characterizes Colliers partners.

As we predicted in our annual report last year, the business climate in thenation improved substantially and we now look ahead to a promising jobs picture, renewed spending by corporations, and continued strong demand forinvestment properties, among the positive signs in our economic landscape.Commercial real estate has out-performed many other alternative investmentsover the last few years and we believe that the fundamentals in our industryare sound. While we live in an age when a sudden geo-political crisis canderail even the strongest economy, we are bullish on the coming year, and look forward to working with you to meet your organizational challenges.

Margaret S.WigglesworthPresident & CEOColliers International USA

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Get Bullish – 2005 Will Be a Good Year!Real estate owners, users and investors have had an interesting ride the pastseveral years. A combination of a tech meltdown, a recession, a terroristattack, the threat of further terrorist attacks, a jobless recovery,“offshoring”and huge monetary and fiscal stimulus have all made gauging the demand forreal estate a near impossible task. While still challenging, anticipating the futuremacro environment is getting a little easier.There are of course considerablerisks to forecasting the future, but relative to the last few years we are now in a period of relative calm.

The economy is humming along, not too hot and not too cold. Jobs are beingcreated, corporations are flush with cash and businesses are spending on new facilities and equipment.This is not to say things are perfect. Oil pricescontinue to sit at uncomfortably high levels, geopolitical issues abound, thedollar’s decline continues to make financial markets nervous and debt levelsare rising - just a few of the headwinds which could broadside the economy,investment markets and ultimately real estate.

With this background in mind, income-producing real estate is on the upswing.This was a trend first seen at the end of 2003, continued into 2004 and gainedstrength throughout the year. As 2005 begins, most cities are expecting anotheryear similar to the past 12 months, with steady demand anticipated across a wide spectrum of industries.While not spectacular, leasing markets areexpected to post moderate growth, leading to gradually declining vacanciesacross most property sectors in the majority of markets. Pockets of weaknesswill persist, but the national trend will be towards improving fundamentals and a firming up of rents.

On the investment side, demand for real estate assets continues unabated.Foreign/domestic, public/private, institutional/local, all buyer types remainactive and are expected to remain so for the year. Cap rates are almost certain to plateau after steady declines over the past several years settling atlevels considered unimaginable just 12 months ago.The big unknown remainsinterest rates, with long-term rates forecast to increase by year-end, but thesame was said a year ago!

In summary, Colliers anticipates another moderate to strong year both on theleasing side and in the investment arena. Risks to this somewhat rosy forecastexist, but relative to the past four years, the probability of a positive outcomeis considerably higher. Many will no doubt disagree with this outlook, but therisks to the downside look somewhat limited, while the upside looks moreand more promising.

Ross MooreVice President and Director of [email protected]

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The U.S. office market ended 2004 on a highnote, recording three consecutive quarters of strong absorption following a tepid start.In each of the three quarters occupancygrowth was near or above 20 million squarefeet.The recovery in the overall U.S. economyfinally picked up steam in 2004, which resultedin the creation of over 2.2 million jobs—themost important factor influencing the demandfor commercial space.

Meanwhile, office construction decreasedsubstantially during 2004. Just over 43.5 million square feet of space was delivered tothe market in 2004, down from 59.0 millionsquare feet of product constructed in 2003.The combination of these two factors—increased demand and leasing activity anddecreased new supply—worked together asthe perfect combination to drive vacanciesdownward and to stabilize rents.

Vacancy decreased a full percentage pointduring the year and finished 2004 at 15.4%for the overall U.S. market. Momentum builtthroughout the year, with most marketsreporting strong performances in the fourthquarter. Overall vacancies dipped 20 basispoints in the final three months of the year.CBD office markets finished the year at14.6%, a 50 basis point decline for the year,while suburban office markets ended the yearwith a 15.8% vacancy rate, a 150 basis pointdecline over the year. Class A vacancy ratesstaged more significant declines with top tierCBD vacancies falling 90 basis points andpremium suburban vacancies dropping 270basis points.

While a one percent overall dip in vacancycomes as good news to beleaguered landlords, it does not fully portray the turnaround experienced by the market as

a whole in 2004. The U.S. office marketrecorded 79.6 million square feet of occupancy growth in 2004, nearly triple that recorded in 2003 when net absorptiontotaled 27 million square feet. The strongestperformances of the year were turned in bysuburban and Class A properties. Suburbanmarkets accounted for over 80% of all occupancy growth while Class A buildingsaccounted for 75%.

GROWTH ACROSS THE BOARD

Whereas 2003 was a year in which recoveryhad clearly taken hold in just a few selectmarkets, 2004 was a year in which most markets demonstrated clear signs of resurgence. Only a few metropolitan areasremain on a downward trend but nearly allof those are either at or near the bottom ofthe cycle. The year’s strongest performancescame from markets that were largely in theSouth and West. Atlanta, Charleston,Raleigh/Durham,Tampa Bay, Dallas, Houston,Phoenix, Los Angeles and Orange County allturned in very strong performances in 2004.But that is not to say that all growth wasregional. Midwestern markets such as St. Louis and Indianapolis recorded significantgrowth—as did Pacific Northwest marketslike Seattle and Portland as well as EasternSeaboard markets like New York andWashington, DC. While those markets experiencing significant population growthhave generally had an edge over other tradeareas, mild to moderate growth was recordedacross the board and in all regions of thecountry. In fact, only three markets (Boise,Reno and Sacramento) recorded vacancyincreases in 2004—all of which were nominal. While a handful of markets—suchas Boston and Chicago—remained relatively

Office Market Overview

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flat, the overwhelming majority of U.S. office markets recorded mild to moderate growth in 2004.

However, despite broadly improving market conditions, rental growth did not occur.Overall downtown Class A rents increased just0.8% in the fourth quarter to $33.25 per squarefoot. Suburban Class A rents fell during this sameperiod 0.2% to $23.48 per square foot. On aweighted average basis this left downtown rents up4.0% for the year (+0.5% on a non-weighted basis)and by contrast, suburban rents fell 0.5% for theyear. One clear trend that has occurred in mostmarkets is that landlord concessions have diminishedsignificantly. At the worst point of the most recentdownturn, concession such as free rent, movingallowances, and increased tenant improvementallowances were offered in most markets.Since that time, inducements have dropped back to levels close to where they stood in 2001.

In retrospect, we now recognize how we underestimated the resilience and tenacity of theU.S. office market. A year ago we thought we werebeing bullish by forecasting 2004 absorption todouble 2003 levels at approximately 55.0 millionsquare feet. We underestimated by roughly 20 million square feet.

Perhaps the clearest example of the resilience of most major U.S. markets is the Boston officemarket’s performance in 2004. Mergers and acquisitions throughout the year resulted in largeblocks of space being returned to the marketplace.Yet, strong gains during the final quarter of theyear resulted in the market recording 1.7 millionsquare feet of annual growth. While nearly400,000 square feet of this was the result of onemajor deal, much of this growth was generated bysmaller deals from a wide variety of space users.Small businesses were an important factor in driving activity in most markets and continued tooffset losses incurred by mergers and acquisitions.

MORE GROWTH ON THE WAY

With momentum building as the year came to aclose, all signs are that the economy will continueto strengthen in 2005. Healthy job growth is projected for the foreseeable future in most metropolitan areas. Look for absorption in 2005 to reach the 80 to 100 million square feet.Also look for overall rents to finally recordgrowth, with many markets expected to post double-digit gains. The ever-so-distant recovery in the office market is not so distant any more.However, some markets may continue to facesome challenges.

As demonstrated by the fact that suburban properties accounted for over 80% of all occupancygrowth in 2004, many downtown markets continueto struggle. While some—such as San Francisco—made great strides in 2004, others like Chicagoessentially stood still. Overall CBD vacancy stoodat 14.6% as of the close of the year and though this is less than the 15.8% rate recorded for all suburban properties, it is vital to note that themajority of new development as well as tenantactivity still takes place in the suburbs. But thereare some trends that should bring optimism toowners of CBD properties in weaker U.S. markets.

CONVERSIONS

As baby boomers have increasingly become emptynesters, many major cities have experienced aresurgence in metropolitan living. Immediate accessto amenities, arts and culture as well as the excitement of 24-hour live/work/play environmentsare fueling great interest in CBD residential projects and most major metropolitan areas areexperiencing increased development of downtownresidential properties. In many markets this is taking place through the conversion of older commercial space to multi-family residential properties. For struggling Class B and C properties, conversion to apartment or condospace has been an excellent way to increase value.Meanwhile, as these properties are withdrawnfrom the office market, they help to tighten supply.

This trend has not been limited to any one geographic region and has been as equally strong in the Sun Belt as in the Rust Belt, includingChicago, Kansas City, Miami and San Francisco.The long-term impact of this trend is even greater. As population increases within CBD areas, the demand for all downtown commercialspace increases.

The conversion trend is not limited to residentialprojects. Those markets most negatively impactedby the “tech wreck” are positioning themselves for growth in the emerging bio-medical field.For example, a number of conversions to bio-medR&D space are planned for buildings in the SanJose and San Francisco Peninsula/San Mateo markets. This should help to shore up a marketthat still has not fully recovered from the mostrecent downturn.

CONSTRUCTION

With the market clearly in recovery it is only a matter of time until developers seek to ride the next economic wave of growth.

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Speculative development was non-existent in many markets over the past few years and whilethis will not change for many cities in 2005, lookfor modest increased in spec building in healthiertrade areas in the coming year. At the close of 2004 there was 53.9 million square feet of newoffice space under construction throughout theUnited States. Look for developers to graduallybegin work on new projects as the year progressesand local economies continue to grow.

MERGER AND ACQUISITIONACTIVITY ON THE RISE

As 2004 came to a close merger and acquisitionactivity was on the rise both nationally and globally. Corporations have been sitting on largeamounts of cash and are looking to put these fundsto work. The benefits of temporary lowered taxes on repatriated funds mean larger cash balances.And with high market valuations, acquisitions are a quick and relatively cheap way (particularlywith high stock prices) to create growth.Oracle/Peoplesoft, Johnson & Johnson/Guidant,Procter & Gamble/Gillette and SBC/AT&T are justa few of the most recent mergers and acquisitions.Generally we can expect consolidation, layoffs anda corresponding reduction in the demand for space following a merger or acquisition.

Look for this trend to continue heading into 2005.However, the news is not all that bad.

In the short-term, merger activity usually leads toincreased vacancy as well as sublease space. In themedium and longer terms—assuming a growingeconomy—companies generally overestimate thesavings and synergies of combined entities and endup taking back space initially slated for the subleasemarket. This has happened in Boston with boththe Bank of America/Fleet and Manulife/JohnHancock acquisitions. The fact is that mergers and acquisitions are a normal part of the business

cycle and will eventually run their course. In themeantime, look for M&A activity to serve only as aminor drag on an otherwise healthy leasing marketin 2005.

INVESTMENT MARKET HOT AND GETTING HOTTER

Capital continues to flow into commercial realestate investments with no end in sight. This is a continuation of a trend that has been going onnow for the past four years as investors shiftedcapital towards real estate when stock marketuncertainty was at its peak. Of course, with interest rates at their lowest since the Kennedyadministration, this flow of funds was only exaggerated. Even with many major U.S. officemarkets experiencing weak fundamentals, the availability of “cheap money” allowed for investorsto purchase buildings that otherwise may not havebeen profitable.

The only problem that has faced most markets has been the lack of investment grade propertiesavailable for sale. After four years of heighteneddemand, most markets are essentially “picked over”with would-be buyers far outnumbering potentialsellers. Many owners who would otherwise consider selling their properties have shied awaysimply because they have nothing to trade into.Meanwhile, off-market deals have become thenorm in many cities.

One might expect for this dynamic to have shiftedin 2004 with the stock market rebounding andinterest rates on their way up, but this did notoccur. Meanwhile, prices escalated greatly thanksto continued strong demand and weak supply.Look for these trends to continue at least into thefirst half of 2005. Improving market fundamentalswill only help boost demand, however, higher interest rates in the coming months may eventuallyserve to temper investor’s enthusiasm.

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Inventory New Absorption Vacancy Class A(SF) Supply (SF) (SF) Rate (%) Rent ($PSF)

1999 1,240,819,000 12,211,404 15,998,992 8.6 36.812000 1,368,713,000 14,951,000 27,939,962 7.5 42.832001 1,408,786,000 10,004,000 -50,533,312 11.9 38.102002 1,466,056,000 23,215,000 -17,975,102 14.5 33.202003 1,485,509,000 19,440,000 5,967,090 15.1 32.002004 1,502,631,000 11,684,000 15,192,313 14.6 33.25

Downtown Office


1999 2,288,525,000 111,479,505 86,122,346 9.8 26.532000 2,416,328,000 96,102,530 104,727,484 9.1 27.232001 2,734,777,000 118,797,860 -26,316,665 14.6 26.402002 2,836,600,000 77,838,160 -13,976,388 16.9 23.902003 2,876,253,000 40,231,540 21,464,776 17.3 23.602004 2,922,194,000 31,742,000 63,810,903 15.8 23.48

Suburban Office

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Industrial space throughout the United Statesas a whole performed remarkably well in2004 as recovery took hold in most majormarkets. Throughout most metropolitanareas the story was largely the same—one of building momentum throughout the yearwith the best saved for last. Thanks largely to a strong showing in the fourth quarter of 2004, more than 159.8 million square feetof industrial space was absorbed in 2004—nearly tripling the 56.8 million square feet of growth recorded in 2003.

Meanwhile, increased demand for industrialspace translated into a firming of rents.The market recorded rental growth of 2.1%during 2004. All told, the market surpassedour forecast last year of 150 million squarefeet of absorption with all indications for stronggrowth heading into the first half of 2005.

Vacancy decreased in nearly all of the UnitedStates’ major industrial markets. At the endof the year overall national industrial vacancystood at 9.4% down from the 10.2% raterecorded in 2003. The increased strength of the industrial sector has emboldeneddevelopers who stepped up new constructionas the year progressed. Deliveries in thefourth quarter alone totaled 35.2 millionsquare feet. Throughout the year a total of120.0 million square feet of new industrialproduct came to market—up significantlyfrom the 95.0 million square feet of spacethat came online in 2003. Most markets havereported that build-to-suit development andbuildings with significant lease commitmentsalready in place accounted for the lion’sshare of new construction in 2004.However, speculative development was alsoon the rise, which had been minimal in 2003.

RECOVERY STRENGTH VARYING BY REGION

The news has been overwhelmingly good for nearly all U.S. markets—although somemarkets have performed far better than others. While most Northeastern marketsrecorded growth in 2004, many continue toface challenges. Vacancy in Boston standsabove 20%. While Washington, DC remainsrelatively strong, the nearby Baltimore market faces vacancy of nearly 19%.Meanwhile, although Pittsburgh recordedover a million square feet of absorption in2004, it still struggles with vacancy in the 15% range. Yet the news is not all bad forthe Eastern Seaboard—New Jersey’s Centraland Northern markets both recorded stronggrowth over the past twelve months andboast vacancy rates below five percent.

Midwestern markets, meanwhile, have beenremarkably stable with most reporting steadyand moderate growth over the past year.Chicago, Cincinnati, Cleveland, Indianapolis,Kansas City, Milwaukee and St. Louis all havevacancy rates at or below ten percent.

Southern markets have been a mixed bagwhen it comes to vacancy, but nearly all of them have experienced significant increases in demand over the past year.More importantly, nearly all of these marketsare positioned for strong growth in 2005.Despite 12.8% vacancy,Atlanta recorded a whopping eleven million square feet of absorption throughout 2004.Memphis mirrored these trends—recordingover 3.1 million square feet of growth—despite vacancy of 17.2%. The forecast forboth of these markets is strong, with recovery

Industrial Market Overview

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picking up pace in 2005. Meanwhile, all of Florida’smajor markets boast vacancy rates at nine percentor below. Nashville and Louisville were among thestrongest markets in the south with vacancy beloweight percent at year end. Dallas and Houston alsoexperienced strong reversals this year with both of these markets accounting for a combined tenmillion square feet of occupancy growth in 2004.

The big story, however, is the strength of America’sWestern markets. The Los Angeles industrial market has the lowest vacancy of all mainland U.S. markets with just 2.8% vacancy. The extremetightness of this market is carrying over to theneighboring Orange County and Inland Empiremarkets where vacancy rates are plummeting and lease rates are creeping upward. Of all ofAmerica’s major markets west of the Rockies, onlyBoise, Fresno, Phoenix, Portland, Sacramento andthe San Jose/Silicon Valley industrial markets havevacancy levels above ten percent. Of those markets only one—the San Jose/Silicon Valley market—has vacancy above the 15.0% range.All of these markets, however, are forecast forincreased growth in 2005.

One constant across the board is the fact thatthose markets experiencing significant populationgrowth continue to be best positioned for strengthin 2005. Western and Southern industrial marketsbenefit from the additional economic stimulus that in-migration brings, and will outperform mostNortheastern and Rust Belt markets in the comingyear. However, all markets are forecast forimprovement by the close of 2005. Clearly thestrengthening overall economy and the return of job growth has also played a factor in this turnaround. Over 2.1 million new jobs were added to the economy in 2004 and that number isexpected to increase in 2005. Meanwhile, capitalspending is up and as of the fourth quarter 2004had been in the black for eight consecutive quarters. This means that businesses are spendingmoney once again and real estate expenditures willbe on the rise. But there are some other factorsthat help to explain the strength of this reversaland that paint a positive picture for the future of industrial properties in the United States.

FROM “JUST IN TIME” TO “JUST IN CASE”

Whereas industrial space was once nearly synonymous with the manufacturing sector, globaleconomic shifts over the past two decades havecompletely changed the equation. As the United

States’ manufacturing base increasingly shifted tothe Asia Pacific throughout the 1980s and 1990s,many alarmists predicted doom and gloom for the future of commercial industrial properties.The fear was simple and based upon the perceptionthat as America shifts away from manufacturing, thedemand for industrial space would diminish.What wasn’t taken into account was the growingrole that global trade and retail sales would have in generating warehousing needs beyond anythingthat the market had ever experienced.

The new global economy is based almost completelyupon import/export capabilities. With the shiftaway from local or regional manufacturing,distribution and warehousing infrastructure hasbecome more important than at any time in U.S.history. America may not be manufacturing goodsanymore, but Americans are still consuming themat record pace and those products need to find away to market. This has helped to explain the riseof bulk warehouse as the industrial building ofchoice in most major U.S. markets. Bulk warehousespace is geared almost exclusively for distributionuses and is defined generally as buildings in excessof 100,000 square feet with plentiful loading docksand easy truck access. Modern bulk structuresgenerally feature clear heights of 30' or more andhave dominated industrial sales, leasing and newconstruction activity throughout the U.S. for thepast decade. This should come as no surprise,considering that in the markets that we survey,manufacturers account for less than one third of all leasing activity while companies focused ontransportation/distribution, logistics and trade drive roughly half of all leasing.

This means that the health of America’s industrialmarket now has less to do with traditional segmentsof industrial trade than it has to do with retailsales and import/export. So what does this meanfor the future of industrial space—particularly forwarehousing space—in the United States?

Most major ports in the United States are alreadyreporting bottlenecks thanks to the massiveincrease in import/export traffic over the last fewyears. In both of the last two years retailers havefaced holiday season challenges when seeking mid-December re-supply. In large part, the “just-in-time” manufacturing practices of the 1980sand 1990s are being replaced by retailers seekinggreater warehousing capabilities “just-in-case.”

Incoming imports from China and the rest of Asia are at record levels, and are now challenging existing infrastructure. This is made patently clear

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when one examines the vacancy statistics of someof our largest port markets. For example, the Los Angeles industrial market—home to the Portof Long Beach—currently has vacancy of less thanthree percent. Meanwhile, the Northern NewJersey market had vacancy of less than five percentat year-end. Other major port markets such asOakland, Seattle and Jacksonville all ended the yearwith vacancy below ten percent. Challenges posedto existing infrastructure are not just impactingfacilities. They are impacting everything from railfreight to highway infrastructure. This, in turn,has created even more demand for secondary distribution sites.

Ironically, the weak dollar should also help to further drive demand for warehousing space.As record U.S. trade deficits illustrate, theimport/export activity that has driven demand forbulk warehouse/distribution space has largely beena one-way street. With the current weakness inthe dollar, look for exports to increase significantlyas American products become a better value inEuropean and Asian markets. While this will be a positive factor in reducing the United State’s sizable trade deficit, it will also benefit the U.S.industrial commercial real estate market.Look for demand to continue to increase for quality distribution space. The simple fact is that as import/export traffic begins to flow in both directions, the current inventory of distributionspace will need to be expanded.

INDUSTRIAL INVESTMENTS REMAIN IN HIGH DEMAND

Over the past four years, even when the leasing market was weak and the economy on a downward track, industrial investments were in high demand. In the face of stock market

turbulence, corporate accounting scandals and an uninspiring bond market, interest in real estateinvestment rose considerably. Add to the mix interest rates at 40-year lows and you have therecipe for a robust investment market. The impactof cheap money meant that buyers could considerbuildings that would otherwise not offer positiverates of return. And so, increased vacancythroughout most U.S. markets did not significantlyimpact demand for industrial investment.

By 2004, most of these trends had reversed.The stock market was much healthier and interest rates were starting to creep upward.Meanwhile, market fundamentals were also on therebound with occupancy growth occurring in mostmarkets and vacancy heading downward for themost part. The one thing that has not changedover the past year is the fact that interest in industrial investment product remains extremelyhigh. The only problem in most markets, however,has been finding available product. In most marketsthe pool of would-be buyers far outnumberspotential sellers and in many areas off-market dealshave become the norm. Finding institutional-qualityindustrial buildings is even more difficult. In somemarkets, developers have successfully adopted a“merchant builder” role—bringing new product to market with the sole goal of offering it for saleupon completion.

What is most interesting is that repeated interestrate hikes by the Federal Reserve and the threat ofhigher long term rates have had little to no effectso far. An abundance of available capital has meantthat competition among financiers has becomefierce, limiting the impact of these increases.Meanwhile, the continued shortage of buildingsavailable for sale as well as improving market fundamentals continues to send prices upward at a steady clip.

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Inventory (SF) New Supply (SF) Absorption (SF) Vacancy Rate (%) Warehouse Rent ($PSF)

1999 8,794,538,368 190,227,186 183,051,676 6.6 4.812000 9,188,868,555 196,807,187 185,501,896 6.3 5.592001 9,453,042,800 212,371,245 -18,293,412 8.8 4.942002 10,122,378,000 118,658,200 -20,818,700 10.1 4.672003 10,222,029,000 93,776,000 53,831,201 10.1 4.712004 10,371,680,000 117,913,000 159,908,000 9.5 4.77

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Throughout most major U.S. markets retailproperties continue to experience lowervacancy levels and higher occupancy growth.While rents for office or industrial spacewere falling or stagnant, retail propertieswere recording modest rental growth.The combination of stock market instabilityand record low interest rates caused all commercial real estate types to experience asignificant spike in investment interest, butwith the strongest market fundamentals inplace, retail properties remain the favorite.Continued strong investment demand—particularly for well-situated retail centers—led to increased sale prices and a diminishingsupply of product available for sale.

Population growth and retail strength aredirectly linked to each other so it shouldcome as no surprise that nearly all of thebest retail performing markets in 2004 arethe beneficiaries of considerable populationgrowth. As has been the case for over adecade, America’s growing Western andSouthern Regions tend to perform thebest—although there were some standoutson the Eastern Seaboard. Among the hottest performing markets were Atlanta,Fort Lauderdale,West Palm Beach,Phoenix, Las Vegas, Los Angeles, Riverside/San Bernardino, San Diego, San Francisco and Sacramento. New York, Boston andWashington, DC also turned in strong performances, recording low vacancies andsignificant occupancy growth. Consequently,most major U.S. retail markets recorded positive growth over the past twelve months.

THE YEAR OF MERGERS AND ACQUISITIONS

As 2004 came to a close the retail marketwas still abuzz with talk of Sears’ and K-Mart’s$11 billion merger, the $1.6 billion Mervyn’sbuyout from Target, and the bidding war forToys ‘R ‘Us. As this report was going topress, another gigantic deal was in the making—the acquisition of May DepartmentStores by Federated for $17 billion in cash,stock and assumed debt.

As the year came to a close, merger andacquisition activity was on the rise in all segments of the economy. But in the retailsector this trend has been pronounced andprofound. In the case of Federated/May, thesale will result in one behemoth that willoperate 950 department stores and 700bridal and formal wear stores across thecountry. Among the brands included areMacy’s, Bloomingdale’s, Foley’s, Lord & Taylor,Marshall Field’s, Hecht’s,The Jones Store andRobinson’s-May. It is predicted that the totalannual sales volume of this new chain will top$30 billion annually. Consolidation followingthe close of this deal could lead to the closure of as many as 200 stores nationally—nearly all of them at mall locations. The dealshould give Federated supply-chain advantagesthat may make it more competitive with big-box retailers like Wal-Mart and Target.Both of these stores have been cutting into the market share of department storeretailers for years.

The impact of big box discounters is impossibleto deny and their rise to dominance over thepast decade has resulted in seismic shifts inretailing. Last year we reported that high-end

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department store retailers such as Nordstrom andNeiman Marcus would continue to do well withintheir niches, but chains such as Penney’s and Searswould be caught in the middle as Target and Wal-Mart continue to up the ante.

The $11 billion merger of Sears and K-Mart is a direct result of this new power dynamic in retailing. While it is still not clear if this mergerwill be a new lease on life for both or merely adelaying action in the face of the inevitable, it willhave some interesting consequences. What is yetunknown is how this new entity will consolidate its space. With Sears stores primarily locatedwithin malls and K-Mart generally in big-box orneighborhood centers, it is unclear which of thetwo property types Sears/K-Mart will focus on.In light of the fact that K-Mart was recently forcedto liquidate over 600 properties in bankruptcy andthe belief of many that Sears wants to positionitself to take on big box home improvement players like Home Depot and Lowe’s, it seems likely that most closures would occur in mall locations.

Ironically, Sears has been known for entering long-term (sometimes 50-year or more) leasesthat many mall owners disliked when mall retailingwas riding high in the 1980’s. Now, upscale malls seeking Rodeo Drive-type merchants may have a window to negotiate. However, the one-twopunch of Sears/K-Mart and Federated/May consolidations may be devastating to some olderand somewhat obsolete malls. In the 1980s therewere over 35 national retailers in the pool ofpotential mall anchors. Today, that number hasdwindled to the low teens. The fact is that there are not many anchor tenants in the marketplace today.

Malls are also feeling the squeeze from tenants at the 10,000 square foot level. Lifestyle centerscontinue to build in popularity and are gaining significant acceptance in all regions. The shift awayfrom traditional enclosed malls towards lifestylecenters is nothing new, but it has picked up steamin recent years with many retailers creating newconcepts with this product type solely in mind.

Urban town centers are also on the rise.These properties merge elements of lifestyle centers with mixed-use town centers as well as incorporating elements of shopping malls.This product type can be as large as one millionsquare feet in size and generally features departmentstore anchors and a mix of traditional mall retailers,

dining and entertainment establishments, and often office, residential or public components.Reflecting the New Urbanism, these centers havefound their greatest successes in up-and-comingsuburban markets where they offer an “urban”alternative to suburban sprawl developments.While this type of space is in its infancy, roughlyten new centers were in the development stage at the close of 2004 in California, Florida,Colorado, and Ohio.

So, what does all of this mean to beleaguered mallowners? Ironically, rescue may come from someunlikely sources.

WAL-MART AT THE MALL?

Whether an advocate or not, you cannot discussretailing today without touching on the impact ofWal-Mart. Department stores are not the onlysegment of the market that has felt the impact of this retailing behemoth. It has only been a fewyears since Wal-Mart began adding grocery anddrug components of 80,000 square feet or more to their stores, but in that time they havesurpassed all other grocery chains in terms of dollar volume and are now the world’s largest grocer. In markets with a strong Wal-Mart presence there is tremendous competitive pressure on grocery and drugstore retailers.

While Wal-Mart has traditionally been a freestandingbig-box user, they have recently shifted their siteselection strategies. Wal-Mart has started to targetmall locations with multiple openings planned in2005 throughout the United States. Wal-Mart mayeventually end up within former department storemall space belonging to retailers they once competed with. Meanwhile,Wal-Mart is also beginning to explore inner city locations.Although a major location in Queens was recently scuttled,Wal-Mart continues to seekother New York City sites as well as CBD locations in other cities.

ARE RETAIL PROPERTIES WORTHMORE THAN RETAIL BUSINESSES?

All of the events of 2004—increasing retail propertyvalues and continued consolidation among retailplayers—have prompted some interesting questions.Investment in retail stocks has increasingly takeninto account the value of retailer’s property assets.

K-Mart’s stock success since emerging from bankruptcy is one such example. When K-Mart

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emerged from bankruptcy in May 2003 its stockprice stood at about $15 per share. By the time its merger with Sears was announced, the price had reached $109. Figuring prominently into thiswas the sale of hundreds of locations.

Many have surmised that the real estate underneathmany retailers—particularly weaker big box chainsand department stores—may be worth more thanthe value of their actual operations. With mallREITs increasingly exploring the option of replacingdefunct department store anchors with non-traditional mall tenants such as Wal-Mart,Target,and Circuit City, there may be some truth to thisnotion. Retailers and developers must act strategically in utilizing second-generation space,such as bringing in non-traditional mall tenants to dividing anchor sites among smaller, more vibrantretailers to conversion of space to new uses.

Lease values also figure prominently into this equation. A recent survey by Deutsche BankSecurities found that nine department store chains(including Nordstrom, Saks Fifth Avenue and Searsamong others) paid an average rent of $5.15 persquare foot. The average K-Mart lease had about 17 years remaining on term with rent averaging $2per square foot and little or no outstanding debt.Long-term leases signed years ago when landlordsoffered huge enticements to anchor tenants couldprovide cash-strapped retailers with significant re-investment capital were they to pursue subletting or selling their leasehold interests.Likewise, sale-leasebacks could be another lucrativeway of raising capital. The fact is that with retailreal estate values at an all-time high, retailers whoown property or who have long-term leases maybe able to effectively leverage those assets.

Ultimately, however, successful retailers will viewdisposal of unprofitable stores and retail propertiesas a function of reducing liability—not so much asa strategy for profit. Ultimate success in retailingwill always stem from running a successful salesand service organization. In the meantime, if managed properly, today’s escalated property valuescan help to take the bite out of store closures.

LOOKING AHEAD

The resurgent national economy will continue topick up steam in 2005. Job growth of 1.7% wasrecorded in 2004—fueling commercial real estatemarkets throughout the United States. In 2005employment growth is forecast at 2.0%. Keep inmind that retail has been the strongest property

type throughout the recent downturn. While this is unlikely to change, it is vital to note the roleinterest rates play in this equation. Throughout theeconomic turbulence of 2001 to 2003, retail spendingkept the economy afloat. Homeowners opting to re-finance at 40-year low interest rates pumpedbillions of dollars into the economy. Now thatinterest rates are creeping back up, the re-financingtrend may weaken. This will play out in 2005 asweaker retail sales growth—however, retail salesgrowth will continue to be modest to healthy.

Future growth will be based on job creation andwage increases. While job growth is forecast forthe coming year, it is unclear whether personalincome will rise substantially in the coming year.Higher energy prices and rising debt service costs could also impact retail sales growth.

In addition to the impact of 2004’s mergers andacquisitions, one trend to watch is that of big-boxretailers abandoning currently occupied space tomove into even larger super-center locations.Another big box trend to watch is the new waveof vertical big box centers seen in many markets.Developers are exploring stacking big box retailersin what essentially becomes two and three-storypower centers with deck parking. This trend hasparticularly caught on in urban markets where landprices are at a premium.

As Target and Wal-Mart continue to expand intothe grocery arena, vacancy could increase in manymarkets, and grocers will be caught in a vice.A recent study estimated that restaurant dining issignificantly on the rise with roughly 50% of allfood dollars in the United States now spent inrestaurants. Adding to mainstream grocers’ woesis the success of newer high-end gourmet groceryconcepts. Whole Foods, Dean & DeLuca, Balducci’s,Wegman’s, Bristol Farms, Sutton Place Gourmetand other regional gourmet grocery players areexpanding. Meanwhile,Trader Joe’s, which straddles both the gourmet and discount niches,has expanded into Missouri, Ohio, Massachusetts,Washington,Arizona and California in the past year.

Drug store expansion will continue into 2005 andbeyond. The shifting demographic of the UnitedStates virtually ensures expansion. With the new Medicare bill going into effect in 2006 many pharmacies and drug stores will seek to be well-positioned by year’s end. These trends werealready taking place in 2004 with a number of playersexpanding rapidly. CVS, in particular, has beenextremely active in the eastern United States while

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Walgreen’s has plans to open 7,000 new stores by 2010.

Look for ongoing drugstore wars in many, if not most, markets as CVS,Walgreen’s, Eckerd and Rite-Aid battle it out for market share along withother drug store operations within Target,Wal-Mart, Albertson’s and Safeway.

Smaller discount concepts will also continue togrow in 2005. Discounters like Dollar Stores,Dollar Tree, Fred’s Discount and Sav-A-Lot continueto post positive numbers and growth, ultimatelysecuring a place for themselves in the marketplace.Meanwhile, furniture retailers continue to experiencea major upswing thanks to the single-family boom.

With mall development on the decline, look forthe continued strength of high-end CBD retail.Concept stores are opening in most major markets and paying top dollar for prime downtown locations.

Rents for premium space continued to escalate at a brisk pace throughout 2004. Expect more ofthe same in 2005. High retail demand, increasedinterest rates, steep land costs and constructioncosts all play into this. Adding further upwardpressure on rental rates will be the threat of inflation, although prudent management from the Fed has kept it in check so far and will likelycontinue to do so in the coming year.

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Year-to-Date Sales Ending December 2004 2003 % Change

All Stores 4,055,793 3,756,688 8.0%

Motor Vehicle and Parts Dealers 940,490 895,703 5.0%

Gasoline Stations 314,653 268,519 17.2%

Food and Beverage Stores 529,670 505,933 4.7%– Grocery Stores 474,610 455,470 4.2%

Health and Personal Care Stores 203,613 192,191 5.9%

Building Material and Garden Equipment Stores 368,264 321,134 14.7%

General Merchandise Stores 504,635 471,078 7.1%– Department Stores (excluding leased departments) 214,638 214,129 0.2%

Clothing and Accessories Stores 189,758 178,435 6.3%

Furniture, Home Furnishings, Electronics and Appliance Stores 206,667 192,538 7.3%– Furniture and Home Furnishing Stores 104,800 97,977 7.0%– Electronics and Appliance Stores 101,867 94,561 7.7%

Sporting Goods, Hobby, Book and Music Stores 82,003 79,447 3.2%

Miscellaneous Store Retailers 110,951 104,865 5.8%

Nonstore Retailers 214,046 189,701 12.8%

Food Services and Drinking Places 391,043 357,144 9.5%Sour

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InvestmentMarket OverviewTHE RACE IS ON

In 2005, the big story in the investment arena is the race between improving marketfundamentals versus rising interest rates.Will the recovery of most major U.S.markets be strong enough to offset the negatives posed by the gradual disappearanceof cheap money? How will these two factors impact the pricing of commercial real estate investment properties?

Over the past few years, the commercial realestate investment market has been fueled bymassive amounts of cheap capital. Even asmany product types struggled with highvacancy, lackluster leasing activity and fallingor flat rental rates, investment dollars pouredinto real estate. There are a multitude ofreasons for this. Historically low interestrates have allowed investors to pick up properties that would not have otherwiseprovided adequate return on investment.Meanwhile, real estate investments offeredbetter and safer returns than either thestock or bond markets. This trend has varied widely from market to market and by property type—but there is no disputingthat the influx of massive amounts of capitalhas inflated price valuations over the pasttwo years.

There is little reason to believe that investment in real estate will change anytimesoon. Improvements in overall market conditions will only strengthen real estate’srole as an alternative to stock and bondinvestments. Despite the fact that valuationfor real estate remains higher in many marketsthan market fundamentals would dictate,the true measure of commercial real estate

investment strength is not necessarily thestrength of the market itself, but that ofreturns measured against other investmenttypes. In that regard, real estate investmentremains the steady, predictable and dependablechoice among all other investment types.

2004 RECAP

Whereas the increased demand for realestate investments has led to a general shortage of available product in recent years (yet another factor influencing priceescalations), there was a significant increase in sales activity during 2004 over the previous year. Sales topped $179 billion, a50% increase over already high 2003 levels.Cap rates continued to move lower in 2004while prices increased across the board.Sales volume was up sharply in many techheavy markets (particularly for office andindustrial product) and investors increasinglymigrated to secondary and tertiary marketsto gain yield. So now that most U.S. marketsare either in recovery or expansion, how willall of these factors play out in 2005?

OFFICE INVESTMENT

With most major U.S. markets firmly inrecovery, many landlords will want to waitfor vacancy to continue to diminish and forrental growth to begin to occur again beforethey seek to sell their office properties. Forthese landlords, the worst is likely over andthere is nothing but upside ahead. But evenas conditions improve in 2005 and 2006,it is important to note that the office sectorwill still be the last of all commercial realestate product types to reach equilibrium

colliers.com

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between supply and demand. Recovery won’t happen with a boom.

There will be demand from buyers seeking to investbefore the next wave—however, few institutional-quality office buildings are available for sale,particularly in moderate to strong markets. And ofwhat little is available for sale, bargains are few andfar between. Despite gains made in 2004, officeproperties in most markets have a way to go before valuations are in line with market fundamentals. As a result, property flips may bemore prolonged. Instead of the usual process ofpurchase, lease-up and sell, many investors maywant to consider sitting on them until market equilibrium favors landlords again. The good newsis that tenant demand largely returned in 2004 andnew office development significantly dropped off.A few years of this trend and the pendulum willhave swung back to favoring landlords in all but the most challenged U.S. markets.

INDUSTRIAL INVESTMENT

Following most modern recessions, it has usuallybeen industrial properties that led the way torecovery. Industrial output and GDP are directlylinked and changes in either usually equate to near-immediate impact on the demand for industrialreal estate.

For the past two decades there has been a fundamental shift occurring for industrial propertiesin the United States. Whereas industrial was oncesynonymous with manufacturing, it is now all about distribution networks for consumer goods.In many respects, the vast majority of industrialproduct in the U.S. increasingly fills the role asretail infrastructure. If you keep this in mind,current and future trends become relatively easy to understand.

Industrial pricing has significantly crept upward innearly all U.S. markets over the past few years—almost regardless of fundamentals. Weak marketsand strong markets alike experienced valuationincreases. The move of stock market money intoreal estate was part of this, but interest rates certainly added fuel to the fire. By 2004 manymarkets were reporting a shortage of propertiesfor sale, further driving up pricing.

In particular, warehouse investments have beendeemed a safe investment. In most U.S. marketsbulk warehouse space has become the pre-eminentindustrial product type and the focus of most leasing, sales and development activity. Don’t let

the warehouse tag fool you; bulk warehouse spaceis not about storage, but about distribution.Vacancies will continue on a downward trend forthis product type in 2005 and rents will hold theirown. The only question for buyers in the comingyear is whether pricing is already too high.Preferred properties are those on the path ofgoods movement near major metropolitan areas.Watch out for those markets where developersare jumping the gun on new product. Most U.S.markets could use at least another year of subdueddevelopment before the next building cycle begins.

RETAIL INVESTMENT

With consumer spending driving the national economy for most of the past four years, retailinvestment properties remained in high demand in most major U.S. markets. The clear majority ofcities reported significant increases in valuations—in many cases exceeding strong underlying fundamentals. As with all commercial propertyinvestment types, a lack of available institutionalgrade properties played a role.

On the leasing side, demand may subside as risinginterest rates diminish the re-financing trend—which has pumped considerable money (much of itdestined for retailers) into the hands of homeowners.Consumer spending increases will now have todepend more upon job growth, which is headingupward and earnings growth, which has yet to significantly occur. Increased interest rates mayeventually cause a credit crunch for consumers andrising energy prices are also a potential problem.

In the end, look for overall economic growth totrump these potential negatives and for retailgrowth to continue to occur, albeit at a more subdued rate than that experienced in recent years.

Neighborhood centers with strong grocery ordrug tenants (preferably with long-term leases inplace) will remain highly sought after. So will premier malls, lifestyle centers and new urban centers. But there are a number of property typesthat may be challenged from an investment pointof view. Grocery-anchored neighborhood centersin markets with a strong Wal-Mart presence couldbe in trouble. The coming shakeout in the groceryindustry may radically change the dynamic of neighborhood centers in the coming years andinvestors should proceed with caution.

There may be some opportunities to purchaseweaker-performing malls, but with wholesale consolidation going on among potential department

store anchor tenants this could be risky. Buyers ofthis property type will have to find innovative waysto either bring non-traditional mall tenants intothe fold or new ways to re-use space, includingmixed-use projects. Dominant malls within allmarkets will continue to experience high demand.Of course, hot new retail concepts replace olderones nearly every decade, but key locations andstrong money-makers usually find ways to adapt tonew retail trends. If they do not adapt, they do notremain dominant locations for long. That beingsaid, all of this may be a moot point as dominantmall locations are rarely offered in a singular manner to the marketplace and are generally out of reach for any investors below the REIT or institutional level.

Look for 2005 to be a year of stabilization as property values and market fundamentals workfrom both sides to the middle. Inflated values willcool and markets will show continued growth andstrength—albeit not at stronger rebound rates butat more moderate sustainable growth rates.

MULTI-FAMILY INVESTMENT

Multi-family investment properties remain amongthe most preferred investment type for investorsdespite the fact that market fundamentals formulti-family improved the least over 2004.The multi-family sector continued to suffer fromoverbuilding and weak tenant demand in many U.S. markets. This virtually cancelled overall rentalgrowth. Yet, despite this, price valuations increasedat a healthy clip over the past few years.

Increased interest rates come as welcome news to multi-family landlords as they inevitably lead to a decrease in the number of renters who movetowards first-time home ownership. Meanwhile,demographic trends give owners of this propertytype something to smile about. Echo boomers are graduating from college and joining the pool ofrental tenants. A combination of economic growthwith increased interest rates would be the best ofboth possible worlds for multi-family owners—lessening the number of echo boomers living athome or with roommates but still minimizing themove to home ownership.

One downside to the multi-family market is thatmany markets are at or near overbuilt. As with allcommercial property types, pricing has increasedrapidly over the past few years and—in many markets—is now inconsistent with market fundamentals. Current buyers—especially credit

buyers with high levels of financing—may find theirrates of return challenged. Rental growth may besomewhat delayed in some weaker markets andfor some property classes.

The strongest U.S. markets will remain those with the highest housing costs where permanentrenters make up a large block of the population.Greater New York City (including Northern New Jersey), Boston, Philadelphia,Washington, DC,Chicago, Seattle, the San Francisco Bay region andall markets in Southern California are exceptionallystrong. Markets with strong population growth arealso in a better position—Las Vegas, Phoenix,Sacramento and most of Florida have growing poolsof renters and rapidly escalating housing prices.

The trend of converting apartment buildings tocondos continues in many markets.This is yetanother factor driving up the prices of multi-familyproduct as it removes inventory from an alreadytight market. Conversions have been an extremelylucrative move for many owners, but this trendmay cool in the coming year. Condos geared forfirst-time owners in markets with lower housingcosts will be competing head-to-head with commodity single-family home developers for thesame dwindling pool of potential buyers as interestrate hikes take their toll.The most successfulcondo conversions will remain in the highest cost housing markets where they will still offer an affordable entry to home ownership and faceless competition.

BUBBLE, BUBBLE,TOIL AND TROUBLE…

Whenever price increases occur in what wouldotherwise be termed a “down” or recessionarymarket, there are two inevitable questions thatcome to the lips of market watchers. Is there abubble, and when will it burst?

A bubble is when price appreciation is driven by irrational factors to the point where it is unjustified and, more importantly, unsustainable.With price valuations going through the roof,sometimes despite market fundamentals, manyobservers worry that a bubble must be forming.The only problem is that part of the very definitionof a bubble is that no one knows when it willburst. In some markets, prices that seemed highjust two years ago now appear to be bargains.Yet, in weaker markets and for weaker propertytypes, there may be some reason for concern.

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LOOKING AHEAD

Price appreciation should slow in the coming year. The endless flow of capital into real estateinvestments may have gotten ahead of itself, butthe good news is that overall fundamentals areimproving for office and industrial properties. In thecase of multi-family and retail investments this coolingoff period will be more pronounced. The overalltrend throughout most U.S. markets will be one inwhich improving market fundamentals will be catchingup to prices. Further price valuation increases willbe based upon a couple of wild card factors.

The continued flow of capital seeking real estateinvestments certainly could drive prices furtherupward—and they definitely will in certain marketsand for certain property types. However, on thewhole investors were already becoming more cautious as the year came to an end. However, weare not talking about a wholesale retreat fromcommercial real estate investment. We are simplytalking about increased and proper buyer caution.

Secondary markets may gain from this trend, asinvestors will explore these markets for values andbetter yields. Higher prices in primary marketswill drive this trend, which should result in primarymarkets experiencing the cooldown first and some secondary markets actually experiencingincreased activity.

One other wild card is the weakness of theAmerican dollar. Even if one accepts the bleakestreadings of current market conditions and believesthe U.S. investment market to be overpriced andon the verge of a bubble, relative bargain basementprices could spur significant European and Asianinvestment into U.S. markets.

Meanwhile, expect continued incremental increasesin interest rates from the Federal Reserve.Judicious management of inflation by the Fed hasbecome one of the mainstays of the Americaneconomy. There is no reason to assume that thiswill change anytime soon.

Will there be a rush of available investment properties back to the marketplace? It is possible,and 2005 will surely see more buildings offered forsale. But most owners will continue to realize thatreal estate returns remain in concert with thoseoffered by more volatile investments. If anything, amoderate increase in available properties will helpto cool investment values to come closer withmarket fundamentals and bring values back to reality and long-term sustainable levels of growth.

With massive amounts of capital still flowing intothe U.S. investment market, 2005 may be a year ofrecord activity. Sellers can achieve liquidity, buyerscan get what they desire. With interest rates on alikely long-term upward trend and growth rates inthe broader equity market likely to slow, the comingyear may be the anomaly in which both buyers andsellers get what they want. In many ways 2005should present the overall market with the best of all possible worlds—medium growth, modestjob gains and low interest rates. But the biggestkey will remain the comparison of real estateinvestment returns to those offered by the stockand bond markets. This is where the heavy-hitterswill be looking. Real estate may not be the get-rich-quick or hot-and-sexy investment of theday, but returns will continue to match or evenexceed those of other markets in 2005, despite thehigh valuations that have occurred in recent years.Ultimately it is all about income, and commercialreal estate properties will still offer solid returnson investment, albeit at a slower pace in the coming year.

Heading into 2006 and beyond, market dynamicsmay change, but the key will be whether or not 2005 evolves into a year of continued recoverycombined with cooling prices. Buyers shouldacknowledge and understand that many of the valuation increases made over the past two yearshave been made against the premise of futurerecovery. Now that it is occurring, the optimaloutcome would be that the coming year is one of market fundamentals catching up to valuations.

If this does not happen, it may not even matter.The incessant flow of money into real estateinvestments may further pump-up commercial real estate. At unrestrained levels this will only further increase the chances of an eventual crash.However, the likelihood is that capital flows willbecome more restrained with interest rateincreases. With the ongoing recovery in the property markets, real estate should remain attractive on a relative basis, even at today’s loweryields. The key going forward for buyers will bekeeping exuberance in check—despite the potential short-term lack of available properties—and operating in a prudent manner. Meanwhile, thekey for sellers will be to accurately gauge wheretheir properties fall into the cycle and not haveunrealistic expectations for further valuationgrowth. Most properties—in most markets—will not be a clear-cut decision.

Going forward the market must be careful not to lose the favor it has garnered with investors.Moving too quickly into new development—whenall signs show that speculative building should notresume until at least 2006/2007—in many marketscould spoil investor enthusiasm. Likewise, overlyaggressive moves to continue price increases couldruin the party. But even with these challenges,commercial real estate investment returns stillmatch those offered by the stock market and ananemic bond market.

Despite all of the downside threats, real estateinvestments should hold their own even in the face of unforeseen catastrophic economic events.Should a new terrorist attack or any other cataclysmic event occur to derail the economy,real estate assets will not perform better thanother investment types, but they are unlikely toperform worse.

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10.00

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9.25

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2001 2002 2003 2004

Multi-Family Industrial Office-CBD Office-Sub Retail

Cap Rate Trends

Source: Real Estate Research Corp.

Year-end numbers for 2004 in the Atlanta office marketindicate a surge in activity not seen since the beginning of the century. For the first time in four years, Atlanta’soffice space absorption was in the millions of square feet.Net absorption for 2004 totaled more than 3 millionsquare feet, marking a huge turnaround from the past fewyears. This helped to push the vacancy rate down almost2% since this time last year and comes as a welcome signof recovery. Improving market conditions are beginning toimpact rental rates and has resulted in reduced concessions.Quoted rates for Class A space have increased slightlysince last year and currently average $20.80 per squarefoot annually on a full service basis.

Throughout 2004, Atlanta’s suburban markets proved to be the most attractive areas for office space, accounting for more than 60% of the absorption for the year.Midtown, however, ushered the strongest amount of spaceactivity and led all submarkets with over 957,000 squarefeet of office space absorbed. The largest deals of the yearinclude Norfolk Southern’s purchase of 379,300 square feetat Promenade I in Midtown; Powell, Goldstein, Frazier &Murphy’s move into 199,980 square feet at One AtlanticCenter in Midtown; and Coca-Cola taking 169,011 square feet at Wildwood Plaza in Northwest Atlanta.Lease renewals were also abundant as tenants sought to take advantage of market conditions.

Atlanta has become one of the more attractive, investmentmarkets due to its continuing growth, international airportand affordable properties. Look for continued growth in2005, although not at the record levels recorded over thepast twelve months.

Inventory New Absorption Vacancy Warehouse (SF) Supply (SF) (SF) Rate (%) Rent ($PSF)

1999 437,523,000 17,365,000 17,113,000 8.9 3.752000 454,018,000 16,495,000 14,286,000 8.8 3.702001 472,321,000 18,303,000 1,678,000 11.8 3.602002 480,127,000 7,806,000 -2,523,000 13.7 3.302003 483,476,000 3,348,000 458,000 14.0 3.502004 491,171,000 7,695,000 11,096,000 12.8 3.25

Mike Spears, SIOR

Two Midtown Plaza1349 West Peachtree Street, NE, Suite 1100Atlanta, GA 30309-2956Tel 404-888-9000Fax 404-870-2845


1999 46,396,000 295,000 -236,000 7.8 22.202000 47,046,000 650,000 1,425,000 6.0 24.202001 49,827,000 2,781,000 -374,000 12.0 24.902002 51,051,000 1,224,000 -50,000 14.2 23.502003 51,539,000 488,000 210,000 14.6 23.302004 52,098,000 559,000 144,000 14.5 21.90

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1999 130,888,000 9,707,000 8,164,000 11.1 23.002000 139,133,000 8,245,000 7,376,000 11.1 23.202001 146,657,000 7,524,000 236,000 15.5 23.802002 150,559,000 3,902,000 -413,000 18.0 22.402003 152,597,000 2,038,000 232,000 18.9 21.402004 153,409,000 812,000 3,476,000 16.9 21.40

Suburban Office

Industrial

Office IndustrialThe Atlanta industrial market ended 2004 on a high noterecording a substantial increase in net absorption and a 7% decrease in available space despite significant new development throughout the year. For the third quarter ina row, net absorption in the Atlanta area was over 3 millionsquare feet, bringing the total for 2004 to over 11 millionsquare feet. Not since 2000 has the city recorded absorption levels in this range. Because of this, vacancy levels are currently at 12.8% overall, down 1.2% from thistime last year. Demand is up significantly, particularly forbuild-to-suits. Of the roughly 7.5 million square feet ofindustrial product delivered to the market in 2004, nearly70% was occupied by year’s end. Some of the morenotable deals occurring in 2004 include APL Logistics occupying over 980,000 square feet in the I-20 West submarket; Rooms To Go inking a deal for over 620,000square feet in the Northwest Atlanta market; Clorox occupying 607,000 square feet in South Atlanta; and TOTO USA moving into a 498,000 square foot building in South Atlanta.

While we expect leasing activity to remain strong in 2005 it is important to remember that Atlanta’s recovery is stillin its infancy. Weak job growth continues to be an issue.

However, developers remain upbeat and currently have over five million square feet of product in the constructionpipeline. Looking ahead we expect growth to continue,albeit likely at a more moderate pace than that recorded in2004. Expect occupancy growth in the 4-5 million squarefoot range throughout 2005, and possibly more should jobcreation begin in earnest.

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While the market is experiencing its highest occupancyrates since 2001 and rental rates continue to increase,there still remains almost 7 million square feet of officespace available throughout the Austin office market.Occupancy currently stands at 80.8%—the highest that ithas been since the fourth quarter of 2001 when it stood at 81.2%. These encouraging rates illustrate that the market is clearly in recovery.

Rental rates in Austin continued to rise in 2004, closing theyear with an average of $18.76 per square foot annually ona full service basis. Despite the growth experienced overthe past twelve months, the market still favors tenants, withasking rates for Class A space remaining relatively low.But the rapid disappearance of sublease space—down over45% from a year ago—should help to contribute to rentalgrowth in 2005. Currently 760,000 square feet of subleasespace remains available—down from over 1.4 millionsquare feet at the close of 2003. While this marks a hugeimprovement, existing sublease space continues to be marketed at lower than average rates which skew the average asking rate in Austin.

The good news is that recovery firmly took hold in 2004,with the market posting its first occupancy growth since2000. Over 1.1 million square feet of space was absorbedover the past twelve months—yet another sign that theeconomy is heating up, job growth is on the increase, andmost importantly, the need for office space is on the rise.

Rick Whiteley

The Terrace II, Suite 100 2700 Via FortunaAustin,TX 78746Tel 512-474-2400Fax 512-477-3037


1999 6,916,000 146,000 46,000 4.5 28.302000 6,916,000 0 79,000 3.0 38.102001 7,242,000 326,000 -572,000 13.8 30.402002 7,944,000 702,000 154,000 21.2 24.402003 7,880,000 -64,000 -120,000 22.1 23.002004 8,440,000 560,000 54,000 25.0 24.20

Downtown Office


1999 17,836,000 2,513,000 -351,000 8.2 N/A2000 18,936,000 1,100,000 1,715,000 4.7 N/A2001 21,954,000 3,018,000 -571,000 20.4 25.002002 28,196,000 6,242,000 -245,000 23.5 20.802003 28,498,000 302,000 212,000 23.6 17.902004 27,904,000 -594,000 1,104,000 17.4 18.60

Suburban Office

Office

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The Bakersfield office market ended 2004 on a positivenote. The downtown market, comprised primarily of county and city government offices as well as a significantnumber of law firms, is currently enjoying a low 2.7%vacancy rate—down from the 3.2% mark recorded just one year ago. Rents have remained stable averaging $17.40per square foot annually on a modified gross basis, tenantimprovement costs are averaging roughly $12 to $25 persquare foot for second-generation space and $30 to $35per square foot for new space. With no new constructionprojects in the pipeline, look for the downtown office market to hold at its current vacancy rate.

Bakersfield’s suburban submarkets also recorded slightdecreases in vacancy throughout 2004, ending the year at7.8%, down from the 9.4% rate recorded at the close of2003. Rents here also remained steady throughout theyear and currently average $19.80 per square foot annuallyon a modified gross basis. Tenant improvement allowancesfor the suburban markets remain on par with thoserecorded in Bakersfield’s CBD. Just over 155,000 squarefeet of space is currently in the development pipeline butvacancy rates are not expected to increase in 2005.Bakersfield continues to benefit from strong in-migrationthat is expected to increase the local population from440,000 in 2005 to 501,400 by 2010. Even with rising costsof residential real estate, Bakersfield remains one of themost affordable cities in California and this translates tolower business costs. According to statistics from the KernEconomic Development Department, doing business inKern County can save businesses an average of $3.46 perhour in labor costs compared with the national average.All of these factors will positively impact demand for office space heading into 2005.


1999 21,565,000 300,000 722,400 3.0 3.002000 22,005,000 440,000 800,000 2.7 3.102001 23,321,000 1,316,000 1,243,000 3.5 3.202002 25,814,000 2,493,000 1,576,000 4.9 3.202003 26,071,000 257,000 -263,000 7.0 3.202004 26,554,000 483,000 1,018,000 5.0 3.20

Mike Schuh

10000 Stockdale Highway, Suite 102Bakersfield, CA 93311Tel 661-631-3800Fax 661-631-3829


1999 2,432,000 0 50,000 4.8 21.002000 2,532,000 100,000 94,000 5.8 16.202001 2,600,000 68,000 119,000 5.5 16.202002 2,634,000 34,000 73,000 4.0 17.402003 2,634,000 0 14,000 3.2 17.402004 2,634,000 0 24,000 2.7 17.40

BA

KER

SFIELD,C

A

Downtown Office


1999 4,325,000 -86,000 -453,000 14.9 21.002000 4,385,000 60,000 122,000 16.3 18.602001 4,385,000 0 125,000 13.5 19.202002 4,531,000 146,000 106,000 14.0 18.602003 4,628,000 97,000 307,000 9.4 19.802004 4,656,000 28,000 99,000 7.8 19.80

Suburban Office

Industrial

Office IndustrialWhile 2004 did not produce any new big box distributioncenters such as IKEA (1.8 million square feet in 2000) orTarget (1.7 million square feet in 2001), we did see the startof a 400,000 square foot expansion of the Dreyer’ IceCream plant. This will make the plant the largest in NorthAmerica and is a reflection of Bakersfield’s emergence as an affordable California option for manufacturers as well as transportation/distribution users. Throughout 2004 demand has kept pace with construction and this hasresulted in rental growth. Land sales have been brisk withdevelopers and users competing for the same properties.While demand for bulk warehouse space is currently low,interest has been increasing and a number of companiessuch as Performance Food Group and Alpha Leisure have purchased land to build such facilities in the future.Look for land prices to continue to escalate in 2005 as thesupply of prime locations dwindles. Meanwhile, leasing andsales demand for smaller speculative buildings has also beenstrong. Prices for buildings of 20,000 square feet or lessare outpacing rapidly rising construction costs.

Look for a significant amount of new product to be delivered in 2005. Besides the completion of the Dreyer’sexpansion and commencement of Performance FoodGroup and Alpha Leisure’s projects,Tejon Ranch currentlyhas a 650,000 square foot building under construction aswell as plans for speculative development in the 20,000 to150,000 square foot range. Even as development picks upin 2005 look for the resurgent economy to provide enoughdemand to keep pace. A combination of increased demandand rising construction costs will keep rental rates movingupward in 2005.

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Abetted by a strong state economy and federal expendituresfor defense and homeland security, the Baltimore officemarket had a record-setting year. Baltimore’s 2.5 millionsquare feet of occupancy growth dropped the overallvacancy rate from 16.8% as of the close of 2003 to today’srate of 15.4%. This is even more impressive consideringthat during that time, developers brought two millionsquare feet of new product to the marketplace. It alsomarks the second year in a row in which net absorptionoutpaced new construction. This performance was mostdramatic in the Howard County, BWI Airport, and GreaterAnnapolis submarkets. Even if the Baltimore City andBaltimore County markets could not keep pace with theleasing activity by their neighboring markets to the south,they more than held their own with investors in the number of investment sales.

This marks the second year in a row in which performancein the Baltimore market has improved following the lowsexperienced in 2002 when vacancy was nearing 20%.The Baltimore market is now firmly in recovery mode andwe have every reason to believe that 2005 will be anotherstrong year. One caveat would be the rate of FederalDepartment of Defense and Homeland Security expenditures, because Baltimore Metropolitan area firmshave been principal beneficiaries over the past two years.A second note of caution would be the amount andabruptness of any interest rate increase on investment sales activity.


1999 75,200,000 2,529,000 2,608,000 11.6 4.752000 76,501,000 1,301,000 3,616,000 7.7 4.702001 80,402,000 3,901,000 917,000 13.3 4.502002 81,709,000 1,307,000 -322,000 16.8 5.002003 84,041,000 2,332,000 2,250,000 17.0 5.602004 85,179,000 1,138,000 -814,000 18.7 5.40

Michael A. Elardo

100 Light Street, Suite 1400Baltimore, MD 21202-1116Tel 410-752-4285Fax 410-576-9031


1999 13,043,000 161,000 593,000 9.2 25.002000 13,267,000 224,000 171,000 9.3 26.502001 13,875,000 608,000 299,000 11.4 24.102002 15,565,000 1,690,000 33,000 19.6 21.402003 15,730,000 165,000 296,000 18.4 24.302004 16,111,000 381,000 294,000 17.7 24.00

Downtown Office


1999 29,672,000 1,856,000 1,400,000 8.4 23.502000 32,118,000 2,446,000 1,913,000 9.9 23.702001 34,326,000 2,208,000 418,000 14.6 22.502002 35,327,000 1,001,000 14,000 17.4 18.402003 35,976,000 649,000 1,114,000 16.0 21.302004 37,651,000 1,675,000 2,213,000 14.2 22.50

Suburban Office

Industrial

Office IndustrialThe Baltimore industrial market was more notable for its sales activity than its leasing activity in 2004.Institutions, developers, investors, and corporate users took advantage of low interest rates, the ready availabilityof capital, and long-term confidence in the strength of thismarket to buy buildings, principally for warehousing anddistribution. Not surprisingly, some of the most significantsales activity occurred in the Baltimore-WashingtonCorridor market, which despite an otherwise lacklusteryear, remains the region’s strongest submarket. In terms of leasing, only the bulk warehouse market fared well in 2004.

Bulk warehouse space is generally geared for distributionuses and is defined as buildings of 100,000 square feet ormore with plentiful loading docks and easy truck access.In the past, this type of industrial product accounted

for roughly 70% of all industrial leasing activity in theBaltimore. However, in 2004 this trend reversed itself asdemand for bulk warehouse space dropped significantly.While we expect this to be a short-lived trend, it did help to contribute to the occupancy losses recorded in a number of submarkets, including the areas north ofBaltimore City in the East, as well as the Harford, and Cecil County markets. Approximately 21% of all bulk distribution space in the metropolitan area is currentlyvacant. This figure is much higher in Harford County,where it reaches 39.7%. However, Baltimore’s most activesubmarket, the Corridor, remains in a relative position ofhealth with only 12.2% vacancy for bulk product.Fortunately, over 90% of the bulk distribution space currently in the construction pipeline is located in the Corridor.

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While most other major U.S. markets are beginning to experience moderate levels of recovery, improved performance has yet to occur in Boise. Overall vacancyactually crept upward slightly in 2004 closing at 17%, anincrease over the levels recorded at the close of 2003.

Moderate increases in productivity have been positive forthe overall economy but have also had the effect of keepingjob growth in check. This has helped to further prolongthe impact of the downturn that began here in 2001.But while recovery within the Treasure Valley commercialoffice market has still yet to take hold, indicators are thatthe market is now at or near the tipping point.

Until the job market fully recovers, the office market will continue to struggle with the problem of decreaseddemand. However, the good news is that state economistsare forecasting increased job growth over the next six totwelve months as the local economy improves. As a result,our forecast is for increased office demand, and slow butsteady absorption of existing vacant space. Another plusfor the market is that there is little in the constructionpipeline and significant new development will likely not happen throughout 2005. This will give the market time inwhich to absorb vacant space. Ironically, despite today’shigh vacancy there are few large blocks of space availablethroughout the Boise market. Vacancy remains rooted insmaller to medium-sized blocks leaving almost no spaceavailable to accept the larger relocating or expanding localtenant. This could potentially inhibit growth by largeremployers on which the Treasure Valley depends.


1999 20,993,000 396,000 345,000 2.3 4.902000 22,354,000 1,361,000 1,558,000 1.5 5.002001 6,934,000 N/A N/A N/A N/A2002 6,934,000 N/A N/A N/A N/A2003 7,376,000 87,000 154,000 10.1 4.402004 22,578,000 137,000 202,000 11.6 4.60

George S. Iliff

475 S. Capitol Blvd., Suite 300 P.O. Box 7248, 83707-1248Boise, ID 83702Tel 208-345-9000Fax 208-343-3124


1999 1,935,000 242,000 181,000 8.9 19.002000 1,975,000 40,000 17,000 9.1 18.802001 2,770,000 N/A N/A N/A N/A2002 2,770,000 N/A N/A N/A N/A2003 2,845,000 75,000 -4,000 10.6 18.902004 3,097,000 252,000 187,000 11.7 18.80

BOISE,ID

Downtown Office


1999 4,833,000 331,000 244,000 15.3 17.002000 5,034,000 201,000 234,000 12.6 17.002001 N/A N/A N/A N/A N/A2002 N/A N/A N/A N/A N/A2003 N/A 442,000 323,000 15.6 16.602004 7,545,000 169,000 157,000 19.2 17.60

Suburban Office

Industrial

Office IndustrialActivity within the Treasure Valley industrial market in 2004could best be described as soft. Both leasing and salesactivity declined over the past twelve months as the marketexperienced job losses due to corporate consolidations.The recovery of the national economy has yet to buildmomentum in Boise and this is clearly demonstrated byrecent job layoffs and corporate closures that have beenexperienced in the Valley, including the Jabil Circuit facility in Meridian, as well as two Zilog fabs in the Nampa market.All of these have resulted in a decrease in demand forindustrial space and vacancy rates that clearly illustrate amarket that has yet to move into recovery mode.

However, despite the challenges that the Boise industrialmarket faces, there are some bright spots on the horizon.State economists are forecasting job growth in 2005 andstrong residential growth continues to occur. We are seeing a substantial amount of activity coming from industrial companies related to the construction industry.Companies such as roofers, plumbers, HVAC contractorsand landscapers are generating demand—particularly inthose trade areas in close proximity to residential and retail growth areas. The industrial market is currently at or near bottom and these factors should result in growththroughout the coming year. Look for the Boise industrialmarket to enter a long awaited period of recovery in thecoming months. Expect it to be a slow but steady reboundwith momentum building as we head into 2006 and beyond.

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N,M

A

The Boston office market has finally begun to stabilize andshow some prospects for improvement after four years of decline. The market ended 2004 with a combined availability rate of 22.7%, down slightly from 23.5% last year.Net absorption for the region totaled over 1.7 millionsquare feet in 2004 with most of it amassed during the second half of the year. This is promising for the region,but the current absorption rate and underlying prospectsfor job growth in Boston's core industries point to continued slow recovery in 2005 with rental rates holding stable at best.

The downtown Boston office market posted significantoccupancy growth during the fourth quarter to end theyear with relatively flat annual absorption. The late gainsoffset losses earlier in the year from the major acquisitionscompleted by Manulife Financial of John Hancock and Bank of America of Fleet Bank. Good news at year’s endincluded Bank of America's decision to take back nearly400,000 square feet of space at 100 Federal Street.Downtown availability was 17.9% at year-end, down from the 19.6% rate recorded just three months earlier.Meanwhile, Boston’s suburban markets recorded 1.8 millionsquare feet of positive net absorption for the year.Cambridge accounted for over 400,000 square feet of thattotal, marking the third consecutive year of positive netabsorption in this submarket. However, overall availabilityremains high in Cambridge for both office and lab space at 22.8% and 23.9% respectively. Cambridge is the lastsubmarket in the region with significant development in thepipeline, all build-to-suit lab projects. Overall we expect a “flight to quality” mentality to continue to drive tenantrelocations and benefit core markets and high quality buildings in 2005.


1999 53,072,100 794,800 2,170,200 9.7 6.002000 55,507,000 2,434,900 3,030,400 8.2 7.002001 57,568,800 2,061,800 -1,726,200 14.6 7.002002 58,427,000 858,200 -59,700 15.9 6.002003 59,184,000 757,000 -1,247,800 19.2 6.002004 59,799,000 615,000 -1,767,000 23.0 5.50

David Slye

255 State StreetBoston, MA 02109Tel 617-523-8000Fax 617-531-4280


1999 49,302,000 844,000 812,000 5.5 50.502000 51,152,000 1,850,000 2,290,000 4.5 72.002001 53,326,000 2,174,000 -1,935,000 11.9 55.302002 55,058,000 1,732,000 -860,000 16.2 43.702003 56,312,000 1,254,000 368,000 17.4 38.402004 57,120,000 808,000 -61,000 17.9 38.20

Downtown Office


1999 77,539,000 5,599,000 7,904,000 12.3 25.602000 82,492,000 4,953,000 9,241,000 6.2 38.902001 89,325,000 6,833,000 -6,570,000 21.0 31.002002 92,775,000 3,450,000 -1,766,000 26.0 25.002003 95,159,000 2,384,000 -290,000 28.2 21.002004 94,981,000 -178,000 1,810,000 25.6 20.80

Suburban Office

Industrial

Office IndustrialThe Boston industrial market has now experienced fourconsecutive years of negative net absorption, including thelargest annual occupancy decline in 2004 of nearly 1.8 million square feet. Overall availability increased to 23.0%,up from 19.2% twelve months ago, reflecting 13.7 millionsquare feet of available product. During 2004, five of sevensubmarkets had occupancy declines, with the greatest inthe South submarket with 908,800 square feet of negativenet absorption, followed by the 495/North submarket with negative absorption of 558,100 square feet, and theNorthwest submarket with negative 491,000 square feet.Much of the declines were sustained as Verizon,Analogic,Maxwell Shoe, and Reebok were among those who vacatedlarge blocks of space during the second half of 2004.

There was some good news during 2004, however.Three companies with large build-to-suit requirementsselected sites: BJ’s Wholesale Club will build 700,000 squarefeet in Uxbridge; General Motors will relocate to 400,000square feet in Norwood; and Dunkin Donuts will move to268,000 square feet in Bellingham. While these transactionswill have a limited impact on existing availability, theyunderscore the trend toward locating large specializedfacilities in southern Route 495 markets and beyond, whereland is abundant and can be developed cost-effectively.Smaller companies, sensing that outright purchase andretrofitting smaller, well-located vacant buildings is morefavorable than leasing, have been active buyers. For the fewtenants actively seeking space, newer industrial buildingswill have a significant competitive advantage over older or functionally obsolete properties. Meanwhile, lack ofdemand in the marketplace and tepid job growth will keeprents from increasing, except in high quality facilities, whichare in relatively short supply.

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The Charleston office market enjoyed a year of solidgrowth in 2004 as overall vacancy decreased from the18.6% rate recorded just one year ago to the current rate of just 12.9%. Nearly 600,000 square feet of positivenet absorption was recorded over the past twelve months, compared to just 70,000 square feet in 2003.Downtown vacancy dipped from 13.3% at the close of2003 to today’s rate of 11.3%. Meanwhile, Charleston’ssuburban submarkets were extremely active, accounting for478,000 square feet of occupancy growth as vacancy theredropped from 20.5% just one year ago to the current rateof 13.5%. The office market is experiencing the lowestvacancy levels and the highest rental rates in the past five years.

Just 183,000 square feet of space came online in 2004,marking a significant reduction in new construction.This combination of increased demand and low constructionlevels has been instrumental in driving vacancy levels downward so rapidly. It also is one of the reasons whydowntown Class A rents jumped from $20.00 to $21.00(annually on a full service basis) over the past twelvemonths. That being said, the market is poised for newdevelopment in 2005. We anticipate five to seven newClass A office buildings breaking ground throughout theyear. Look for leasing activity to continue to be strong as economic fundamentals only get better.


1999 14,446,000 450,000 917,000 20.4 3.002000 14,859,000 413,000 948,000 19.1 3.302001 15,559,000 700,000 442,000 21.0 3.302002 16,159,000 600,000 545,000 21.0 3.352003 16,959,000 800,000 1,446,618 18.5 3.402004 18,029,000 1,070,000 1,389,000 18.4 3.50

Woody Moore, CCIM

151 Meeting Street, Suite 350 (P.O. Box 610)Charleston, SC 29401 (29402)Tel 843-723-1202Fax 843-577-3837


1999 N/A N/A N/A N/A 21.752000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 1,765,000 30,000 17,000 10.3 24.402003 1,891,000 126,000 62,000 13.3 20.002004 1,978,000 87,000 116,000 11.3 21.00

CH

AR

LESTON

,SC

Downtown Office


1999 N/A N/A N/A N/A 19.502000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 4,920,000 220,000 64,000 16.1 18.702003 5,551,000 631,000 8,000 20.5 19.302004 5,647,000 96,000 478,000 13.5 19.50

Suburban Office

Industrial

Office IndustrialThe Charleston industrial market experienced growth and solid leasing activity during 2004. New constructionadded over one million square feet of new product to the market, slightly outpacing occupancy growth last year.Charleston experienced approximately 1.1 million squarefeet of positive net absorption in 2004 with most of thatactivity generated by bulk deals as well as expansions oflocal tenants and the influx of new tenants to the market.Flex product also enjoyed considerable activity with theexpansion and addition of defense and homebuilding relatedbusinesses. Primary market drivers were manufacturingrecovery, growth of the Port of Charleston and nationaldefense contracts. A recent announcement that Charlestonwas selected by the Vought Aviation—Alenia joint ventureto be the manufacturing site for fuselage sections of thenew Boeing 7E7 Dreamliner aircraft will have a ripplingimpact on bulk, distribution and manufacturing product overthe next five years.

With approximately 1.9 million square feet of new development planned, construction will take center stage in Charleston over the next year. Speculative developmentwill be mixed with build-to-suit activity and will include all product types. The bulk market may experience increasedvacancy due to Icon’s planned relocation, but it could alsosee the development of a 600,000 square foot facility forFruit of the Loom. Gains should be made in the distributionsegment of the market, but it will lag behind bulk and flexproducts. Meanwhile, the amount of flex properties willcontinue to grow and will be developed along the paths ofresidential growth. In the short term this will translate intoflat absorption and slight vacancy increases, but new productwill likely begin to move average rental rates up slightly.

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Charlotte closed the year with 166,000 square feet of positive net absorption as overall vacancy increased to16.7% up from the 15.6% rate recorded at the close of2003. This marks the highest vacancy rate that the area hasexperienced since 1993. New supply has been the primaryfactor with 663,000 square feet of new product added tothe market in 2004. New construction has outpaced netabsorption for each of the past four years. With nearly onemillion square feet of additional new product under construction in the suburbs, including the mixed-usePiedmont in South Park, the prospect of oversupply willcontinue, at least in suburban Charlotte.

Activity within Charlotte’s submarkets has been mixed.Six out of eleven submarkets experienced limited tohealthy positive absorption while two others are still suffering. The Northeast/University and I-77/Southwestsubmarkets still have vacancy rates over 20%. The goodnews is that as the year came to an end the I-77/Southwesttrade area saw it’s first positive absorption in almost a year.Likewise, most of Charlotte’s submarkets continue to experience increases in demand. Unfortunately, theincrease in demand has simply not been enough to keep up with the pace of new development.

While it is still a tenant's market, stronger areas like downtown are becoming tighter and concessions arediminishing. However, in the majority of the suburbs,landlords and their agents are fighting to keep existing tenants and to win new ones. Attractive rental rates with free rent, generous tenant allowances and othersweeteners are the norm and will continue to be available in the immediate future.


1999 30,998,000 1,959,000 2,044,000 13.0 4.302000 32,348,000 1,350,000 1,712,000 9.7 3.802001 33,152,000 804,000 -644,000 14.4 3.602002 34,355,000 1,203,000 -486,000 17.2 3.402003 34,529,000 174,000 76,000 18.2 3.402004 34,892,000 363,000 981,000 17.0 4.10

Robert A. Cochran

330 S.Tryon Street, Suite 301Charlotte, NC 28202-1916Tel 704-375-7771Fax 704-347-0793


1999 11,775,000 1,145,000 938,000 5.1 28.002000 12,527,000 752,000 947,000 3.2 25.302001 13,194,000 667,000 126,000 5.4 24.502002 14,192,000 998,000 364,000 9.5 22.902003 14,292,000 100,000 -7,000 10.2 23.802004 14,292,000 0 77,000 9.7 23.80

Downtown Office


1999 20,203,000 420,000 1,558,000 13.0 24.002000 21,340,000 1,137,000 1,423,000 11.8 21.802001 23,193,000 1,853,000 215,000 17.8 20.302002 24,050,000 857,000 98,000 19.8 20.002003 24,442,000 392,000 539,000 18.9 19.302004 25,105,000 663,000 89,000 20.7 19.30

Suburban Office

Industrial

Office IndustrialThe Charlotte industrial market closed the year on a high note as overall vacancy decreased from 18.2% at the end of the third quarter to the current rate of 17.0%.Strong activity within the warehouse sector as well assteady activity within the Southwest submarket played akey role in these gains. Vacancy within the warehouse sector decreased 1.5% over the final months of the year,with warehouses accounting for a total of 604,000 squarefeet of occupancy growth. The flex market, by comparison,remained relatively flat with vacancy decreasing by just onebasis point. Total net absorption for all submarkets and allproperty types topped 980,000 square feet for the yearwith the bulk of this recorded in the Southwest submarket.

Construction activity also surged at the close of the year.Over 320,000 square feet of new product was deliveredduring the final quarter of 2004, bringing the total for theyear to 363,000 square feet. Over half a million square feet of industrial space is currently in the developmentpipeline—with many of these projects going forward on aspeculative basis. Considering that throughout 2004 newdevelopment was limited and that capital remains abundantfor industrial deals, these new projects will likely not impactthe market negatively. Charlotte's economy continues toshow signs of recovery and job growth has been strong.Look for demand to keep pace with new development and for leasing activity to continue to increase heading into 2005.

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In 2003, positive news in the stock market and the overalleconomy were cause for optimism despite a weakeningdollar and the war on terrorism. It remained to be seen ifthere was enough strength to translate to job growth, andincreased demand for office space.As 2004 ended thesesame concerns were present with the added strain ofunprecedented energy costs.The downtown Chicago officemarket has not seen increased activity despite a 2004monthly average job growth of 185,000 and an unemploymentrate that edged down below 5.4% at the end of November.Most hiring was concentrated in lower wage and part-timework. Meanwhile, off-shoring continues to impact the localmarket as do continued office hoteling and the use ofremote workforces. Despite the economic gains of 2004,not much demand was created. This will continue to bethe trend in 2005 for several reasons. First, the industriesthat are showing strong corporate earnings have createdprofits by merging and then consolidating, rather thanthrough job growth. Second, the demand created in 2004was primarily a result of small businesses taking advantageof the tenant’s market.To date, large companies have not followed suit. Deeper rental rate cuts are expected in2005, especially in Class A – and B+ properties that areexperiencing the greatest vacancies.This will put pressureon all the other property classes to reduce prices accordinglyor risk exacerbation of the “flight to quality” trend.


1999 983,983,000 22,227,000 24,189,000 5.6 5.202000 1,003,126,000 19,143,000 15,680,000 5.8 5.602001 1,013,474,000 10,348,000 -10,977,946 8.0 5.102002 1,026,835,000 13,361,000 1,305,000 8.9 4.402003 1,040,301,000 13,466,000 7,392,000 9.4 4.602004 1,057,579,000 17,278,000 13,221,000 9.5 4.50

David A. Bercu, SIOR

6250 North River Road, Suite 11-100Rosemont, IL 60018Tel 847-698-8444Fax 847-698-8445


1999 137,932,000 2,600,000 -156,000 10.7 34.302000 138,736,000 804,000 2,140,000 10.2 36.002001 140,967,000 2,231,000 -685,000 12.7 35.002002 141,797,000 830,000 -3,404,000 16.6 32.002003 144,622,000 2,825,000 -945,000 16.9 32.002004 146,480,000 1,858,000 1,544,000 17.0 32.00

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,IL

Downtown Office


1999 93,068,000 3,984,000 1,681,000 11.7 27.002000 96,997,000 3,929,000 1,383,000 13.8 28.502001 101,170,000 4,173,000 (3,010,000) 20.7 29.002002 102,883,000 1,713,000 (793,000) 23.4 25.002003 103,149,000 402,000 (1,283,000) 23.9 25.002004 103,551,000 539,000 2,501,000 21.8 22.00

Suburban Office

Industrial

Office IndustrialContinuing a rebound that began in late 2003, the Chicagoindustrial real estate market experienced improved growthand steady but measured absorption in 2004. This growthwas most noteworthy in the demand for big box warehouse/distribution facilities along the emerging transportation corridors of I-80, I-55, I-88, and I-39.Demand for bulk space, particularly larger modern buildingsof 500,000 square feet with expansion potential, generatedconsiderable excitement in the market over the past yearwith much of this demand coming from the consumergoods and food sectors. Compared with 2003, whendemand for large build-to-suit construction was at an all-time high, 2004 build-to-suit activity was down by 1.8million square feet. While build-to-suit activity decreased,speculative development more than made up the difference.Speculative construction increased over 4.3 million squarefeet from 2003 levels and new construction increased over2003 levels by 2.4 million square feet in 2004.

As of the close of 2004 the market had recorded positivenet absorption of 13.2 million square feet, a significantimprovement over the roughly 7.4 million square feetrecorded just one year ago. Vacancy increased slightly from9.4% recorded at the close of 2003 to today’s rate of 9.5%.However, much of this comes as a result of increased newconstruction. Leasing activity during the past year not onlykept pace but surpassed levels recorded in 2003. The usualpost- recession “pent-up-demand” factor was not evident in2004, but we should enjoy a steady and increasing level ofactivity over the next year. Chicago’s economy is bothdiverse and stable.These factors, coupled with healthy consumer demand, emerging corporate capital spending,growing employment and relatively low interest rates, is a formula for recovery in 2005.

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NAT

I,OH

Conditions within the Cincinnati office market haveimproved since the end of 2003. After a robust first halfof the year in which occupancy grew by 397,000 squarefeet, the pace of absorption slowed totaling 420,000 squarefeet at year end. The positive news is that most economicforecasters in the U.S. have been raising their estimates foreconomic growth in 2005. The Cincinnati economy has historically tracked the nation very closely, and we expectthis trend to continue throughout 2005. The market hasstabilized since the end of 2003 and is beginning torebound. While tenants will still hold the advantage in2005, the aggressive rates, free rent, moving allowances and other incentives that landlords offered over the lastfew years are slowly disappearing.

The prospect for continued positive absorption in theCincinnati office market remains strong. Office job growthhas been slowly increasing over the past year, resulting inadditional demand for office space. In addition, landlordsand developers are being much more cautious about delivering new product than they were during the late1990s. With the exception of the I-71 midtown submarket,speculative development is almost at a standstill.Given lack of speculative development, a lack of subleasespace on the market, and the increasing demand for officespace, positive absorption for the Cincinnati market isexpected in 2005. However, substantial effective rentgrowth is not anticipated until the latter part of the year.


1999 227,327,000 9,000,000 2,163,000 5.0 4.302000 235,327,000 8,000,000 2,500,000 6.0 3.302001 240,766,000 5,439,000 464,000 7.6 3.202002 242,866,000 2,100,000 1,003,000 8.5 3.202003 243,908,000 1,042,000 -35,000 8.9 3.202004 246,565,000 2,657,000 6,134,000 7.8 3.20

Thomas M. McCormick, SIOR, CCIM

221 East Fourth Street, 27th FloorCincinnati, OH 45202Tel 513-421-4884Fax 513-421-1215


1999 12,934,000 36,000 137,000 7.6 20.602000 12,947,000 13,000 55,000 6.9 20.902001 12,947,000 0 -110,000 8.2 21.302002 13,097,000 150,000 105,000 13.4 21.202003 13,097,000 0 8,000 13.0 21.202004 13,097,000 0 62,000 12.5 21.00

Downtown Office


1999 13,851,000 409,000 361,000 11.6 22.002000 14,835,000 984,000 225,000 12.9 16.302001 15,968,000 1,133,000 735,000 16.4 19.302002 16,611,000 643,000 149,000 22.9 19.702003 16,611,000 0 142,000 22.4 19.802004 16,611,000 0 354,000 25.2 19.80

Suburban Office

Industrial

Office IndustrialThe Greater Cincinnati industrial market showed strongsigns of recovery by the end of 2004. Over the past twelvemonths, the market absorbed over six million square feetof industrial space or roughly 2% of the total market.During this same period, the total amount of vacant spacein the marketplace decreased from 21.7 million square feet to 19.3 million square feet at the close of 2004.Overall vacancy dipped from 8.9% to 7.8% over the past year.

Accounting for nearly half of all occupancy growth in Cincinnati, bulk space recorded approximately 2.5 million square feet of positive net absorption in 2004.Bulk properties continue to record strong growth with this sector of the market firmly in recovery. Though thecurrent vacancy rate for bulk product of 17.7% illustratesthat the market still faces challenges, this marks a significantimprovement from the 20.1% rate recorded at the end of 2003.

The office warehouse sector remained relatively stable,with vacancies holding in the 17% range. New constructionincreased significantly in 2004, with more than 2.6 millionfeet added to the market, up from just one million squarefeet in 2003. As vacancy levels dropped, speculative construction increased this year, with 1.2 million squarefeet of speculative space delivered to the market. Look formore of the same in 2005. Absorption is expected toincrease, further lowering vacancy levels, and triggeringmore speculative construction. The year ahead should beanother year of gradual improvement as the Cincinnatiindustrial market continues its steady recovery.

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The Cleveland office market ended 2004 building overallpositive momentum. The unemployment rate for Ohio was5.9% at year’s end—a considerable improvement over the6.5% rate recorded in November. Throughout the pastyear Cleveland has benefited from moderate sales activity,continued mixed-use development and increased absorption over the previous three years.

The Cleveland CBD ended the year with modest negativeabsorption as Class B and C tenants took advantage of market conditions to upgrade to Class A space atdepressed rental rates. Vacancy stood near 24.0% at year-end, thanks to the occupancy losses in Class B and C space. Noteworthy deals downtown include CaseWestern Reserve University’s move to the Halle Building,and Lesco’s move to Erieview. The East suburban marketwas one of the best performance areas in 2004, recording190,000 square feet of occupancy growth. The other hotspot was the South submarket with 37,000 square feet of positive net absorption. This market recorded rentalgrowth in 2004.

Going forward the local economy will continue to slowlyimprove, but this will be a prolonged process with substantial gains probably not occurring before 2006.Absorption should tick up in the coming year as the economy recovers and job growth increases. Vacancyshould decrease by a few points over the next quarter.The East and South submarkets will continue to be thestrongest trade areas in 2005. Expect fewer landlord concessions and the possibility for rental gains on select properties in stronger submarkets.


1999 345,514,000 3,300,000 3,724,000 7.4 5.502000 347,413,000 1,899,000 -3,088,000 8.9 5.502001 349,361,000 1,948,000 -7,162,000 9.4 4.502002 351,102,000 1,741,000 -1,120,000 9.6 3.502003 352,119,000 1,017,000 -5,682,000 10.3 4.102004 354,503,000 2,384,000 2,372,000 10.1 3.60

Joseph J. Martanovic

1100 Superior Avenue, Suite 800Cleveland, OH 44114Tel 216-861-7200Fax 216-861-4672


1999 22,313,000 26,000 -134,000 15.3 23.002000 22,350,000 37,000 352,000 13.9 22.502001 22,350,000 0 -429,000 14.0 21.202002 23,055,000 705,000 -1,285,000 22.1 20.002003 23,070,000 15,000 -575,000 23.5 20.502004 23,070,000 0 -79,000 23.9 20.50

CLEV

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1999 14,784,000 578,000 218,000 14.9 22.502000 15,652,000 868,000 771,000 15.4 23.302001 16,078,000 426,000 173,000 17.1 22.002002 16,275,000 197,000 348,000 15.4 21.602003 16,385,000 110,000 -61,000 18.3 20.902004 16,476,000 91,000 311,000 16.5 19.10

Suburban Office

Industrial

Office IndustrialAs 2004 came to a close, leasing activity increased in theCleveland industrial market as space users are returning tothe marketplace and making commitments. Corporations arestarting to unleash capital spending as indecision over the economy, the election and the war seems to have dissipated. The investment market remains stronger thanthe leasing market, however, bargain hunting is prevalent in both arenas.

Vacancy dropped to 10.1% in the greater Cleveland area, with the market absorbing nearly 2.4 million squarefeet throughout the year. Strong demand continued in the suburbs with the East submarket recording over 400,000square feet of occupancy growth in the fourth quarteralone. Noteworthy moves included Sysco’s move to a480,000 square foot facility in the CBD market and Logistic Partners move to a facility in Warrensville Heights.Overall rental rates averaged $4.65 per square foot on anannual triple net basis with warehouse/distribution spacecommanding rates averaging $3.65 per square foot and flexspace achieving rents in the $6.60 per square foot range.

The bulk of new construction was in mid-sized distributionwarehouses of 100,000 square feet or less. On averagethese buildings were 60% pre-leased. New bulk warehousestructures of 100,000 to 500,000 square feet were primarilybuild-to-suit in nature with over 90% of this space havingcommitments in place prior to completion.

In 2005, look for absorption to continue to grow and vacancy to decrease further as the market builds momentum.Pricing will stabilize with the potential for upward pressureon prices as conditions continue to improve.

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The Columbia office market began to improve in the second half of 2004 following almost eight quarters ofdecline resulting from a lack of job creation as well asnewly constructed office space remaining vacant. As the job market improved in Columbia over the last two quarters,absorption of office space in most of the Columbia marketsalso began to improve. Overall occupancy improved from78.1% at mid-year 2004, to 81.1% at year-end 2004. Class Aproperties are performing best with an 85.5% occupancy rate.

Restrained new development is a major factor behind theturnaround as the combination of decreased constructionand increased demand are combining to bring the marketback to health. Construction activity in 2004 continued to be focused in the CBD, including Meridian’s 350,000square foot building. In addition, First Citizens Bank is currently constructing a 170,000 square foot headquartersand a new mixed-use project consisting of up to 350,000square feet of office space.

Leasing activity is increasing within Columbia’s suburbansubmarkets with a number of moderate size deals inked or in the pipeline at the end of 2004. Increased activity,combined with virtually no new construction in these markets, should result in substantial occupancy growth during the first six months of 2005. Meanwhile, theUniversity of South Carolina has begun construction of anew research campus that will contain up to five millionsquare feet of research space to be constructed over thenext 15 years. This ambitious program will spotlight theColumbia area as a center for research in the years to come.


1999 26,062,000 1,048,000 1,183,000 6.8 3.252000 27,143,000 1,081,000 838,000 7.4 3.302001 27,917,000 774,000 1,354,000 5.2 3.902002 29,522,000 1,605,000 -995,000 13.4 3.902003 29,522,000 0 -1,084,000 15.4 3.902004 29,740,000 218,000 1,253,000 10.5 3.70

Woody Moore, CCIM

P.O. Box 11610, 1301 Gervais Street, Suite 600Columbia, SC 29211-1610Tel 803-254-2300Fax 803-252-4532


1999 N/A N/A N/A N/A 18.802000 4,105,000 0 50,000 9.2 18.502001 4,185,000 80,000 -214,000 10.5 18.802002 4,241,000 56,000 -203,000 15.5 18.002003 4,241,000 0 119,000 8.9 17.802004 4,591,000 350,000 -135,000 18.6 19.70

Downtown Office


1999 N/A N/A N/A N/A 16.502000 4,670,000 90,000 103,000 7.6 17.002001 4,705,000 35,000 -41,000 15.2 18.002002 4,805,000 100,000 236,000 12.4 18.002003 4,880,000 75,000 -248,000 21.3 17.502004 4,880,000 0 72,000 23.7 16.20

Suburban Office

Industrial

Office IndustrialThe Midlands region experienced a significant improvement in 2004 as local vacancy rates dropped from levels above15% recorded at the end of last year to the current rate ofless than 10.5%. After two consecutive years in which themarket experienced heavy losses in the local manufacturingand transportation/warehousing sectors, the improvementcomes as long-awaited welcome news. Columbia experiencedoccupancy growth of over 1.2 million square feet in 2004compared to roughly one million square feet of losses inboth 2002 and 2003. While the market still has a way togo before we will be seeing significant upward pressure on rental rates, current trends have helped to stabilize asking rates.

A drastic reduction in new construction has been a majorfactor in Columbia’s rebound. Just over 200,000 squarefeet of new space came online in 2004 and no new development occurred in 2003. Meanwhile, there are no new industrial buildings currently under construction.This has given the market time to absorb existing space asa more vibrant economy began to spur industrial demand.The back-filling of several large manufacturing facilitiesgreatly improved Midlands vacancy and came within anenvironment of pent-up demand.

Looking ahead, we expect demand to continue to be onthe upswing in 2005. However, the region is still in need ofmore significant job creation if these trends are to continueat the rate recorded in 2004.

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As of the close of the year overall vacancy in the Dallasoffice market stood at 20.0%, down from 21.0% at the closeof the third quarter. The market recorded a phenomenal2.8 million square feet of occupancy growth during the finalthree months of 2004. In all, the market absorbed nearlyfive million square feet of office space throughout theyear—an amazing turnaround from the occupancy losses recorded in Dallas throughout 2003. The CBDaccounted for just 52,000 square feet of the occupancygrowth while Dallas’ suburban markets posted over 4.8million square feet of absorption.

The return of demand was the big story in 2004. While themajority of vacancies continue to be concentrated in theDallas CBD, LBJ Freeway, Lewisville/Denton andRichardson/Plano submarkets, even these trade areas experienced increased activity over last year. Among themore significant leases signed in 2004 were Bank ofAmerica’s 556,000 square foot renewal in the CBD; CapitalOne’s renewal and expansion to 159,000 square feet in theFar North Dallas market; and Republic Insurance’s lease for over 111,000 square feet at 5525 LBJ Freeway.Meanwhile, sublease availability decreased to 1.4% at year end and is becoming less of a factor in the market.Rental rates continued to fall in most submarkets throughout 2004, however, there are signs that they willlikely stabilize in the coming year. Look for free rent andconcession packages to continue in the immediate future.The return of demand is a good sign for market performancein 2005, however, with 20% of all office space still vacant,Dallas still has a way to go before supply and demand arebrought back into equilibrium.


1999 574,852,000 19,724,000 16,568,000 6.6 3.002000 590,290,000 15,438,000 10,403,000 7.1 4.102001 610,451,000 20,161,000 914,000 10.1 3.502002 620,892,000 10,441,000 7,369,000 10.4 3.002003 626,292,000 5,400,000 -2,634,000 11.7 3.002004 628,854,000 2,562,000 2,918,000 12.2 3.00

Mark Noble, SIOR

4311 Oak Lawn Avenue, Suite 400Dallas,TX 75219Tel 214-692-1100Fax 214-520-6777


1999 37,320,000 0 -641,984 22.4 21.002000 37,320,000 0 -336,358 23.6 22.502001 37,320,000 0 136,368 24.2 25.002002 37,423,000 103,000 -535,582 25.2 19.002003 37,423,000 0 -493,340 27.1 18.502004 37,423,000 0 52,771 26.8 18.50

DA

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1999 193,339,000 14,593,000 10,930,775 13.1 23.002000 199,188,000 5,849,000 5,970,864 12.6 22.702001 207,665,000 8,477,000 (332,826) 16.4 23.502002 211,145,000 3,480,000 (2,092,254) 18.7 21.002003 213,813,000 2,668,000 99,887 19.7 20.502004 216,917,000 3,104,000 4,879,963 18.6 20.00

Suburban Office

Industrial

Office IndustrialThe Dallas/Fort Worth industrial market experienced aslight increase in vacancy during the fourth quarter of theyear—closing at 12.2%, up from the third quarter total of12.1%. This also marks an increase from the 2003 total of11.7% and 2002’s total of 10.4%. The majority of thesevacancies were concentrated in the Northeast Dallas,Great Southwest/Arlington, and Northwest Dallas submarkets. The flex sector recorded an overall vacancy of 15.1% over the past year, while vacancy for all otherindustrial property types crept upward from 11.7% at year-end 2003 to the current 12.2% rate.

Despite increases in vacancy, the market closed 2004 with three consecutive quarters of positive net absorption.Over 760,000 square feet of occupancy growth was recorded during the fourth quarter, bringing Dallas’ annual total to just over 2.9 million square feet.

In contrast, the market experienced 2.6 million square feetof occupancy losses in 2003 and indicates that tenantdemand is on the upswing. Half of all submarkets postedyear-end positive absorption with the DFW Airport, NorthFort Worth and South Dallas submarkets emerging as theclear winners.

Most current leasing activity is coming from consumergoods companies. Logistics companies continue to takedown space and shorter-term deals are popular. Industrialproperties continue to generate a great deal of interestfrom the investment community, with cap rates at or near8.5% to 9%. The user market is also showing strongdemand when it comes to purchasing industrial product.Net buyers are shopping Dallas, which is considered one ofthe lowest priced markets recording positive job growth.

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,CO

After losing 28,700 jobs in 2003 and over 60,000 jobs since2001, Denver’s employment market is finally improving.The Denver metropolitan area gained over 2,500 jobs andColorado realized 0.8% job growth or 17,000 new jobs in2004. Better yet, these numbers are predicted to improve considerably in 2005. The Colorado Office of StatePlanning and Budgeting is predicting 2.3% and 2.8% jobgrowth in 2005 and 2006 respectively. Based upon theseestimates, Colorado will have regained all of the jobs lostduring the recession by late 2006. As job creation is theprimary factor that generates demand for office space, allof this comes as great news for the Denver office market.

As of the close of 2003, office vacancy had peaked at 21.0%with occupancy losses for the year approaching 500,000square feet of space. The market has since been on therebound, recording over 740,000 square feet of occupancygrowth in 2004 while vacancy decreased to its current levelof 18.4%. In addition to increased tenant demand, one of the factors in this turnaround was the lack of new competitive office space delivered to the market throughoutthe year. Despite this good news, market conditions stillfavor tenants. Throughout 2004, owners of Class A spacecontinued to offer tenants very attractive lease termsresulting in 85% of all local absorption. During 2005,continued absorption and a lack of viable sublease spacefor tenants will create downward pressure on rental abatements and leasing concessions as well as upward pressure on rents.


1999 234,844,000 1,800,000 -471,000 5.5 4.002000 239,236,000 4,392,000 2,434,000 6.5 4.502001 241,136,000 1,900,000 2,696,000 4.3 4.502002 242,336,000 1,200,000 -1,942,000 5.8 4.102003 242,736,000 400,000 -2,028,000 7.1 4.002004 244,798,000 2,062,000 1,798,000 9.9 3.80

Robert M.Whittelsey, SIOR

4643 South Ulster Street, Suite 1000Denver, CO 80237Tel 303-745-5800Fax 303-745-5888


1999 24,570,000 22,000 288,000 7.3 24.402000 25,152,000 582,000 665,000 5.5 27.502001 25,337,000 185,000 -1,061,000 11.3 25.402002 25,593,000 256,000 -852,000 16.2 22.402003 25,878,000 285,000 139,000 18.2 20.502004 25,878,000 0 -106,000 17.3 18.60

Downtown Office


1999 72,003,000 5,028,000 2,106,000 9.5 26.502000 77,031,000 5,028,000 7,495,000 8.3 22.902001 80,849,000 3,818,000 -3,887,000 15.8 21.502002 85,665,000 4,816,000 -1,002,000 18.8 19.002003 86,236,000 571,000 -620,000 21.9 19.302004 86,236,000 0 850,000 18.8 18.20

Suburban Office

Industrial

Office IndustrialThe Denver industrial market, which consists of over245,000,000 square feet, appears to be stabilizing.Recovery is evident from the surge in net absorption thatthe market experienced in 2004. Nearly 1.8 million squarefeet of occupancy growth was recorded in 2004 comparedto occupancy losses of over 750,000 square feet in 2003.

Overall vacancy stood at 9.9% at year end 2004, downfrom the recent high of 10.7% recorded at mid-year.While this is a significant increase from the levels recordedprior to the most recent economic downturn, it paints apicture of a market moving towards equilibrium betweensupply and demand. The largest space currently available inthe Denver area is a bulk warehouse of roughly 500,000square feet, although, large blocks of vacant space are notthe norm. The average size of available space is roughly13,000 square feet.

Lease rates have stabilized, except for the most distressedproperties where significant rate discounts can still befound. While tenants may still have a slight advantage innegotiation with landlords, concessions are decreasing.Asking rents for warehouse space averaged $3.80 persquare foot annually on a triple net basis as of the close of the year. Rents for bulk space came in slightly lower at$3.50 per square foot and flex space was averaging $5.00per square foot at year-end. One cause for the stabilizationof lease rates is the fact that sublease availability continuesto decrease in Denver. Look for these trends to continueinto 2005 with the possibility of rental growth as the market continues to rebound.

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As of the close of 2004, vacancy within the metropolitanDetroit office market stood at 15.6%, down from 16.5%recorded just twelve months ago. Whereas leasing activityin 2003 was marked by occupancy losses of over 235,000square feet, the market made significant strides over thepast year as more than 1.1 million square feet of space wasabsorbed. Declines in new supply played a major role inthis reversal with just 1.2 million square feet of office spacedelivered to the market in 2004, less than half of the 2.5million square feet of space that came online in 2003. Mostimportantly, tenants are finally returning to the marketplacefollowing three years of significantly declining demand.

Throughout 2004 overall absorption increased, while vacancy and rental rates stabilized. The average askingrental rate for Class A space remains at roughly the sameplace it was just one year ago at $22.00 per square foot on an annual full service basis. Effective rental rates areaveraging as much as 20% lower than asking rates due toconcessions offered by landlords, including free rent andturn-key office suite buildouts. While the market has notyet begun to record rental growth, indications are that wemay not be that far away—particularly for top of the linebuildings in key submarkets. Look for the Detroit market to continue to record occupancy growth in 2005 as a resurgent economy fuels job growth and demand.The worst is over and the Detroit office market is nowfirmly on the road to recovery.


1999 425,373,000 5,000,000 -592,900 7.0 5.802000 433,204,000 7,831,000 -1,752,000 9.0 5.702001 439,260,000 6,056,000 -11,789,000 12.6 6.002002 441,589,000 2,329,000 -12,891,000 13.1 4.802003 442,733,000 1,144,000 -5,626,000 14.2 4.802004 444,017,000 1,284,000 1,647,000 13.0 4.80

Cameron P. McCausland

Colliers Office Plaza, 2 Corporate Drive, Suite 300Southfield, MI 48076Tel 248-540-1000Fax 248-540-1038


1999 25,578,000 0 -103,900 8.6 25.752000 25,578,000 0 187,000 11.0 27.802001 25,578,000 0 -218,000 11.4 25.802002 25,724,000 146,000 -319,000 16.5 24.002003 26,804,000 1,080,000 569,000 17.3 21.002004 26,804,000 0 588,000 14.3 21.50

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1999 89,902,000 1,345,000 971,000 6.5 24.502000 91,800,000 1,898,000 -236,000 7.1 24.302001 93,717,000 1,917,000 -1,927,000 12.8 25.302002 95,153,000 1,436,000 -3,015,000 15.0 24.802003 95,993,000 840,000 -807,000 16.4 23.002004 96,824,000 831,000 598,000 16.0 22.00

Suburban Office

Industrial

Office IndustrialAs 2004 came to a close, activity within the Detroit industrial market was gaining momentum. Over four millionsquare feet of space was absorbed in the final quarter of2004. This helped to reverse losses recorded earlier in the year as the market closed 2004 with a total of 1.6million square feet of occupancy growth. This reflects asharp contrast to 2003 when the market recorded occupancy losses of over five million square feet.Growth was centered on the warehouse/manufacturingsector with this product type realizing positive absorptionof nearly 3.2 million square feet in 2004. Flex space did not perform as well. Over 550,000 square feet of occupancylosses were recorded in the flex market, which still has yet to stabilize.

Vacancy dropped from over 14% in the third quarter to itscurrent rate of 13.0% during that same time. After trendingdownward for much of the past two years, rental rates havealso finally stabilized in the Motor City. Warehouse space iscurrently averaging rents of approximately $4.80 annuallyon a triple net basis while flex space is commanding pricesin the $8 to $9 range.

Throughout 2004, over 1.1 million square feet of new product was delivered to the marketplace—approximately50,000 square feet less than the amount delivered in 2003.There is an additional 860,000 square feet of new industrialdevelopment underway with most of this scheduled forcompletion over the first half of 2005. The majority ofthese projects are located in the Airport/I-275 corridor and South Macomb submarkets.

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Although the downtown Fort Lauderdale office market iscurrently experiencing relatively high vacancy at 16.7%,investors continue to look for long-term opportunities andthis has resulted in a number of significant recent sales.CRT purchased 469,000 square feet of Class A space at 350and 450 Las Olas Boulevard for $294 per square feet andearlier this year also purchased the 324,000 square footBroward Financial Center. With no land left for new construction, the CBD is the most supply-constrained submarket in South Florida and this has given investors arenewed interest in this market. However, residential construction is the bigger story for the CBD and, in thelong run, this is what will ultimately give the biggest boostto Fort Lauderdale’s sagging office leasing market.Currently more than 3,000 residential units are in variousstages of construction. As tenants and condo owners begin to take occupancy, the city will get the boost it needs as people seek to take advantage of the 24-hourlive/work/play atmosphere of downtown.

Broward County’s southwest submarket is the region’sfastest growing area and best performing trade area.Developers are determined to keep ahead of the demandfor office space and the westward growth – both commercial and residential. Thanks to abundant housingand retail amenities, easy interstate access and the availability of land, which is almost non-existent in the eastern part of the county, the cities of Miramar, Davie,Plantation, Sunrise,Weston, Pembroke Pines and PembrokePark have all been targeted for development. Just over 2.8 million square feet of office space is currently in theproposal stage. Miramar leads the way with 1.3 millionsquare feet of new construction on the drawing board.


1999 84,183,000 2,794,000 -885,000 7.7 N/A2000 87,124,000 2,941,000 4,060,000 6.8 6.702001 90,454,000 3,330,000 2,049,000 9.4 5.802002 91,998,000 1,544,000 1,014,000 8.9 6.002003 93,529,000 1,531,000 2,379,000 8.0 6.302004 95,655,000 2,126,000 2,797,000 7.3 6.30

Steven Wasserman, SIOR

6600 North Andrews Avenue, Suite 240Ft. Lauderdale, FL 33309Tel 954-233-6000Fax 954-233-6010


1999 6,102,000 406,000 -71,000 6.3 29.002000 6,361,000 259,000 200,000 6.4 26.702001 6,538,000 177,000 49,000 12.5 25.502002 6,981,000 443,000 -55,000 17.5 26.202003 7,035,000 54,000 189,000 15.9 26.402004 7,085,000 50,000 1,000 16.7 26.70

Downtown Office


1999 34,543,000 1,245,000 -686,000 10.1 21.502000 35,782,000 1,239,000 555,000 10.4 18.702001 38,236,000 2,454,000 967,000 16.3 24.702002 38,707,000 471,000 -12,000 15.5 23.702003 39,237,000 530,000 976,000 13.8 24.102004 39,918,000 681,000 1,285,000 11.9 23.90

Suburban Office

Industrial

Office IndustrialWith the strengthening economy, the Fort Lauderdale/Broward County industrial market is experiencing a revivalof activity. Companies are emerging from the slump of thepast few years to lease space. The “wait-and-see” attitudeis fading away as the resurgent national and local economyis beginning to inspire confidence. As a result, the marketexperienced almost three million square feet of occupancygrowth in 2004.

Available land remains at a premium in Broward County.Most parcels have already been gobbled up, and what is leftis selling at record prices. Rising land and constructioncosts are beginning to preclude industrial development and we are experiencing a trend in which land zoned forindustrial use is being sold instead for residential projects.For example, in Sunrise, a 113-acre industrial site wasrecently purchased for the development of a 2,000 unitretirement community. Despite rising land costs, the market added over two million square feet of new productin 2004. While this number reflects strong optimism in thelocal market, new development in the future will almostcertainly be impacted by trends in the land market.The northernmost markets of Pompano Beach andDeerfield Beach experienced the most new constructionover the past year. Look for demand to continue toincrease in 2005 and reductions in new construction toresult in lower vacancy rates and possible rental growth.Broward County is Florida’s second largest county and ispredicted to experience population growth of 39% overthe next two decades. All of these factors will strengthenthe local industrial market going forward.

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Overall vacancy for the Fresno office market crept upslightly in 2004 and now stands at 8.5%, up from 8.0% raterecorded just one year ago. Despite increases in overallvacancy, occupancy growth increased in 2004 as the marketabsorbed over 700,000 square feet of space. This marks asignificant improvement over the half a million square feetof occupancy growth recorded in 2003 and demonstratesthat demand continues to be on the upswing in Fresno.Construction activity, which added just over 700,000square feet of space during the same time, is the factordriving vacancy upward. Of the new construction,approximately 560,000 square feet was leased or occupiedby tenants and owner/users in 2004. Nearly 60% of recentdevelopment can be attributed to new buildings in thenortheast and northwest areas of Fresno. Still, the factremains that with vacancy of just 8.5%, the Fresno officemarket is stronger than most major U.S. markets.

This trend should continue in 2005, with several new projects planned for the East Herndon and Palm Bluffsareas. As strong as leasing activity was in 2004, sales ofexisting buildings and office-zoned land were even stronger.Many owner/users took advantage of historically lowerinterest rates to purchase buildings or land. In addition,the 1031 market has been hot. The end result has beencapitalization rates at an all time low, with land and buildingprices on a per square foot basis at an all time high.Leasing activity should remain strong and building sales will continue to flourish throughout 2005. Land prices areexpected to increase as the supply in existing prime areasfor office development continues to decrease.


1999 43,000,000 750,000 2,800,000 8.6 3.602000 44,000,000 1,000,000 1,200,000 6.0 3.202001 44,200,000 200,000 100,000 8.0 3.402002 44,600,000 400,000 0 9.0 3.202003 45,400,000 800,000 -30,000 10.8 3.202004 45,800,000 400,000 20,000 11.6 3.20

Michael Schuh

7485 North Palm Avenue, Suite 110Fresno, CA 93711Tel 559-221-1271Fax 559-222-8744


1999 N/A N/A N/A N/A 19.502000 2,085,000 0 150,000 12.3 15.602001 2,195,000 110,000 149,000 10.9 15.602002 2,342,000 147,000 86,000 12.7 18.002003 2,844,000 502,000 440,000 13.7 19.202004 2,930,000 86,000 101,000 10.6 22.80

FRESN

O,C

A

Downtown Office


1999 12,288,000 213,000 160,000 12.0 23.502000 12,591,000 303,000 830,000 11.3 19.202001 13,152,000 561,000 694,000 10.4 19.202002 14,322,000 1,170,000 1,343,000 8.1 16.202003 14,381,000 59,000 60,000 7.0 19.202004 15,300,000 919,000 601,000 7.9 25.20

Suburban Office

Industrial

Office IndustrialThe Fresno industrial market ended 2004 with 11.6%vacancy and overall absorption of 20,000 square feet.A lackluster fourth quarter eradicated gains made earlier in the year as the market experienced over 260,000 squarefeet of occupancy losses during the final three months of the year. Vacancy during this time increased from the11.0% rate recorded at the end of the third quarter.Lease demand for industrial space has still not fully recovered from the economic downturn that began in 2001and this holds true for all industrial building types and sizes.However, the good news is that leasing demand did begin topick up over the past year. There are an increasing numberof tenant requirements in the marketplace now than therewere at this time last year and tenants seem more willingto execute deals than they have been over the past fewyears. As such, we believe that the market’s poor performance in the fourth quarter is not indicative of a trend so much as a glitch in the local recovery.Looking ahead we expect the gradually improving economyto spur greater industrial demand and for vacancy rates to decrease in 2005.

Despite the challenges faced by the leasing market, salesactivity for owner/user and investment industrial propertiesreached record levels in 2004. This holds true not just forthe volume of deals inked but for sales prices which haveescalated dramatically. Prices should begin to level off inthe coming year as rising interest rates begin to take theirtoll. Pricing trends for industrial space have reflected thoseof Fresno’s residential housing markets. The population ofthe Fresno area continues to grow rapidly, with housingprices increasing at a rate higher than any other market in the US.

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GR

EENV

ILLE,SC

Fundamentals for the Greenville office market improved in 2004 and all signs point to continued improvements in2005. After posting negative net absorption in both 2002and 2003, the office market posted positive occupancygrowth to the tune of 150,000 square feet in 2004.Even better news was the performance of Class A space,which recorded strong positive net absorption of 175,000square feet. However, leasing activity continues to be driven primarily by local users as no significant in-migrationof new tenants occurred in 2004. Meanwhile, tenants usedmarket softness to move from Class B and C properties toClass A buildings at similar rental rates. Suburban marketscontinue to underperform, while the CBD remains a muchstronger trade area.

On the development front, construction began on an87,000 square foot speculative office building at RiverPlacein the CBD, Greenville’s first speculative office building insome time. In the suburbs, the Clemson Graduate Schoolof Automotive Engineering began planning an 80,000 squarefoot facility and Hubbell Lighting announced plans to moveits regional headquarters to Greenville. Significant officecondominium developments came to market during 2004.While office condominium development has occurred inGreenville over the past decade on a small scale, currentlevels are unprecedented. It is too early to tell how themarket will accept this product, but its success or failuremay be one of the big stories of 2005. It appears that theGreenville office market turned the corner during 2004 andis poised for continued growth during 2005. Hopefully, theimproving economy will result in job growth and increased demand for office space, resulting in improvingmarket fundamentals.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 43,336,000 343,000 N/A 20.5 3.302003 43,598,000 262,000 -1,090,000 23.5 3.202004 43,962,000 364,000 1,099,000 21.5 3.20

Bill Streyer, CCIM, SIOR

201 E. McBee Avenue, Suite 201Greenville, SC 29601Tel 864-297-4950Fax 864-527-5444


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 2,397,000 0 107,000 16.7 18.302002 2,580,000 183,000 129,000 16.6 18.302003 2,609,000 29,000 39,000 16.1 18.502004 2,671,000 62,000 37,000 16.6 18.50

Downtown Office


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 3,298,000 0 113,000 28.0 17.302002 3,478,000 180,000 -56,000 32.1 18.002003 3,537,000 59,000 -9,000 33.1 17.502004 3,567,000 30,000 115,000 30.4 16.80

Suburban Office

Industrial

Office IndustrialAs of the close of 2004, vacancy within the Greenvilleindustrial market stood at 21.5%. The market recorded just under 1.1 million square feet of positive net absorptionover the past year, a marked improvement over 2003 whennearly one million square feet of occupancy losses wererecorded. Over the final quarter of the year, vacancy creptdownward from the 21.8% rate recorded at the end ofSeptember. Overall vacancy declined by over two full percentage points during 2004 and while that comes aswelcome news to landlords, current vacancy of over 20%still reflects a market where conditions favor tenants.The good news for landlords is that rental rates have stabilized. Current average asking rents for warehousespace stand at roughly $3.20 per square foot on a triplenet basis, the same rate as last year. While the market hasyet to rebound from rental losses recorded between 2002and 2003, rates have stabilized.

Over 360,000 square feet of new industrial space wasdelivered in 2004, consistent with the moderate levels of new development that occurred in 2002 and 2003.There is just 150,000 square feet of new space currently inthe construction pipeline. Decreased construction levels,particularly in speculative development, will be a major positive factor for the market in 2005. Look for the continued improvement of the national economy to translate into greater demand over the next year.The Greenville industrial market is poised for recovery.Look for a gradually strengthening market in 2005.

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Although vacancy within the Hartford office marketdeclined only marginally over the final quarter of 2004,the good news is rates decreased by over two full percentage points from the 20.6% vacancy rate posted atthe end of 2003. Current overall vacancy stands at 18.4%—the lowest year-end mark recorded since 2001. All market sectors showed improvement with vacancy decreasing inthe CBD from 20.5% to 18.8% and falling from 20.7% to18.2% in Hartford’s suburban submarkets. Better yet, themarket recorded its first year-end positive absorption inthree years. Just over 260,000 square feet of occupancygrowth was recorded in 2004, compared to occupancylosses of 238,000 square feet in 2003 and over one millionsquare feet in losses from 2001 to 2003. Both the largestoffice sale and lease of 2004 occurred in the final quarter of the year with Colliers claiming accolades for both: a $65million sale of a 675,000 square foot CBD office buildingand a suburban lease of just over 125,000 square feet.

Throughout 2004, face rates have remained stable althoughwe have seen increases in rent concessions through elongated terms. Sublease availability inched up slightlyduring the fourth quarter to 500,000 square feet or 11% of all available space. Aggressive deals are being quoted forsublease space but short duration terms are keeping dealsfrom being finalized. One factor that helped the marketrebound in 2004 has been the absence of speculative development. Look for zero speculative construction inHartford, at least until vacancy levels return to the lowteens. In the meantime, expect the trend of converting former office buildings to residential use within the CBDsubmarket to also help move the Hartford market towardequilibrium between supply and demand.


1999 61,011,000 150,000 150,000 14.5 4.002000 61,261,000 250,000 250,000 14.3 4.502001 61,411,000 150,000 160,000 14.2 4.502002 61,511,000 100,000 300,000 13.9 4.502003 62,328,000 817,000 900,000 13.2 4.302004 62,582,000 254,000 484,000 13.4 4.30

Keith J. Kumnick, SIOR

864 Wethersfield AvenueHartford, CT 06114Tel 860-249-6521Fax 860-247-4067


1999 10,198,000 0 96,000 25.1 22.002000 10,198,000 0 470,000 20.8 22.102001 10,198,000 0 106,000 19.8 22.102002 10,198,000 0 -305,000 19.9 24.202003 10,198,000 0 -141,000 20.5 24.202004 10,198,000 0 48,000 18.8 24.00

HA

RTFO

RD

,CT

Downtown Office


1999 12,715,000 0 849,000 15.7 20.002000 12,715,000 0 451,000 12.2 21.502001 12,840,000 125,000 -486,000 16.1 20.802002 13,139,000 299,000 -157,000 18.1 19.902003 13,612,000 473,000 -97,000 20.7 20.602004 13,748,000 136,000 214,000 18.2 20.20

Suburban Office

Industrial

Office IndustrialVacancy in the Hartford industrial market remained steadyover the final three months of the year at 13.4%. Vacancyin Hartford has hovered in the thirteen percent range forthe better part of the last two years with the marketrecording near equal amounts of new construction and net absorption for most of the past five years. 2004 wasthe exception to this trend, yet despite the fact that occupancy gains outpaced new supply by over 200,000square feet, vacancy remained relatively stable.

The market experienced 60,000 square feet of occupancygrowth in the final quarter of 2004, bringing the total for the year to over 480,000 square feet of space.Developers completed over 250,000 square feet of newindustrial space during this time. The improving nationaleconomy has gradually increased demand over the past twoyears and in 2004 this trend strengthened. Smaller companiescontinue to show growth and the market is experiencing anincreased amount of leasing activity—particularly when itcomes to smaller deals.

Meanwhile, investment demand remains strong, but the poolof available quality investments is far smaller than the poolof potential buyers. Despite increases in 2004, interestrates remain relatively low and competition among lendershas also helped to diminish any impact of rate hikes.

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NO

LULU

,HI

With current overall vacancy of just 10.3%, market equilibrium is forecasted for the Honolulu office market by mid-year 2005. This marks a reduction from the 11.8%vacancy rate recorded at the close of 2003 and the 13.6%mark posted in 2002. Honolulu recorded over 220,000square foot of occupancy growth in 2004, following gains of 193,000 square feet in 2003. During this time averageasking rents increased from $27.80 per square foot annuallyon a full service basis to today’s average rate of $29.40.

A resurgent economy boosted job growth throughout the island's many business sectors, with the office marketbenefiting from strong employment growth in the information technology field. Demand continues to be onthe upswing while new development has been non-existentwith no new competitive office space delivered to the marketplace in the past three years. Despite anticipationthat vacancy rates will continue to fall, several challengeswill impact the strength of the office market recovery.The current low unemployment rate of 3.3% has alreadybegun to impact the ability of businesses to hire skilledexperienced labor. As a result of this shortage, wages are anticipated to rise with the increase in inflation.Likewise, equilibrium between supply and demand is generally considered to occur when vacancy is in the tenpercent range. When vacancy dips below that mark, theability for businesses to rapidly expand or for the region to lure new business to the area may become impaired by a lack of readily available space and the strong rentalincreases that may occur.


1999 33,845,000 20,000 350,000 6.4 6.002000 33,885,000 40,000 833,040 4.0 8.642001 33,920,000 35,000 -181,000 4.4 8.302002 34,020,000 100,000 174,000 3.6 8.002003 34,070,000 50,000 199,383 2.7 10.922004 34,190,000 120,000 340,000 1.7 11.50

Andrew Friedlander

Central Pacific Plaza220 South King Street, Suite 1800Honolulu, HI 96813Tel 808-524-2666Fax 808-521-0977


1999 N/A N/A N/A N/A 27.302000 N/A N/A N/A N/A N/A2001 7,932,000 0 -75,000 12.0 26.502002 7,932,000 0 -12,000 12.3 27.602003 7,932,000 0 19,000 12.1 27.802004 7,932,000 0 90,000 11.0 29.40

Downtown Office


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 7,395,000 0 -146,000 13.4 N/A2002 7,395,000 0 -116,000 15.0 N/A2003 7,395,000 0 174,000 11.5 N/A2004 7,395,000 0 133,000 9.6 N/A

Suburban Office

Industrial

Office IndustrialTight market conditions continue to persist within theHonolulu industrial market. Vacancy rates fell to recordlows of just 1.7% by the close of the year. Vacancy has notbeen above the five percent range since 1999. The completelack of new development has been a huge factor in highoccupancy rates, with just 120,000 square feet of newspace delivered in 2004, a minimal amount that is howeverthe highest level of new development the market has experienced in over five years. Just 60,000 square feet of space is currently under construction and while this is indicative of an overall increase in local build-to-suit,design-build and, to a lesser degree, speculative construction, current levels of development are nowhere near levels of demand.

Market conditions make it difficult for prospective tenants to find space, and frustration levels remain high.Many owner-users are considering developing their own properties resulting in a frenzy for industrial sites.Land prices have jumped by 60-80% over the past year forthe limited number of industrial-zoned developable parcelsthat remain in the marketplace.This escalation in prices will continue in the coming year as there are no permitssubmitted with the City & County for new industrial subdivisions or rezoning. Honolulu is the tightest industrial market in the country and will remain so for the foreseeable future. Rents have escalated to just under$12 per square foot annually on a triple net basis and currently— the Japanese bubble period of the early 1990’swhen land prices became inflated. While all of this is greatnews for landlords, vacancy levels this low limit expansionfor local companies and impede Honolulu’s ability to compete with other metropolitan areas for regional or nationally expanding space users.

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The overall occupancy rate in the Houston office marketcurrently stands at 82.8%. Houston remains a tenant’s market with supply outpacing demand, but the window ispoised to start closing in 2005. As 2004 ended, the market finally achieved back-to-back quarters of positive absorption with a whopping 1.3 million and 1.7 millionsquare feet in the third and fourth quarters, respectivelystrong. Performance in the final half of the year eradicatedearlier losses with Houston closing 2004 with total occupancy gain of over 1.3 million square feet.

While the market is beginning to experience overall recovery, conditions still vary widely from submarket tosubmarket. The CBD is still weak with nearly 23% vacancyin Class A space, but did post modest positive net absorption for the year. Meanwhile, the Greenway Plazasubmarket continues to suffer from a massive amount of long-term sublease space. Trends for the Galleria submarket mirror those of the overall metro area with occupancy gains recorded over the last half of the year.However, rental rates for Class A space within this marketare still averaging below $20 per square foot annually on afull service basis. In the Westchase market, vacancy hasdecreased to near 14% and Class A properties have experienced rental growth to over $20 per square foot.And while small in scale to Houston’s major suburban submarkets, the Woodlands submarket repeatedly outperforms the averages with Class A rental rates exceeding $25 per square foot and vacancy at just 5.5%.Our forecast for 2005 remains optimistic. Should currentabsorption trends continue, citywide vacancy could drop to 15% or less by the end of 2005. This would make thepossibility of rental rate increases a reality for select properties in key submarkets.


1999 367,922,000 6,457,000 485,000 7.7 4.202000 372,518,000 4,596,000 -1,276,000 8.4 6.102001 377,356,000 4,838,000 2,046,000 8.6 5.302002 382,398,000 5,042,000 -3,412,000 9.8 5.302003 385,392,000 2,994,000 -2,218,000 10.6 4.302004 388,553,000 3,161,000 7,559,000 8.8 4.20

Gary Mabray

1300 Post Oak Boulevard, Suite 200Houston,TX 77056Tel 713-222-2111Fax 713-830-2118


1999 39,518,000 0 245,000 10.2 23.002000 39,518,000 0 769,000 7.8 22.702001 39,518,000 0 -282,000 9.5 24.202002 41,256,000 1,738,000 -1,145,000 15.0 24.202003 42,789,000 1,533,000 -1,095,000 21.4 22.402004 42,789,000 0 222,000 21.1 21.30

HO

USTO

N,T

X

Downtown Office


1999 145,839,000 3,949,000 882,000 13.7 21.402000 148,865,000 3,026,000 3,450,000 13.1 21.602001 151,487,000 2,622,000 1,680,000 15.7 20.402002 153,445,000 1,958,000 -1,591,000 16.3 20.902003 154,777,000 1,332,000 -512,000 16.6 20.302004 155,417,000 640,000 1,162,000 16.2 19.60

Suburban Office

Industrial

Office IndustrialThe Houston industrial market ended the fourth quarter2004 with a vacancy rate of 8.8%. This marks a soliddecrease from last year when vacancy was in the ten percent range. Throughout the course of the year over 7.5 million square feet of industrial space was absorbed asthe market experienced a significant increase in demand.Considering that the market recorded occupancy losses ofover two million square feet in 2003, Houston’s turnaroundhas been significant. Igloo Products Corporation’s moveinto 892,000 square feet in the fourth quarter contributedto the large amount of positive absorption. Other tenantstaking space included Katoen Natie with 297,000 squarefeet; Gas Turbine Enterprises with 272,000 square feet; andHome Depot with 341,784 square feet.

Rental rates ended the fourth quarter at $5.68 overall,10% increase over 2003 totals. Fifty-five buildings weredelivered to the market in 2004 totaling over 3.1 millionsquare feet. Another 2.3 million square feet was in the construction pipeline at the end of the year. Total industrialbuilding sales activity in 2004 was also up significantly over2003. In the first nine months of 2004, 87 industrial salestransactions were completed, with a total volume of over $227 million. The price per square foot of thesetransactions has averaged $34.68 this year. Cap rates havebeen lower in 2004, averaging 9.9%, compared to the firstnine months of last year when they averaged 10.5%.

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IND

IAN

APO

LIS,IN

At the end of 2004, Indianapolis had over 29.3 millionsquare feet of multi-tenant office space and a vacancy ratethat topped 18%. The good news is that this marks adecline from 2003 and reflects strong occupancy growthachieved throughout the year. The Indianapolis marketclosed the year with 625,000 square feet of positive netabsorption, with the Circle City’s suburban marketsaccounting for the lion’s share of that amount at 576,000square feet of occupancy growth.

Most of the large transactions in 2004 were early renewals,as conditions favoring tenants prompted many to seeklonger commitments at the improved rental rates offeredby landlords. This may negatively impact leasing activity in2005 as there are only a few large spaces with leases expiring in the next two years. One of the most activesectors of the market, particularly in Indianapolis’ suburbansubmarkets, has been the education sector. The Universityof Phoenix, ITT Educational Services and the Art Instituteof Indiana all dove into the tenant pool during 2004. This isnot surprising considering that education is one of themost active and neediest employers in Central Indiana.No doubt this is a result of the large number of displacedmanufacturing workers in Indiana, many involved in sometype of re-training activity. The need for job seekers todevelop and maintain a variety of skill sets has probablynever been greater and this has been reflected in anincrease in jobs and a surge in the demand for office space.Looking ahead this trend will continue into 2005 even asoverall demand slowly increases as a result of an improvingnational economy.


1999 187,341,000 4,601,000 4,258,000 6.9 4.252000 193,313,000 5,972,000 8,318,000 5.4 3.502001 199,221,000 5,908,000 287,000 8.1 4.502002 204,694,000 5,473,000 2,714,000 9.2 5.902003 207,573,000 2,879,000 4,342,000 8.4 4.802004 213,111,000 5,538,000 4,141,000 8.8 4.30

Luke Wessel, SIOR

2500 One American SquareIndianapolis, IN 46282Tel 317-634-6363Fax 317-639-0504


1999 10,812,000 54,000 4,000 12.0 21.002000 11,026,000 214,000 -270,000 16.0 21.002001 11,381,000 355,000 11,000 18.5 21.502002 11,381,000 0 109,000 17.6 19.602003 11,397,000 16,000 189,000 16.0 19.602004 11,409,000 12,000 49,000 15.7 19.60

Downtown Office


1999 14,315,000 972,000 647,000 10.9 21.002000 15,883,000 1,568,000 640,000 15.7 23.002001 16,802,000 919,000 716,000 16.0 20.802002 17,177,000 375,000 -112,000 18.5 19.002003 17,642,000 465,000 46,000 20.4 19.002004 17,960,000 318,000 576,000 18.6 19.00

Suburban Office

Industrial

Office IndustrialThe Indianapolis industrial market continued to grow in2004 thanks largely to Central Indiana’s emergence as a hotspot for logistics companies. Markets like Plainfield haveexploded in recent years, both in terms of activity and newconstruction. Developers have utilized an “if you build it,they will come” philosophy and businesses have done precisely that. Several large leases were completed in2004, leading to year-end net absorption of 4.1 millionsquare feet. Vacancy, meanwhile, has remained stable overthe last two years. Since peaking at 10.1% in the first quarter of 2003, the overall industrial vacancy rate has consistently hovered in the 8.8% range, dipping as low as 8.4% and reaching as high as 8.9%. Current vacancy sits at 8.8%.

Market stability has led to the highest level of constructionsince 2001. Over 5.5 million square feet came online in2004, mostly in the form of speculative modern bulk buildings. Bulk structures of 100,000 square feet or morewith clear heights of 28’ to 36’ and ample loading docksand/or drive-in doors have been the dominant industrialbuilding type for a number of years in Central Indiana andthis trend will only continue in the future. An additionaltwo million square feet is already scheduled for completionin 2005 with nearly ten million square feet in the planningstage. Clearly, developers feel that Indianapolis is the placeto be for big box distribution centers, and they will continue to jockey for land positioning in preparation for future development.

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Overall vacancy within the Jacksonville office market currently stands at 12.8%, down slightly from the 13.1%rate recorded at year-end 2003 and the 14.0% mark postedat the end of 2002. Following the economic downturn thatbegun in 2001, Jacksonville’s recovery has been slow butsteady, but the good news is that this market fared betterin most respects than other U.S. office markets. Indeed,during this time, Expansion Management Magazine has consistently ranked Jacksonville in the top 10 of its surveyof “Hottest Cities in America” for business relocation or expansion.

Speculative construction has been at a low level and it isprojected to remain soft until occupancy increases in theClass A market. At present, there remain few build-to-suitprojects under construction, and most are multi-tenantbuildings with considerable commitments already in place.

While Jacksonville’s economy has stabilized, it is unlikelythat job growth or corporate expansion will occur in the first part of the year. While Jacksonville remains a tenant’smarket, conditions have improved enough that landlordconcessions are decreasing. Rental growth, however, willnot occur before late 2005. Look for absorption toincrease as the job market strengthens. Investment activitywill remain strong, continuing a trend that resulted in thesale of several major downtown office buildings since thestart of 2004. Opportunities remain for future officeinvestments and the Butler/Baymeadows submarket continues to offer excellent potential in the suburbanSouthside. This area has been the city’s most active submarket for new office development in recent years and this trend will continue thanks to strong populationgrowth in this area.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 78,357,000 438,000 -1,800,000 10.0 4.402002 78,827,000 470,000 -418,000 8.7 3.502003 80,603,000 1,776,000 2,126,000 8.7 3.502004 82,216,000 1,613,000 605,000 7.9 3.60

Phillip Parsons

One Independent Drive, Suite 2401Jacksonville, FL 32202Tel 800-393-1206Fax 904-353-4949


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 11,574,000 49,000 -269,000 9.7 18.902002 11,601,000 27,000 27,000 10.4 19.602003 11,741,000 140,000 -146,000 12.3 20.002004 11,741,000 0 -120,000 16.7 19.50

JAC

KSO

NV

ILLE,FL

Downtown Office


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 19,727,000 688,000 137,000 14.0 18.002002 20,105,000 378,000 -170,000 16.1 18.502003 20,748,000 643,000 1,057,000 13.6 18.002004 21,040,000 292,000 372,000 10.7 19.80

Suburban Office

Industrial

Office IndustrialJacksonville is at the crossroads of three major interstatehighways and is serviced by several railroads. It’s naturalharbor on the Atlantic coast handles international shipping.Industrial developers and users are increasingly aware thatJacksonville is situated at an ideal point for transportation,distribution, and logistics companies that service the south-eastern United States and beyond.

Northpoint is the newest industrial park in Jacksonville withinitial construction beginning here in 2004. This 362-acredevelopment is permitted for three million square feet ofindustrial building space on the city’s north side. Look fornew industrial development in 2005. Construction will primarily be in response to user demand and will focus primarily on build-to-suit deals. Large distribution centers are planned for Jacksonville’s Westside and Northside submarkets. The Southside submarket and St. John’s Countyare also primed for larger distribution center development.With development costs increasing due to regulatoryrestrictions as well as increased construction costs, newprojects in Jacksonville will continue to be centered onvacant in-fill parcels within existing industrial parks.Multi-tenant distribution will remain the preferred construction product type in 2005.

Overall, Jacksonville will continue to experience long-termindustrial demand. Jacksonville’s industrial market will continue to strengthen at a steady pace in 2005. Moderatepositive absorption is expected with overall vacancy for thearea remaining below 8.0%. Over the coming year vacancyis projected to drop by about one half percentage pointwith rental rates remaining flat and few concessions.

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KA

NSA

S CIT

Y,MO

The Kansas City office market was 21.1% vacant at the endof 2004, down from the 22.1% rate recorded just twelvemonths ago. The market absorbed 676,000 square feet ofspace throughout the year, a considerable improvementover the 434,000 square feet of occupancy losses that themarket incurred in 2003. The downtown market closed2004 with vacancy of 25%. However, ongoing downtowndevelopments will create significant changes in marketdynamics here within the next three to five years.A 500,000-square-foot corporate headquarters is currentlyunder construction for H&R Block. Meanwhile, ground willbe broken in 2005 on the 20,000-seat Sprint Center Arenaand the $184-million first phase of the Kansas City Live!Entertainment District. These changes, plus a growing residential population will only add to downtown’s continuing emergence as a 24-hour live/work/play center,adding to the appeal of the downtown office market.

South Johnson County continued to be one of the metropolitan area’s strongest suburban markets, but the South Kansas City submarket was the star of 2004.Combined, both markets accounted for 618,000 squarefeet of net absorption in 2004, or 70% of the suburbantotal. In South Kansas City, vacancy dropped from 29.0%to 16.9% in a single year. In 2004, 670,000 square feet of new space was completed, but some space was demolished or converted to residential use. The net addition to the market was just 243,000 square feet.Construction completed in 2005 will be less than 500,000square feet and this should help to stabilize the market.Lease rates have fallen significantly over the last three yearsand now average $18.85 per square foot annually on a fullservice basis. Look for rates to stabilize in 2005 as marketconditions continue to improve.


1999 155,595,000 3,683,000 3,434,000 5.1 3.802000 160,394,000 4,799,000 3,795,000 5.6 4.402001 163,491,000 3,097,000 -3,059,000 9.3 4.402002 165,657,000 2,166,000 848,000 9.9 3.802003 166,764,000 1,107,000 -957,000 11.1 3.802004 168,066,000 1,302,000 3,033,000 10.0 3.80

Mark Fountain, SIOR, CCIM

1220 Washington, Suite 100Kansas City, MO 64105Tel 816-221-2200Fax 816-842-2798


1999 9,708,000 245,000 337,000 10.4 21.352000 9,916,000 208,000 212,000 10.2 21.752001 10,096,000 180,000 -164,000 13.4 20.952002 10,226,000 130,000 -451,000 18.9 21.002003 10,694,000 468,000 -224,000 24.5 20.402004 10,545,000 -149,000 -183,000 25.2 20.40

Downtown Office


1999 26,460,000 1,147,000 1,105,000 6.4 22.452000 28,211,000 1,751,000 864,000 9.1 22.352001 29,802,000 1,591,000 68,000 13.6 22.152002 30,230,000 428,000 -1,776,000 20.6 21.802003 30,349,000 119,000 -144,000 21.4 21.452004 30,741,000 392,000 859,000 19.7 21.20

Suburban Office

Industrial

Office IndustrialKansas City’s 168 million square foot industrial market had a strong year in 2004 as the region recorded 3.0 million square feet of positive net absorption. This beat theannual average absorption for the last decade by more thanone million square feet. Vacancy stood at 10.0% as of theclose of 2004, one point lower than the rate recorded ayear ago. Johnson County, which is typically the strongestof Kansas City’s industrial submarkets, continued to shine,accounting for 1.7 million square feet of occupancy growthor 57% of the area’s total net absorption. The largestJohnson County transaction was Westlake Hardware’s purchase of a 270,000 square foot building. Also in JohnsonCounty, Bayer Agricultural Division completed a 250,000square foot expansion.

Product geared for distribution use produced 13 transactions of 100,000 square feet or more during 2004.In addition to the Johnson County deals, Procter & Gambleleased 360,000 square feet in the Executive Park market.One of the factors behind today’s decreasing vacancy ratesis that new development has slowed in recent years inresponse to sluggish economic conditions. Constructionpeaked at almost five million square feet in 2000, comparedwith just over one million square feet for the last twoyears. Build-to-suit activity will push the total closer to two million square feet for 2005. A 350,000 square-footdistribution building will be completed forAmerisourceBergen and Medline Industries will occupy250,000 square feet in a new 360,000 square foot building.However, rising construction costs and remaining vacancieswill limit speculative construction. Look for demand to continue to increase with the improving economy.Though lease rates remained flat in 2004 they may showsome growth in 2005.

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Vacancy in the Las Vegas office market increased to 12.1%in the final quarter of 2004. This reversed three straightquarters of declining vacancy in the office market but stillshows a marked improvement over the 14.6% vacancy rateposted at the end of 2003. Despite the market’s poorshowing in the fourth quarter of the year, there is cause for optimism. Employment in the industries traditionallyassociated with office space grew by 1,400 jobs fromSeptember to November of 2004. This brought the year-end job gains in these industries to 12,800, an increaseof 15.1%, or nearly double the growth seen in 2003, andnearly triple the rate of growth in 2002. Gains werespread throughout the financial services, professional andbusiness services, health care and social services sectors.Overall, the Las Vegas MSA registered a 3.5% unemploymentrate in November. All of these factors should translate intoincreased demand, so why did vacancy creep upward overthe final three months of the year?

Strong new construction in the fourth quarter may havemade the difference. Over 636,000 square feet of newproduct was delivered in the final months of 2004, bringingour yearly total of new construction to 2.3 million squarefeet. Occupancy growth lagged behind new completionswith over 232,000 square feet of positive net absorption inthe fourth quarter and nearly 510,000 square feet for theyear. While this marks an improvement over the roughly253,000 square feet of space added in 2003, it still equatesto supply outpacing demand. Despite its poor performancein the fourth quarter, the Las Vegas office market is in astate of recovery and current job growth will onlystrengthen the market heading into 2005.


1999 64,755,000 3,424,000 3,622,000 7.9 N/A2000 68,289,000 3,534,000 4,451,000 6.0 4.002001 73,286,000 4,997,000 1,521,000 8.4 4.602002 77,643,000 4,357,000 2,865,000 10.2 3.802003 80,566,000 2,923,000 1,434,000 11.5 4.802004 84,401,000 3,835,000 6,182,000 7.8 4.70

Michael Mixer

3960 Howard Hughes Parkway, Suite 150Las Vegas, NV 89109Tel 702-735-5700Fax 702-731-5709


1999 1,701,000 0 35,000 5.7 28.202000 1,726,000 25,000 -95,000 14.8 24.002001 1,883,000 157,000 110,000 13.4 27.902002 2,190,000 307,000 22,000 21.9 27.202003 2,814,000 624,000 -64,000 24.7 20.702004 3,030,000 216,000 33,000 17.4 28.80

LAS V

EGA

S,NV

Downtown Office


1999 16,726,000 1,405,000 1,436,000 10.1 24.602000 18,316,000 1,590,000 1,458,000 10.0 24.502001 20,207,000 1,891,000 722,000 13.6 25.902002 21,769,000 1,562,000 1,236,000 13.5 27.202003 23,027,000 1,258,000 956,000 13.4 29.802004 25,094,000 2,067,000 2,043,000 12.0 29.80

Suburban Office

Industrial

Office IndustrialLas Vegas remains one of the nation’s stronger industrialmarkets, thanks to continued population growth and itspositive impact on demand for industrial space. At year-end2004, vacancy within the Las Vegas industrial market stoodat 7.8%, a decrease of nearly a full percentage point fromthe 8.6% rate recorded at the end of the third quarter.New completions decreased over the final quarter of theyear to just over 875,000 square feet. This in turn, gave themarket time to absorb the substantial amount of productthat was delivered earlier in the year. All told, over 3.8 million square feet of space was added to the marketplacein 2004, yet during this same time the market absorbed aphenomenal 6.1 square feet of space. Demand continues tooutpace supply in Sin City.

Looking forward it seems as if developers are preparing to up the ante. The amount of industrial space under construction at year-end 2004 increased to 2.8 millionsquare feet while planned industrial space increased to 4.6million square feet.This suggests that developer confidencein the Las Vegas industrial market continues to remainstrong. Las Vegas MSA industrial-related employmentremained positive from September 2004 to November2004, the most recent numbers reported by the State.Construction continued to lead the pack in job creation,with 1,000 new construction jobs added since September2004. Between December 2003 and November 2004,the Las Vegas MSA added 13,100 industrial-related jobs.Again, most of this growth was due to constructionemployment, which accounted for 75% of those new jobs.Going forward look for demand to remain strong andabsorption to continue at a brisk pace, although increases in new development may temper the rate at which vacancycontinues to be reduced.

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The Little Rock office market ended the year with vacancyat the 11.6% mark. Activity remained relatively flat overthe final months of the year with the market recording justover 110,000 square feet of occupancy growth in 2004.Growth over the past year has been strongest in theDowntown submarket where over 149,000 square feet of space was absorbed, ending the year with vacancy at14.7%. The CBD continues to carry plenty of vacant spacein the financial district while the River Market/ClintonLibrary area has virtually no vacancies.

By comparison, Little Rock’s suburban markets closed the year with vacancy at just 9.0%. While this indicates amarket in a relative position of health, this is the highestlevel of vacancy recorded here in the past ten years.New construction was minimal throughout 2004, however,leasing activity was also relatively flat in these trade areas.All told, Little Rock’s suburban submarkets recorded negativenet absorption of almost 40,000 square feet in 2004.

Looking ahead to 2005, we expect the market to remainstable in 2005. It is hoped that a resurgent economy willtranslate into greater job growth and increased demand inthe coming year. But it is important to note that recoveryin Little Rock has been slow and steady so any possiblevacancy decreases will be slight. With interest rates rising,new office construction will also be minimal, which mayhave a positive impact on vacancy levels. But look forrental rates and concessions to remain flat at least duringthe first part of the year.


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 6,090,000 215,000 327,000 32.7 3.80

Gary L. Jones, CPM

400 West Capitol Avenue, Suite 1200Little Rock,AR 72201Tel 501-372-6161Fax 501-372-0671


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 5,717,000 53,000 149,000 14.7 14.10

Downtown Office


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 6,980,000 20,000 -39,000 8.8 N/A

Suburban Office

Industrial

Office IndustrialThe Little Rock industrial market experienced a modestrebound in the warehouse/distribution sector in 2004.Demand for smaller spaces, particularly those in the 5,000 -10,000 square feet range, remained high and accounted fora large percentage of the transactions that were completedover the past year. For the most part, larger users have yetto return to the marketplace and remain on the sidelines.Deals of 50,000 square feet or more remained few and farbetween throughout the past twelve months. However, it ishoped that the gradually improving overall economy maystir some life in this sector of the market in 2005.

While older manufacturing space, particularly those buildings that suffer from some degree of functional obsolescence, continue to face some challenges, vacancypercentages appear to have stabilized for higher-end industrial product. Class A and B properties are averagingvacancy in the 9% to 12% range. Speculative new construction is almost nonexistent and this has played ahuge role in stabilizing the market. However, rental ratesfor warehouse/distribution space continued to record slightdeclines in 2004 due to the excess inventory currently onthe market. The mass exodus of manufacturing companiesfrom the market in recent years has created a large inventory of obsolete properties that are being convertedto general warehouse usage. The good news going forward is that demand is gradually returning to the marketplace and we expect this trend to build momentumin 2005. With very few new construction projects plannedfor 2005, vacancy should decrease. Look for occupancygrowth in the coming months and rental rates stabilizing as a result.

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1999 628,340,000 26,408,000 38,090,000 5.4 6.602000 663,377,000 35,037,000 44,337,000 4.4 6.102001 693,181,000 29,804,000 14,628,000 6.3 6.602002 701,404,000 8,223,000 6,233,000 6.4 7.002003 708,511,000 7,107,000 11,085,000 3.6 6.402004 715,394,000 6,883,000 10,951,000 2.8 6.50

Rooney DaschbachRichard DavisCarla Gazzolo

444 S. Flower Street, Suite 2200Los Angeles, CA 90071Tel 213-627-1214Fax 213-327-3200

LOS A

NG

ELES,CA

Industrial

Office IndustrialMarket conditions in the Los Angeles/Ventura Countyindustrial market have become hyper-tight, with a totalvacancy rate of just 2.8%. Demand has been strong,driven by a recovering economy, and has been particularlyhigh in for-sale product, due to still-low interest rates.Net absorption for 2004 totaled roughly eleven millionsquare feet of product, representing growth in occupiedspace of 1.6%. This is a very high level of net absorption fora relatively mature market. Occupancy growth far outpacednew development and is one of the primary reasons why vacancy in these trade areas continue to decline.Construction completions totaled 6.9 million square feetthroughout the metropolitan area in 2004 or a total growthin supply of 1.0%. Despite strong demand, constructionremains limited due to the general lack of developablevacant land and very strong competition from residentialand retail developers for any land that becomes available.

Throughout 2004, rental rates climbed steadily as did saleprices. By the close of the year, sale prices had reached anaverage of $70 per square foot. In some areas—LAX forone—sale prices on small buildings exceeded $100 persquare foot. The outlook for 2005 is one of continuedtightness. The local economy is still gaining strength, onlytwo million square feet of new product is currently underconstruction and interest rates remain low. This combinationof factors should result in sharp rental rates increases andcontinued high sale prices. The Los Angeles/VenturaCounty market is one of the largest industrial markets inthe U.S., with 715 million square feet of space. Much of theexpansion taking place in the Basin is occurring in the adjacent Inland Empire Market (Western San Bernardinoand Riverside Counties).

47

The Los Angeles County office market, which had softenedconsiderably over the past few years, tightened in 2004,closing the year with overall vacancy of 15.2%. This marksa significant reduction from the 17.5% vacancy level recordedat year-end 2003 and illustrates the strength of occupancygrowth that has occurred over the past twelve months.Total net absorption in 2004 totaled 3.1 million square feet, which translates into a growth in the pool of occupiedspace by 2.2%. This is a moderate to strong level of netabsorption, reflecting the strength of the recovery in theeconomy of Southern California. Much of the growth in demand came from the finance sector, particularly mortgage banking, as well as from business services.Growth in demand once again took place from high-tech,communication and entertainment companies.

Asking rental rates firmed in most areas, and inchedupward in the San Fernando Valley. Construction activitywas restrained as of the end of the year. Demand is projected to remain strong in 2005 and 2006.Vacancy ratesare projected to move toward healthy levels (high single-digits) within the next two years in most areas. As they do, rental rates are projected to start inching upward,with more significant growth projected in 2006. In somemarkets, such as the San Fernando Valley and the Tri-CitiesArea, recovery will be faster. In other markets, particularlythe South Bay, complete recovery is not expected foranother three years or so. Demand for the purchase ofoffice space in Los Angeles County has increased, and agrowing number of transactions have taken place in the$250 to $400 per square foot range. Cap rates for Class A buildings in premier locations have fallen to the 6% to 7% range.


1999 31,595,000 -100,000 -622,000 18.9 24.002000 31,595,000 0 -88,000 19.4 24.502001 31,669,000 74,000 478,000 18.4 24.602002 31,669,000 0 -67,000 19.5 24.002003 31,669,000 0 -86,000 19.8 24.202004 31,669,000 0 162,000 20.3 25.20

Downtown Office


1999 125,785,000 5,788,000 6,654,000 11.9 28.002000 133,856,000 8,071,000 11,159,000 11.9 31.002001 136,796,000 2,940,000 -2,938,000 14.2 30.302002 139,662,000 2,866,000 -1,864,000 16.7 29.002003 141,013,000 1,351,000 1,252,000 17.0 28.302004 141,528,000 515,000 2,944,000 14 29.30

Suburban Office

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– INLA

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Rooney Daschbach

3401 Centrelake Drive, Suite 150Ontario, CA 91761Tel 909-605-9400Fax 909-937-6330

IndustrialDemand for industrial space in the Inland Empire industrialmarket (Western San Bernardino and Riverside Counties)has been very strong in recent years, driven by a recoveringeconomy and a lack of vacant product in adjacent Los Angeles and Orange Counties. Net absorption in 2004 totaled 7.1 million square feet of industrial space,resulting in growth in occupied space of 3.8%. This is avery high level of net absorption, although less than the level achieved in the late 1980s when industrial development began to surge in the Inland Empire. At thattime it was not uncommon for occupancy growth to reach15 million square feet per year.

The west end of the Valley is starting to run out of vacantland, and activity is shifting to the east and the south.Construction completions totaled 6.9 million square feet,representing growth in supply of 3.5%. Despite the highlevel of construction activity, the delivery of new productdid not keep pace with occupancy growth. As a result, thevacancy rate fell to the current level of 5.8%. Rental rateshave steadily climbed and sale prices have skyrocketed, yetthey still remain low relative to rates and prices in adjacentLos Angeles and Orange Counties. Look for 2005 to be ayear of continued tightening. The local economy is gainingstrength and there remains a dearth of vacant space inadjacent counties. Meanwhile, there is only 5.8 millionsquare feet of space under construction, a substantial number but one not likely to keep up with spikes indemand. Rental rates are projected to climb sharply in2005 and sale prices to remain high. Activity will continueto shift to the east and to the south.

48


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 195,856,000 168,000 1,594,000 9.0 4.702003 202,308,000 6,452,000 9,149,000 6.2 4.702004 209,177,000 6,869,000 7,147,000 5.8 4.70

Industrial

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The outlook for the Louisville office market in 2005 ismuch more positive than it has been over the last fewyears. Look for an uptick in activity in the next six totwelve months, but for growth to occur at a measuredpace. The overall economic recovery is impacting theLouisville market, however, this has yet to significantlyimpact job creation. Leasing activity gained momentum in2004 and we expect this to continue with greater strengthin 2005. However, the market still faces some challenges.Even with a lack of significant new construction in 2004,overall market vacancy remains near 20%. Brown &Williamson’s upcoming departure will add 215,000 squarefeet of Class A space to the available inventory, casting ashadow over the downtown market.

The office market continues to be very favorable to tenants. Throughout the past year there have been numerous leases brokered and restructured under veryfavorable terms, particularly by agents who are representingtenants with strong credit, and are willing to accept longerlease terms. With supply continuing to exceed demand,lower effective rates and incentives are the norm and willcontinue to be in the immediate future. Suburban marketsshould see some relocation of tenants as well as limitedexpansion by existing tenants who are drawn there by quality facilities offered at very competitive rates.Speculative construction should remain constrained withdevelopers willing to build only for larger, strong credit tenants. The key factor for improvement in the office market will be continued economic growth and the positiveimpact it has on overall demand. All signs are that thistrend will continue into 2005. As such, look for vacancyrates to post modest declines in 2005 and for occupancygrowth to occur.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 77,542,000 561,000 -231,000 19.0 3.402003 78,267,000 725,000 1,716,000 16.7 3.302004 79,516,000 1,249,000 1,854,000 7.5 3.80

Douglas H. Owen

7316 New LaGrange RoadLouisville, KY 40222Tel 502-426-1300Fax 502-426-8543


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 8,840,000 0 -374,000 16.2 16.102002 9,081,000 241,000 -125,000 18.5 20.002003 9,081,000 0 -25,000 21.0 19.402004 9,157,000 76,000 -150,000 23.4 19.40

LOU

ISVILLE,K

Y

Downtown Office


1999 N/A N/A N/A N/A 18.502000 N/A N/A N/A N/A N/A2001 8,099,000 146,000 176,000 19.5 17.902002 8,368,000 269,000 261,000 19.1 17.502003 8,368,000 0 172,000 17.7 17.702004 8,368,000 0 -13,000 17.7 18.00

Suburban Office

Industrial

Office IndustrialThe Louisville industrial market experienced robust positivenet absorption in 2004. Over 1.8 million square feet ofoccupancy growth was realized over the past twelvemonths. While this number is near the total recorded in2003, it marks a stark contrast to 2002 when losses of over200,000 square feet occurred. Following two years of solidgrowth, it is safe to say that the Louisville market is firmlyin recovery. Vacancy currently stands at 7.5%.

Significant transactions in 2005 included UPS Supply ChainSolution’s purchase of a 517,000 square foot distributionfacility in the Louisville Metro Commerce Center; GSICommerce Solution’s lease of 400,000 square feet in BullitCounty, AmerisourceBergen’s lease of 201,000 square feetfrom ProLogis; and MBT International’s lease of 140,000square feet from JP Morgan in Commerce Crossings.The level of positive absorption recorded in 2004 hasencouraged developers to begin speculative construction of Class A facilities and we anticipate a minimum of threenew distribution facilities breaking ground in 2005. All ofthese projects will be in the 400,000 to 850,000 squarefoot range.

With a vacancy rate of only 7.5%, conditions are ripe forrental growth in 2005. Clearly, developers are rushing projects into the pipeline, but current conditions give aslight edge to landlords. Look for demand to continue topost increases in 2005 as the overall economy improves.

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Vacancy within the Memphis office market crept up slightlyduring 2004, closing the year at 17.5%—up from the 16.8%rate recorded at year-end 2003. While the fourth quarterended on a high note, it was not enough to reverse lossesfrom earlier in the year. Still, the market recorded significant occupancy growth over the final three months of the year and positive net absorption in Memphis’ threelargest submarkets: Downtown, East Memphis and the 385 Corridor. Economic indicators point toward astrengthening economy that will likely lead to job creationin 2005 and these factors should translate into positivegrowth for the office market in 2005.

There are other reasons for optimism looking forward.Sublease availability declined substantially in 2004.More than 40% of the sublease space that was on the market at the end of 2003 was absorbed during 2004.This should help alleviate downward pressure on leaserates, enabling landlords to hold rates at levels that arecloser to their quoted rates. While overall quoted leaserates showed year-on-year losses throughout 2002 and2003, it appears as though that trend also reversed itself in2004. Annual quoted lease rates for Class A space recorded a healthy increase of $.86 per square foot whilequoted rates for overall office space crept upward by $.36 per square foot. We expect the market to continueto post gains heading into 2005. Look for demand toincrease as tenants return to the marketplace, and expectto see developers resume progress on some construction projects that had been put on hold.


1999 103,431,000 4,900,000 5,600,000 14.4 4.002000 109,931,000 6,500,000 8,200,000 12.8 2.802001 113,281,000 3,350,000 2,100,000 14.0 3.002002 115,781,000 2,500,000 -2,700,000 16.9 2.502003 119,779,000 3,998,000 3,972,000 16.3 2.402004 120,818,000 1,039,000 3,164,000 17.2 2.60

Eugene Woods, SIOR

3644 Winchester Road, Suite 101Memphis,TN 38118-5924Tel 901-375-4800Fax 901-375-9600


1999 3,431,000 0 -20,000 25.0 19.002000 3,606,000 175,000 200,000 24.2 18.002001 3,621,000 15,000 -27,000 21.2 18.802002 3,621,000 0 206,000 21.5 16.602003 3,621,000 0 -18,000 23.4 17.002004 3,621,000 0 80,000 21.4 16.70

Downtown Office


1999 13,720,000 240,000 100,000 14.5 19.002000 14,435,000 715,000 600,000 12.7 21.002001 15,733,000 1,298,000 -117,000 14.5 18.802002 16,513,000 780,000 70,000 15.6 18.902003 16,761,000 248,000 159,000 15.4 19.502004 16,795,000 34,000 278,000 16.7 20.40

Suburban Office

Industrial

Office IndustrialWith over 120 million square feet of warehouse product,the greater Memphis industrial market recorded a slightreduction in vacancy in 2004, ending the year at 17.2% overall. The dominant submarket continues to be theSoutheast, which comprises nearly 60% of the total market.However, North Mississippi has shown significant growth in the past year. While this submarket currently comprisesonly of 9% of the total market size, new development therewill add significant product in 2005 and beyond.

With no new big boxes available and activity on the rise,developers have commenced speculative construction inboth the Southeast submarket and North Mississippi. In theSoutheast submarket, Panattoni has begun construction onan expandable 500,000 square foot building at MemphisOaks. Meanwhile, an expandable 600,000 square foot building is nearing completion at Prologis Park Stateline and Principal is nearing completion of a 789,000 squarefoot project at Summit Distribution.

In North Mississippi, IDI is building a 257,000 square footstructure at their new Stateline Business Park developmentas well as a 556,000 square foot building at AirwaysDistribution. In addition, Panattoni has commenced construction on a 740,000 square foot building at the new Southaven Distribution Center.

While some of the activity in Class A big box product isfrom existing companies looking to consolidate or expand,the Memphis area continues to attract companies lookingto consolidate operations while taking advantage of Memphis’ central location and FedEx and UPS hubs.Look for the continued success of Class A product withNorth Mississippi emerging as a significant competitor forbig box Class A deals.

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Vacancy within Miami’s CBD rose in 2004 as a result of anumber of companies relocating to the Brickell and CoralGables submarkets. Despite this, overall absorptionremained positive. Most of the leasing taking place were smaller deals under 5,000 square feet with a large percentage of these transactions involving law firms.Just one 163,000 square foot project was delivered in theCBD as the scarcity and high price of land continues tolimit development here. In fact, the big news for the CBD is the development of residential projects and theconversion of rental apartments to condos. According tothe Downtown Development Authority, there will be16,000 new residential units within the next five years, andsales are brisk. After nearly two decades of stagnation, anarea that was solely commercial is taking on an entirely different flavor as upscale condos increasingly replace older empty buildings. The success of these projects hasresulted in the doubling of land prices over the past year.This explosion of residential demand will likely limit the potential for development of office space but will ultimatelybe a positive for the office market.

Investment activity was strong throughout 2004.Redevelopment sites, including older buildings and parkinglots, continue to be purchased by developers. A recentexample is the Related Group of Florida’s $94 million purchase of the Sheraton Biscayne Bay Hotel location.Plans are for the hotel to be razed and replaced witheither a commercial or mixed-use project. Constructionwill also soon begin on the Latitude, a mixed-use projecton 2.3 acres on the Miami River, which will contain 231,000square feet of office space and a 44-story condo tower.The overriding trend remains mixed-use live/work/playdevelopments, all of which bolster Miami’s reputation as an exciting 24-hour city.


1999 184,498,000 2,355,000 -2,589,000 6.9 N/A2000 185,917,000 1,419,000 1,319,000 7.1 6.002001 188,812,000 2,895,000 -556,000 9.8 5.002002 190,539,000 1,727,000 1,302,000 9.4 5.902003 191,553,000 1,014,000 2,934,000 8.2 5.902004 192,777,000 1,224,000 2,881,000 6.5 6.00


5201 Blue Lagoon Drive, Suite 650Miami, FL 33126Tel 305-265-3434Fax 305-265-3435


1999 8,844,000 0 -154,000 10.0 28.002000 8,844,000 0 34,000 10.0 28.002001 8,844,000 0 0 10.7 27.802002 8,844,000 0 -284,000 11.9 28.202003 8,844,000 0 42,000 11.6 29.602004 8,844,000 0 72,000 12.4 30.30

MIA

MI,FL

Downtown Office


1999 57,963,000 624,000 -744,000 8.4 0.002000 57,963,000 0 1,541,000 6.5 27.202001 59,438,000 1,475,000 -449,000 11.8 28.002002 60,871,000 1,433,000 -114,000 12.3 28.702003 61,596,000 725,000 533,000 12.5 29.702004 62,700,000 1,104,000 2,062,000 11.3 28.90

Suburban Office

Industrial

Office IndustrialThe Miami industrial market posted over 2.8 million square feet of occupancy growth in 2004 as vacancy creptdownward to its current rate of 6.5%. The Airport Westsubmarket performed particularly well, with investordemand remaining strong and both lease and sale prices rising appreciably. Increased demand has also begun to affect the leasing strategies of the landlords here, withfewer concessions offered and increasingly rigid lease rates.While there are some large spaces (60,000 square feet ormore) still available, there is a growing lack of quality spacein this submarket. In response, developers are buildingspeculative projects again. Flagler Development recentlybroke ground on a 200,000 square foot building at FlaglerStation and also plans to build an additional 100,000 squarefoot building in the near future. Elsewhere, AMB PropertyCorporation recently purchased a 230,000 square footcomplex on 10 acres, bringing their total purchases in thispark in the last 2 years to 6 facilities with over 822,000square feet. This marks a shift from their previous strategyof acquiring properties in the Airport West submarket.The North Dade trade area, with its central locationbetween two ports and good highway access, is a lower-cost alternative to Airport West and may be undervalued.Throughout South Florida, AMB now owns more than 5.5million square feet of distribution/warehousing space.

Look for demand to strengthen in 2005 as job creationcontinues in the industrial sector. Despite the fact thatover 1.3 million square feet of space is currently in thedevelopment pipeline, market conditions seem to dictatestrong rental growth in the coming year, particularly forinstitutional grade product in key submarkets.

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MILW

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The Milwaukee office market continued to reboundthroughout 2004. Overall vacancy currently stands at 8.7%,down from the 10.7% mark posted at the close of 2003.Downtown office vacancy currently stands at 9.8%.While this is a healthier rate than experienced by mostmetropolitan areas, it is important to note that Milwaukee’sdowntown office market remained dormant throughoutmost of the year from a demand perspective. The soleexception is the market for newly constructed Class Aproperties. As a result, there are several new Class A buildings planned for development, which could pose challenges for lesser quality product as activity during the first half of 2004 was marked by a trend toward tenants upgrading to Class A space while taking advantageof aggressive owner proposals. However, the good news isthat as the year came to a close, this trend seemed to bediminishing. All told, the downtown market absorbed216,000 square feet of space in 2004, a decrease from the 328,000 square feet recorded in 2003 and a majordecline from the 877,000 square feet of occupancy growth posted in 2004.

Milwaukee’s suburban submarkets remain in a position of relative strength with year-end vacancy of 8.4%.Roughly 715,000 square feet of space was absorbed herethroughout 2004. Speculative development is not on thehorizon, but developers and investors are repositioningtheir inventories to take advantage of the next upswing in the market. The excessive glut of vacancy that characterized the suburban office market in the early 2000s has disappeared and submarkets are reaching historicoccupancy levels. Look for the market to gain strength in2005 with the possible announcement of up to two significant office developments in downtown and several in the suburbs.


1999 253,217,000 2,000,000 3,750,000 2.9 4.002000 256,217,000 3,000,000 400,000 3.7 4.002001 258,717,000 2,500,000 1,200,000 6.0 4.002002 260,217,000 1,500,000 -1,500,000 7.7 4.002003 264,724,000 4,507,000 6,911,000 6.7 4.302004 271,212,000 6,488,000 -1,343,000 7.1 4.30

Patricia A. Lange

1232 North Edison StreetMilwaukee,WI 53202Tel 414-271-1870Fax 414-271-1478


1999 14,284,000 65,000 105,000 15.7 N/A2000 14,399,000 115,000 74,000 15.0 23.502001 14,399,000 0 250,000 14.5 23.002002 14,594,000 195,000 877,000 9.3 23.002003 15,121,000 527,000 328,000 10.7 23.002004 15,121,000 0 216,000 9.8 22.00

Downtown Office


1999 41,546,000 550,000 110,000 N/A N/A2000 42,063,000 517,000 318,000 9.1 21.502001 42,657,000 594,000 371,000 1.5 21.002002 43,568,000 911,000 0 11.9 21.002003 44,068,000 500,000 1,737,000 10.8 21.002004 44,568,000 500,000 715,000 8.4 21.00

Suburban Office

Industrial

Office IndustrialThe southeastern Wisconsin industrial market continues to improve. At year-end 2004, vacancy stood at 7.1%.Although the market experienced overall occupancy lossesof over 1.3 million square feet in 2004, it ended the year on a positive note with 2.4 million square feet of positivenet absorption during the final three months of the year.This helped to eradicate losses recorded earlier in the year.The velocity of sales and leasing in all categories of size hasincreased, with sales outpacing leasing activity.This increaseddemand has, in turn, led to greater construction activity.The market added over 6.4 million square feet of space in2004 and this is the primary reason why vacancy increasedduring the year. There is currently 1.2 million square feetof industrial product in the development pipeline, withmuch of it slated for delivery in the first half of 2005.

The coming year should be one of steady improvementthroughout the Milwaukee market, with continuallydecreasing vacancy rates in most submarkets. Despite theoccupancy losses recorded over the course of 2004,vacancy remains at just 7.1%. This is indicative of a strongmarket in which landlords are in the driver’s seat. This isalready apparent by the upward pressure on rental ratesthat we have already seen in some submarkets. As a result,look for a number of speculative projects to be constructedin 2005. Finally, the investment market for industrial product should remain strong, with cap rates in the 9.0 to 9.5% range.

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The Twin Cities office market ended 2004 with an overallvacancy rate of 18.2%.There was a wide performance gapbetween the downtown and suburban markets, which had overall vacancy rates of 21.2% and 16.5%, respectively.The Minneapolis CBD has historically lagged behind its suburban markets during periods of recovery.

Much of the space needed to accommodate employmentgrowth in recent years has come from sublease and shadowspace. Decreasing vacancy indicates that excess space isbeginning to run out.The amount of sublease vacancythroughout the metro area declined as well, falling from 1.6 million square feet in 2003 to 1.0 million square feet in 2004. Asking rates have become more aggressive onaverage in all sectors when compared to last year.Competition for tenants remains strong and concessionsremain high, but those landlords with strong occupancy are reigning in the concessions.

Office condos continue to be popular in the suburbs, withdevelopments completed or underway in several sectors.Small business owners buy office condominiums not only asa real estate investment, but because they can control theirown HVAC, and they like the proximity to their homes aswell as the quality interior finishes, garages, private bathrooms, kitchenettes and they take pride in ownership.Low interest rates have made the cost of occupancy comparable to traditional office space. Most office condoshave been constructed in the inner-ring suburbs. In 2004,office condos became available in downtown St. Paul, withdevelopments planned for completion in 2005 for theMinneapolis CBD as well.


1999 78,773,000 3,600,000 2,870,000 8.6 4.602000 80,973,000 2,200,000 1,846,000 9.4 4.702001 84,236,000 3,263,000 1,084,000 13.4 4.302002 87,220,000 2,984,000 1,546,000 17.0 4.402003 87,271,000 51,000 1,673,000 14.0 4.102004 87,271,000 0 113,000 14.8 6.00

Dennis L. McClinton, CCIM, SIOR

200 South Sixth Street, Suite 1400Minneapolis, MN 55402Tel 612-341-4444Fax 612-347-9389


1999 21,676,000 0 370,000 7.1 28.402000 22,603,000 927,000 573,000 7.2 28.702001 24,519,000 1,916,000 513,000 12.2 27.602002 25,447,000 928,000 -1,400,000 20.3 23.502003 25,447,000 0 -35,000 20.4 25.102004 25,447,000 0 -326,000 21.2 26.00

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Downtown Office


1999 37,424,000 1,154,000 366,000 10.5 26.002000 39,238,000 1,814,000 1,489,000 12.7 27.502001 41,340,000 2,102,000 1,664,000 17.6 27.002002 42,679,000 1,339,000 180,000 20.3 23.502003 42,679,000 0 2,038,000 16.3 27.402004 42,679,000 0 573,000 16.5 26.30

Suburban Office

Industrial

Office IndustrialThe Twin Cities industrial market, while posting positiveabsorption for the year, continues to struggle in most sectors. Roughly 900,000 square feet of negative absorption had occurred by the mid-year mark.The market reversed itself over the final half of 2004,recording over one million square feet of occupancygrowth, and ended the year with a total of 113,000 squarefeet of positive absorption for the year. The industrialvacancy rate continued its two-year decline, ending 2004 at 14.8%.

The strongest growth in 2004 took place in the bulk warehouse sector. Vacancy actually increased by 320,000square feet during the second and third quarters, but468,000 square feet of positive absorption in the fourthquarter offset those losses. All told, bulk warehouse spaceaccounted for 235,000 square feet of occupancy growth for the year.Vacancy decreased for this product type by1.4% to end at 20.4%. Despite these gains, with vacancyabove the 20% mark, tenants remain in the driver’s seat in this sector.

The office showroom/business center category remainedsoft in comparison, posting 223,000 square feet of negativeabsorption at year-end. As a result, vacancy rose by 1.2% to end at 12.4%. The trend of tenant losses that markedactivity over the first three quarters of the year was brokenwith 57,000 square feet of growth in the fourth quarter.

As with other product types, the office/warehouse sectorexperienced a strong turnaround in the final half of 2004.The market had over 590,000 square feet of negativeabsorption at the mid-year mark. The situation improvedduring the rest of the year as occupancy grew by 694,000square feet to end the year in the black. As a result vacancyrates fell by a mere tenth of a percent to end at 13.9%.

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In 2004, the Nashville office market continued its steadyresurgence with vacancy rates at 14.3%. Unlike industrialactivity, where absorption often occurs in increments of500,000 square feet or more, the office market has beenimproving in measured advances. However, there havebeen a few large leases: the Tennessee Department ofHuman Service took 138,000 square feet in Metro Center;Tractor Supply Company occupied 100,000 square feet inBrentwood; and Asurion Insurance Services inked a dealfor 92,000 square feet in Grassmere.The anticipated migration of major tenants from the CBD to the suburbsseems to indicate that any future development will be inthe suburban areas.The most likely areas for speculativeconstruction remain the Brentwood/Cool Springs area.One building is currently under construction, the Two BlueGrass Commons in the Rivergate area. Additional construction starts could be forthcoming; however, any dramatic increase in demand in the short run will cause ashift from a tenant-driven to an owner-driven market.

In the short run, look for landlord inducements to dissipateas demand increases, constrained by a fixed supply.Expectation for the office market included a reduction inthe market-wide vacancy rate to 13.5% and net positiveabsorption consistent with 2004 levels. Sublease space willremain steady in the slower growth submarkets but willnot be an impediment to speculative construction.New multi-tenant facility construction—a topic of conversation, speculation, and contention for the CBD—will come to fruition.


1999 154,694,000 3,470,000 4,586,000 3.3 3.502000 159,594,000 4,900,000 4,350,000 3.5 3.302001 164,127,000 4,533,000 1,516,000 5.2 3.002002 166,188,000 2,061,000 -2,058,000 7.6 3.002003 168,145,000 1,957,000 -249,000 8.8 3.002004 170,627,000 2,482,000 4,459,000 7.5 2.90

Charley Hankla, SIOR

5250 Virginia Way, Suite 100Brentwood,TN 37027Tel 615-301-2800Fax 615-301-2958

Industrial

Office IndustrialThe Nashville industrial market posted solid numbers for2004, but at a cost. The strong performance of the marketover the past twelve months will have some short-termramifications in that productivity will be hampered by ashortage of big box space. The market recorded over 4.4million square feet of occupancy growth in 2004 and closedthe year with vacancy at 7.5%.

In light of current market conditions, developers are moving forward with construction in the CBD, East, andSoutheast submarkets. Development activity and sales ofindustrial tracts along I-840 are strong with PrimeProperties constructing a 350,000 square foot distributioncenter for Aldi and selling 65 acres to First Industrial for a300,000 square foot building while Panattoni Developmentstarted a new 456,000 square foot cross-docked speculativeproject. In the Southeast submarket, which continues to beone of the most significant submarkets in Nashville,Panattoni’s new 180-acre development at Elam Road is thesubmarket’s newest industrial project. Lastly, in the Northsubmarket, Duke Realty is beginning work on their new500,000 square foot speculative building.

The economy is improving and national and regional economic indicators continue to point to an expansion.Corporations have increased productivity and cut costs by eliminating excess capacity during the recent economicdownturn and they are finally into an expansionary mode.Demand for bulk, net-lease investments, owner/user spaceand exchange property continues and it appears that ashortage in big box availability will ease as facilities underconstruction come online. Interest continues in single tenant facilities in the 22,000 to 30,000 square foot range and build-to-suit facilities will still be needed to meet market-specific requirements.

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1999 5,178,000 N/A 32,000 6.6 20.002000 5,860,000 682,000 330,000 12.0 19.802001 5,882,000 22,000 -143,000 14.7 18.502002 5,980,000 98,000 112,000 13.4 18.302003 5,980,000 0 54,000 12.9 18.802004 5,980,000 0 -142,000 15.2 18.80

Downtown Office


1999 15,395,000 1,260,000 1,115,000 8.5 19.002000 16,570,000 1,175,000 731,000 10.5 19.502001 17,983,000 1,413,000 555,000 14.4 18.502002 18,887,000 904,000 365,000 16.6 18.502003 19,418,000 531,000 315,000 17.3 18.802004 19,719,000 301,000 883,000 14.4 19.00

Suburban Office

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Vacancies keep gradually declining in the Central NewJersey office market, but at a disappointing rate. At the endof 2004, overall vacancy stood at 14.2%, down from the15.5% rate recorded at the end of 2003. Over the pastyear, the market has recorded strong occupancy growth of over 1.7 million square feet of space, compared to the719,000 square feet of net absorption posted in 2003.Yet, the market still has a way to go before balance existsbetween supply and demand.

Despite the availability of developable sites, especially whencompared to the northern portion of the state, the onlybuildings being developed are small Class B buildings forlocal professional use.This is not likely to change. Rentscontinue to remain relatively steady.The Citicorp move toWarren Township will remove 800,000 square feet fromthe market, but the telecom debacle remains a majorheadache for this area. It will take some time for the softest segments of this market, most of which containspace built in the 1970s, to recover. Part of the key torecovery will be the conversion of older buildings forschools, community centers, churches, medical and othernon-corporate uses. Some single-story industrial space,converted in the 1990s to office space, may be convertedback again. The rest will depend on new job creation,where this area has an advantage over Northern NewJersey due to the more affordable housing in the centralpart of the state compared to its northern neighbors.

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Office IndustrialThe Central New Jersey industrial market—consisting of Hunterdon, Mercer, Middlesex, Monmouth, Ocean andSummerset counties—recorded over seven million squarefeet of occupancy growth in 2004 and ended the year withvacancy hovering at just 4.3%. This market is primarily aregional distribution center for the Northeast and MiddleAtlantic regions, with markets from Maine to southernVirginia within an 8-hour truck drive.

There is ample land here for new construction, and speculative buildings of one million square feet are notunusual. There is a tendency in this market to overbuilddemand until the vacancy rate rises about 15% followed by a halt while the market recovers. With the amount of net absorption the market produced this year, it seems unlikely that such a level can be sustained in 2005. Meanwhile, with nearly six million square feet of construction underway it seems highly probable that vacancy will increase in 2005. That being said, it is vital to point out that current vacancy levels indicate a marketwhere demand is far outpacing supply. Despite decliningvacancy rates, rents have held steady by the amount of new construction. On the heels of record increases in construction costs, rising interest rates and surging land values, it will be interesting to see if the new constructionplanned for 2005 will actually act to stimulate marketrents—as opposed to moderating rents, which is generallythe norm. Strong levels of demand, which are only expected to increase, will be the key here. This should be agreat time for tenants to lease quality buildings if they cancommit to long-term leases, since these rent levels may notbe around again for a long time.

Jonathan Tesser, SIOR

200 Cottontail LaneSomerset, NJ 08873Tel 732-868-5111Fax 732-868-8055


1999 252,613,000 3,675,000 3,927,000 7.2 5.202000 255,863,000 3,250,000 3,725,000 5.7 5.502001 263,018,000 7,155,000 1,479,000 7.0 5.002002 268,295,000 5,277,000 -2,031,000 8.3 5.002003 269,154,000 859,000 7,137,000 5.9 4.502004 271,513,000 2,359,000 7,066,000 4.3 4.20

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1999 91,990,000 3,651,000 3,010,000 9.4 29.002000 93,767,000 1,777,000 2,524,000 6.0 26.902001 95,934,000 2,167,000 1,330,000 11.8 24.302002 98,433,000 2,499,000 -1,387,000 15.3 23.502003 99,007,000 574,000 719,000 15.5 24.002004 99,537,000 530,000 1,717,000 14.2 25.50

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This market has maintained a very stable vacancy rate overthe past two years. However, three million square feet ofnew office space came online during that period of time, sothere has been positive absorption. At the close of 2004,the Northern New Jersey office market recorded over 3.6million square feet of occupancy growth. Vacancy currentlystands at 12.2%, down from the 13.6% rate recorded in 2003.

Virtually no new space is expected to be delivered in thenext two to three years, and so assuming economic projections of a growth in GDP of 3.5-4% and increasedjob creation of 2.4 million new jobs, vacancy in this marketwill decline. Also helping this market return to balance willbe the use of office buildings for alternative uses, such asschools, community centers, and health related facilities,which have been a major source of demand over the pastyear. The migration of financial service jobs from NewYork—resuming after an absence of nearly four years—will also be a positive factor. Residential development isnow competing for the few sites where new office space could be built and residential values for high-density housing far exceed office values. As a result, what limitedland might be available for development is likely to be re-zoned residential and therefore will no longer be available. Development opportunities here will be focusedon rehabilitating product built in the 1970s and early 1980s.Despite these market conditions, demand for investmentgrade office buildings continues to grow with cap rates atall time lows.

Office IndustrialThe Northern New Jersey industrial market—consisting of Bergen, Essex, Hudson, Passaic, Morris and Union counties—recorded over 900,000 square feet of occupancygrowth in 2004 and ended the year with vacancy hoveringat a low 4.8%. This market is primarily a distribution marketthat services the greater New York metropolitan area.

Land for development is very difficult to find here excepton the fringes of the market where utilities are often not available and environmental restrictions are significant.Meanwhile, the supply of space in this market will remainstable or even decline over the next five years as demolitions and conversions will likely outstrip new construction. High-density residential development in the Hudson and Bergen county markets is squeezing retailusers from the market, much less industrial users. Pricesfor industrial property that have been re-zoned for residential use have been as high as $3 million per acre and up. Despite a low vacancy rate, rental growth has notoccurred. This is due to competition from the neighboringCentral New Jersey market where as much as six millionsquare feet of new construction has been built annually for the last three years and where prices have been considerably lower. In addition, publicly owned developershave been extremely aggressive in pricing deals in anattempt to get their occupancy rates as high as possible.On the investment side, demand for product far exceedssupply and prices are far ahead of achievable rents.Investors seem to be betting strongly on sharply increasedrents. Recent record high increases in construction costsmay help this trend by driving rents at Exit 8A up andtherefore allowing the northern markets to increase theirs as well.

Inventory New Absorption Vacancy Warehouse(SF) Supply (SF) (SF) Rate (%) Rent ($PSF)

1999 417,089,000 946,000 4,902,000 5.3 5.502000 418,449,000 1,360,000 6,630,000 3.6 5.902001 420,323,000 1,874,000 -2,493,000 5.5 6.302002 420,874,000 551,000 1,602,000 5.3 6.202003 421,699,000 825,000 2,811,000 4.9 5.902004 422,859,000 1,160,000 914,000 4.8 6.10

Jonathan Tesser, SIOR

The Atrium, 400 Glenpointe Centre W.Teaneck, NJ 07666Tel 201-692-8100Fax 201-692-8113


1999 142,458,000 3,750,000 4,100,000 13.1 29.002000 145,458,000 3,000,000 4,600,000 8.8 29.002001 148,571,000 3,113,000 510,000 11.1 30.002002 152,752,000 4,181,000 1,449,000 12.6 25.002003 155,099,000 2,347,000 -318,000 13.6 28.702004 156,766,000 1,667,000 3,607,000 12.2 27.10

Suburban Office Industrial

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New York City—Midtown Manhattan and South

A flurry of year-end leasing deals in all three major submarkets propelled the Manhattan Class A vacancy ratedownward to 9.8%. It is the first time the rate has fallenbelow the 10.0% threshold since September 2002 and the lowest since the 9.7% rate achieved in May 2002.The primary source of activity were financial service firmslocking in large blocks of space for two reasons: the anticipation of hiring in the near future and the fear thatrents are increasing rapidly. Indeed, the Class A averageasking rent in Manhattan rose to $48.49 per square footannually on a full service basis in December up from the$45.59 rate recorded just one year ago.

Activity was strong on large blocks of space over 100,000square feet scattered across Midtown and also on thesmaller “pre-built” units in prime areas such as the Plazaand Grand Central submarkets. Both Lehman Brothers and Wachovia closed deals in the waning days of 2004:Lehman expanding to 1301 Avenue of the Americas near its 745 Seventh Avenue headquarters and Wachovia landingin The Seagram Building. Smaller boutique firms were still strong players in the market, especially hedge funds.Law firms were also in growth mode. Downtown wasmuch improved in December with several significant dealsclosing. After pulling out of Lower Manhattan following9/11, Morgan Stanley has returned, closing on a 447,000square foot block of long-term sublease space at 1 New York Plaza (from Prudential/Wachovia). In addition,TD Waterhouse closed on 137,000 square feet at 32 Old Slip while law firm McKee Nelson will relocate to67,000-square feet at 1 Battery Park Plaza. One majorincentive program expired (the WTC Small Firm Attraction& Retention Grant Program) though the Lower ManhattanEconomic Revitalization Plan and discretionary grantsremain in place.

Nicola M. Heryet

40 East 52nd Street, 11th FloorNew York, NY 10022Tel 212-758-0800Fax 212-758-6190


1999 239,213,000 1,600,000 3,900,000 6.4 54.002000 239,213,000 0 1,445,000 5.4 65.402001 240,068,000 855,000 -12,916,000 10.4 61.302002 242,574,000 2,506,000 -573,000 11.4 54.702003 244,472,000 1,898,000 888,000 11.8 52.402004 247,455,000 2,983,000 5,846,000 10.5 57.50

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1999 N/A N/A N/A N/A N/A2000 98,131,000 0 787,000 5.5 38.002001 98,131,000 0 -7,256,000 12.9 43.802002 98,131,000 0 -998,000 14.0 34.002003 98,131,000 0 1,460,000 12.5 27.602004 98,131,000 0 1,054,000 11.4 33.70

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1999 104,594,000 0 2,255,000 8.2 37.002000 104,594,000 0 4,021,000 4.5 46.202001 91,194,000 -13,400,000 -19,195,000 11.4 42.502002 91,194,000 0 -2,742,000 14.4 36.402003 91,194,000 0 446,000 14.2 33.902004 91,194,000 0 536,000 13.6 33.60

Downtown Office

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New York—Westchester County

The Westchester County Class A vacancy rate climbed to 17.2% from third quarter levels of 13.5% while the overall market followed similar trends ending the year at15.0%, up from 11.7% in September. In White Plains, theClass A vacancy rate closed the quarter at an improved15.5%, down from 17.1% in the third quarter with theoverall rate down slightly to 13.2% from 13.5%.

Two of the largest blocks of space currently on the market consist of entire buildings – 595,000 square feet at760-800 Westchester Avenue and 315,000 square feet at 7 International Drive. Westchester’s Class A average askingrents jumped 3.6% in the fourth quarter, the most significant increase in 15 quarters, closing at $27.61 per square foot in December. It is much the same story inWhite Plains where Class A average asking rents closedDecember at $26.50 per square foot, up slightly from levels recorded in September.

A wide range of tenants were active in the market in the past few months, including Con Edison renewing for45,000 square feet at 701 Westchester Avenue and Coca-Cola relocating from 3 Skyline Drive to a 44,000square foot space at 555 Taxter Road in Elmsford. Othertransactions include NERA’s 32,000 square foot renewaland expansion deal at 50 Main Street in White Plains andMolecular Discoveries, a biomedical company involved incancer research, lease of almost 17,000 square feet FourWestchester Plaza in Elmsford. On the investment side,Altria (Kraft Foods) has sold its 582,000 square foot corporate campus in Rye Brook for $40 million or $69 persquare foot to RPW Group. Meanwhile, Reader’s Digestsold its campus headquarters in Pleasantville to GreenfieldPartners/Summit Development for $59 million or $84 persquare foot.

Inventory New Absorption Vacancy Class A (SF) Supply (SF) (SF) Rate (%) Rent ($PSF)

1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 56,779,000 0 -3,797,000 14.1 30.802002 56,779,000 0 -1,810,000 17.3 30.802003 56,779,000 0 29,000 17.3 28.802004 56,779,000 0 -73,000 17.4 28.60

Nicola M. Heryet

40 East 52nd Street, 11th FloorNew York, NY 10022Tel 212-758-0800Fax 212-758-6190


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 39,873,000 0 -2,074,000 16.5 26.302002 39,873,000 0 704,000 14.8 26.102003 39,873,000 0 407,000 13.7 27.002004 39,873,000 0 -991,000 16.2 27.60

Westchester County, NY Suburban Office Fairfield County, CT Suburban Office

OfficeNew York—Fairfield County

Fairfield County continues to be cursed with high levels of availability. In December, the Class A vacancy rate forFairfield was 19.5%, up from 19.1% in September, while in Stamford the rate eased slightly to 21.1% from 22.1%.The Greenwich submarket continued its unusual weaknessas well with the Class A vacancy rate increasing to 21.5%from 19.4%, primarily due to large vacancies in just threebuildings. One bright area for Fairfield has been the northern part of the county which has seen significantactivity and even new office construction. For instance,Diageo North America has signed for 277,000 square feetat 801 Main Avenue in Norwalk, relocating from downtownStamford. In addition, Random House leased over 42,000square feet 30 Shelton Technology Center, primarily forbusiness continuity and disaster recovery space. Stamfordsaw some good news as well as UBS AG subleased justover 73,000 square feet from American Express at 400Atlantic Street. In Greenwich, the recently renovated135,000 square foot 55 Railroad Avenue sold for a whopping$97.8 million or approximately $745 per square foot.

Class A average asking rents slipped in the fourth quarterfor the entire county, falling to $28.57 per square foot from$29.53 per square foot. In Stamford, the Class A averageasking rent closed at $30.51 per square foot down from$30.67 per square foot. The Greenwich submarket,however, saw the sharpest decrease in its average askingrent, falling to $37.80 per square foot from $42.47 persquare foot in the third quarter, a drop of 10.9%.Reasons for the fall include the lease-up of higher pricedspace during the fourth quarter, combined with a fewbuildings lowering their asking rents slightly.

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Overall vacancy within the Oakland office market currentlystands at 17.3%. The Class A market is slowly starting tolease some of the available space that came onto the market at the beginning of the year. Nearly 827,500 squarefeet of accumulated leasing activity in 2004 has helped lowered the overall Class A market’s vacancy rate down to 16.8% from 17.6% at the same time last year.Downtown Oakland’s Class A vacancy has also made a slowdescent down to 13.4% by the end of the fourth quarter2004, after spiking up to 15.6% during the first quarter.

Investment activity was a bright point for this market astwo Class A buildings, 180 Grand Avenue and 2101Webster Street, sold to different investors. The sales forboth buildings closed escrow early in the fourth quarter.California State Teachers’ Retirement purchased 180 GrandAvenue, while Prentiss Properties Acquisition bought 2101Webster Street. There hasn’t been much of a change in thearea’s Class B, C and flex market, with the overall vacancyrate for this sector staying at 17.8%. The explanationbehind the market’s inertia is an almost equal amount ofspace being leased offset by the same amount of spacecoming back to the market. Oakland’s woes and triumphsare closely connected to those of the Class A market, sowe expect the Class B and C market to improve as theClass A market makes a more significant recovery.


1999 127,382,000 1,619,000 3,135,000 5.3 6.202000 128,292,000 910,000 3,455,000 3.8 10.402001 129,857,000 1,565,000 -4,148,000 8.0 5.702002 130,745,000 888,000 -1,544,000 9.3 4.602003 130,914,000 169,000 276,000 9.1 4.502004 131,249,000 335,000 1,494,000 8.0 4.20

Michael J. Burke

1999 Harrison Street, Suite 1750Oakland, CA 94612Tel 510-986-6770Fax 510-986-6775

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Industrial

Office IndustrialSlowly but surely conditions in the Oakland industrial market seem to be improving.The overall vacancy rate hasrecorded slight declines in each of the past four quarters.As a result, Oakland ended the year with vacancy at 8.0%—the lowest rate recorded in nearly two years. A comparisonof net absorption figures will paint an even more vivid picture of how market conditions have changed over thepast year. Net absorption, or the amount of change inoccupied space, stood at less than 300,000 square feet for 2003. But as the economy and job market graduallyimproved over the past year, companies have either leasedor bought more space to house their expanding operations.All told, this market activity has translated into occupancygrowth of nearly 1.5 million square feet in 2004.

Just over 330,000 square feet of space was delivered tomarket in 2004 as developers continued to stay on thesidelines and are reluctant to begin speculative projects inparticular. This has been a positive factor in reducing vacancy and will likely continue into 2005 with less than70,000 square feet of space under construction at year-end 2004.

Overall average asking rents rose slightly during the finalquarter of 2004 to the current rate of $.48 per square footmonthly on a triple net basis. Market activity has beenrobust for all three industrial product types, but particularlyfor the warehouse/distribution market. The overall warehouse vacancy rate dropped to 7.9%, with most of the activity centered in Hayward. Hayward’s warehousevacancy rate was 9.2% for the second quarter, but fell to6.3% by the end of the fourth quarter.

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1999 12,348,000 0 515,000 7.6 30.002000 12,348,000 0 334,000 4.8 51.202001 12,348,000 0 -278,000 8.9 37.202002 12,876,000 528,000 -238,000 15.5 26.702003 12,876,000 0 -130,000 15.7 26.202004 12,876,000 0 124,000 14.6 24.40

Downtown Office


1999 8,854,000 1,741,000 1,957,000 5.3 30.002000 9,738,000 884,000 3,204,000 1.7 44.002001 12,651,000 2,913,000 -396,000 12.9 35.302002 13,993,000 1,342,000 -1,129,000 17.8 28.202003 14,997,000 1,004,000 1,431,000 16.3 23.502004 14,997,000 0 -277,000 19.8 24.10

Suburban Office

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The Orange County office market tightened very rapidly in2004, with vacancy rates dropping from 15.9% a year agoto today’s current rate of 12.4%. Net absorption in 2004totaled nearly 2.6 million square feet, which representedgrowth in the pool of occupied space of 4.2%. This is ahigh level of net absorption, up considerably from the long-term average for the County of roughly two millionsquare feet per year. It reflects a strengthening economy, aswell as the continued emergence of Orange County as an information-based economy. Much of the growth indemand was from the finance sectors, particularly mortgage banking as well as business services, engineering,communications and high-tech. Asking rental rates movedupward, but remained below the peak reached in 2001.

Construction activity in Orange County was restrainedduring the year and has played a role in diminishing vacancyrates. Only 35,000 square feet of new space was added tothe market in 2004, with demand far outpacing new supply.Demand is projected to remain strong in 2005 and 2006,and vacancy rates are expected to fall below 10% by year-end 2005. As they do, rental rates will continue to climbupward, and a rent spike is possible by the close of 2005.Demand for the purchase of office space in Orange Countyremained exceptionally strong, and the median price forClass A, B and C buildings climbed to the high $100 persquare foot range. A growing number of transactions tookplace in the $200 - $250 per square foot range, and twolarge sales of Class A buildings took place in the $350 persquare foot range.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 203,330,000 892,000 -1,458,000 6.6 7.002003 204,553,000 1,223,000 2,083,000 6.6 7.202004 205,185,000 632,000 5,218,000 4.5 6.50

William Welch

One Park Plaza, Suite 900Irvine, CA 92614Tel 949-474-0707Fax 949-724-5600


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 70,208,000 3,522,000 -644,000 17.7 31.102002 71,294,000 1,086,000 288,000 18.8 29.802003 72,301,000 1,007,000 2,918,000 16.2 27.402004 72,336,000 35,000 2,580,000 12.4 27.90


Office IndustrialIn 2004, the Orange County industrial market turned thecorner and became a landlord’s market. Demand for industrial space in Orange County was very strong, drivenby a recovering economy, a “catch-up” period followingweak absorption in 2002 and 2003 and continued tenantmigration from the even tighter adjacent Los Angeles industrial market. Net absorption in 2004 totaled 5.2 million square feet, representing growth in occupied spaceof 2.6%. This is a high level of net absorption, particularlyfor a relatively mature market. Construction completionstotaled just 632,000 million square feet during this time as demand overpowered supply. By the close of the year,vacancy in Orange County had dropped to 4.5%, downsharply from 6.6% last year.

In the face of skyrocketing demand and plummeting vacancy, landlords found themselves in the driver’s seat.As a result, rental rates climbed by 8% throughout 2004with most of that growth occurring in the fourth quarter.Sale prices skyrocketed, reaching a countywide average of $99 per square foot. For small buildings, prices wereexceptionally high, averaging $162 per square foot countywide and $210 per square foot in the John WayneAirport Submarket. The outlook for 2005 is one of continued tightening. The local economy is still gainingstrength and interest rates remain low. Only 1.1 millionsquare feet of industrial product is currently in the construction pipeline with development activity remaininglimited due to a lack of vacant land in Orange County andthe very high cost of what little developable land remainsavailable. Look for rental rates to climb sharply in 2005and for sale prices to remain high while demand will continue to considerably outpace supply.

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Leasing activity in the downtown Orlando office market hasincreased overall despite hitting a short dip before the holidays. Heading into 2005 we will see this momentumcontinue. Vacancies have decreased and absorption is onthe rise. The current downtown vacancy rate is 11.1%,down from the 12.5% recorded at this time last year.Overall vacancy for the entire market stands at 12.1%, overtwo full percentage points below 2003’s level of 14.2%.Though demand has increased and vacancy is declining,average asking lease rates have remained somewhat level.Heading into 2005, reductions in vacancy and increaseddemand should translate into rental rate growth.

New office development continues at a steady pace inOrlando. Construction on the CNL Tower II and thePremier Trade Plaza is moving ahead as downtown Orlando continues to expand at a very impressive rate.Meanwhile, the suburban Orlando office market remainsstable. Over 290,000 square feet of space was absorbed in2004 and vacancy decreased from 14.6% in 2003 to 12.3%at year-end 2004. Lease rates are remaining stable atroughly $19.70 per square foot annually on a full servicebasis. Although suburban rents may decline with the completion of anticipated downtown office projects, caprates remain almost even. Investment demand remains high with more potential buyers than available properties.Demand for quality investment properties has notdecreased despite multiple interest rate increases.Competition among lenders has largely negated the impactof Fed hikes but a lack of available properties has limitedsales activity.


1999 99,688,000 813,000 -339,000 7.2 N/A2000 101,534,000 1,846,000 1,658,000 7.3 5.902001 105,114,000 3,580,000 2,425,000 10.4 4.202002 106,720,000 1,606,000 -369,000 11.0 4.302003 108,147,000 1,427,000 -298,000 11.9 4.102004 111,383,000 3,236,000 5,903,000 9.0 4.50

J. Patrick Duffy, MCR

622 East Washington Street, Suite 300Orlando, FL 32801Tel 407-843-1723Fax 407-843-4485


1999 7,113,000 337,000 216,000 6.1 25.202000 7,870,000 757,000 414,000 9.0 25.402001 7,956,000 86,000 -104,000 12.0 25.302002 7,956,000 0 -149,000 11.8 23.602003 8,176,000 220,000 135,000 12.5 22.802004 8,176,000 0 13,000 11.1 21.00

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Downtown Office


1999 34,411,000 490,000 438,000 7.1 18.002000 36,348,000 1,937,000 2,212,000 8.2 19.802001 38,961,000 2,613,000 672,000 12.0 20.602002 39,794,000 833,000 187,000 12.9 20.302003 40,512,000 718,000 -97,000 14.6 20.202004 40,914,000 402,000 291,000 12.3 19.70

Suburban Office

Industrial

Office IndustrialAt the close of the year, vacancy in the Orlando industrialmarket stood at 9.0%. This marks a significant drop fromthe 11.9% rate that was recorded at the end of 2003 andillustrates the strength of the overall economic recoverylocally and throughout the State of Florida. Over 5.9 million square feet of occupancy growth took place in 2004,compared to nearly 300,000 square feet of negative absorption in 2003. Momentum has built throughout theyear as the local economy improved and job growthincreased. In just the final quarter of the year, the marketabsorbed over 1.9 million square feet. Activity in the fourthquarter alone reduced local vacancy from 10.2% to the current rate of 9.0%. The Lakeland and South Orlandomarkets have particularly benefited from this spike in activity. In 2004 Lakeland recorded two transactions of over 500,000 square feet in size.

Positive momentum is expected to continue heading into2005. Despite the fact that developers brought a significantamount of product to the market in 2004—over 3.2 millionsquare feet—demand still far outpaced new supply.With just under 900,000 square feet of product currently in the construction pipeline, it is likely that demand will begreater than supply through the first half of the year. Rentalrate growth was already occurring as of the close of 2004and should continue into 2005. Look for demand toincrease and for developers to respond with additionaldevelopment, including speculative projects, by late 2005.

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The overall vacancy rate decreased from 16.1% to 15.0% by year-end 2004. Over 2.1 million square feet of spacewas absorbed in Philadelphia during the year. However, it islikely that the market has reached a plateau. Most of thelarge “rollover” tenants that were in the market have landed. Meanwhile, after a lull in development for over adecade in the CBD, speculative construction has returned.Brandywine Realty Trust’s Cira Centre project at 30thStreet Station is underway and 65% pre-leased. LibertyProperty Trust will begin construction on a 57-story, 1.2million square foot building at 17th and JFK to be calledComcast Center. Comcast will initially occupy 534,000square feet with an option for a second 250,000 squarefoot tower.

The suburban Philadelphia markets rebounded moderatelyduring 2004. Absorption has improved significantly from the losses experienced during 2003 and stands at 1.9 million square feet for the year. However, five of twelve submarkets still have vacancy rates over 20%.New construction has decreased significantly; however,there appears to be commitment on the part of developersto move forward on proposed projects, particularly mixed-use projects with an office component.

Looking ahead, expect the CBD vacancy rate to initiallydrop in 2005, but to increase later in the year as new buildings come to market. Downtown rental rates willdecrease as vacancy increases. Meanwhile, suburban submarkets will experience a minimal amount of decliningvacancy. Absorption will be moderate and rental rates willremain flat.


1999 401,568,000 350,000 1,227,081 13.1 2.502000 404,153,000 2,585,000 3,446,000 8.5 3.902001 410,539,000 6,386,000 -2,422,000 12.7 4.002002 411,943,000 1,404,000 -6,367,000 13.8 4.002003 413,129,000 1,186,000 4,281,000 12.3 4.002004 417,428,000 4,299,000 5,782,000 12.2 4.00

James J. Scott, SIOR

399 Market StreetPhiladelphia, PA 19106Tel 215-925-4600Fax 215-925-1040


1999 38,742,000 215,000 1,517,000 10.7 25.002000 38,742,000 0 727,000 8.8 28.402001 38,742,000 0 -1,349,000 12.3 23.502002 38,742,000 0 -816,000 14.4 23.002003 38,742,000 0 561,000 13.0 23.302004 38,742,000 0 244,000 12.4 23.30

Downtown Office


1999 90,736,000 1,885,000 699,000 7.9 25.002000 92,494,000 1,758,000 -1,741,000 9.4 23.502001 95,275,000 2,781,000 -1,465,000 13.2 24.002002 97,548,000 2,273,000 -1,003,000 13.7 23.002003 99,322,000 1,774,000 -880,000 17.4 24.302004 100,509,000 1,187,000 1,900,000 16.1 23.30

Suburban Office

Industrial

Office IndustrialThe Philadelphia industrial market recorded significantimprovement in 2004. The vacancy rate in PhiladelphiaCounty continued on its downward trend to the 12.2%rate recorded at year-end 2004. Over 5.7 million squarefeet of space was absorbed over the past year.

Suburban vacancy also decreased during this time from12.7% at the end of 2003 to today’s rate of 12.3%.While absorption here was low, it was an improvementover 2003, when there was a decrease in occupancy for theyear. In Southern New Jersey, the vacancy rate decreasedslightly from the end of 2003 to 11.6%. Absorption wasstrong, boosted by build-to-suit projects. There continuesto be a strong demand to purchase property, particularlyfor small to mid-size tenants and prices have correspondingly increased. The Lehigh Valley leads theregion in big-box demand and new construction.Absorption here totaled over 2.0 million square feet forthe year, and the vacancy rate decreased from 14.7% to14.3%. Meanwhile, the last parcels of industrially-zoned landin the west end of the valley have been acquired and newdevelopment has begun to shift east into NorthamptonCounty and the I-33 corridor.

Rising construction costs, continued low interest rates andlimited product for sale has resulted in a sharp increase insales prices. Despite this, there continues to be muchstronger demand to purchase rather than lease. In one ofthe largest industrial sales in recent Philadelphia history,Preferred Real Estate acquired the former Budd Companyfacility.This 2.7 million square foot, 75-acre 10-building site will be redeveloped into the Budd Commerce Center,a mix of office, retail, residential, distribution and manufacturing buildings.

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Activity in the Phoenix office market continued at a strongpace throughout 2004. The overall office market consistsof over 99 million square feet in more than 2,000 buildings,including single-tenant, multi-tenant, medical office andowner-user buildings. Office construction took a dip during 2003, with only 1.8 million square feet added to the market. Overall net absorption for 2004 neared 2.7million square feet. Class A buildings alone accounted for2.3 million square feet of this total. Vacancy in the Valleyrose slightly from 16.0% in 2003 to 16.1% in 2004, whileclass A space experienced a decline in vacancy from 14.3%to 13.8%. East Phoenix, which contains the 44th StreetCorridor, Camelback Corridor, Midtown and Squaw PeakCorridor submarkets experienced the largest overalldecrease in vacancy dropping from 18.1% in 2003 to 16.3%at year end. The East Phoenix area also delivered the leastamount of space in the Valley in 2004, with only 57,000square feet. Currently there is a total of 1.4 million squarefeet under construction Valley-wide. Lease rates remain relatively flat at an average rental rate of $19.40 annually on a full service basis. Some areas are seeing an increase inlease rates, reflecting higher construction costs andincreased demand. Building sales decreased in numberfrom 2003, but increased in sales volume and average priceper square foot. Overall sales volume for 2004 was $1.9billion with 15 million square feet of transactions as compared to 2003 when the market recorded sales volumeof $1.1 billion and 8.9 million square feet sold. The largestsale in the Valley was the 797,000 square foot PhoenixPlaza in the Downtown North submarket which sold for$118 million.


1999 195,619,000 9,447,000 6,918,000 8.2 5.702000 201,328,000 5,709,000 5,069,000 8.3 4.002001 207,505,000 6,177,000 2,491,000 10.1 4.802002 212,755,000 5,250,000 1,338,000 12.1 5.402003 215,655,000 2,900,000 215,000 13.2 5.902004 219,358,000 3,703,000 4,546,000 11.4 5.80

Rick Chichester

2390 E. Camelback Road, Suite 100Phoenix,AZ 85016Tel 602-222-5000Fax 602-222-5001/602-222-5003


1999 18,795,000 399,000 -128,000 9.2 29.402000 18,809,000 14,000 -185,000 10.5 22.002001 19,935,000 1,126,000 -115,000 17.0 21.802002 19,935,000 0 -449,000 18.6 18.402003 20,060,000 125,000 -109,000 19.0 17.502004 20,228,000 168,000 111,000 18.3 19.40

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Downtown Office


1999 62,043,000 5,630,000 2,392,000 11.3 27.902000 65,597,000 3,554,000 3,920,000 10.1 24.002001 70,998,000 5,401,000 1,785,000 16.9 24.002002 74,070,000 3,072,000 1,457,000 17.9 20.902003 75,755,000 1,685,000 2,618,000 16.1 20.102004 79,206,000 3,451,000 2,694,000 15.8 23.00

Suburban Office

Industrial

Office IndustrialThe Phoenix Metropolitan Area’s industrial market gainedover 3.7 million square feet of inventory in 2004, bringing itto over 219 million square feet. The largest increase wasseen in the Southeast Valley where over 1.5 million squarefeet of new space was completed during the past twelvemonths. Currently there is 2.3 million square feet of spaceunder construction, with 1.2 million square feet scheduledfor delivery in the Southwest Valley alone.

Despite the large amount of new construction, vacancy heldits own in 2004. Phoenix closed the year with a vacancyrate of 11.4%—a decrease of nearly one percent from thesame time last year. The market absorbed over 4.5 millionsquare feet of space in 2004, three times 2003’s total of 1.5 million. Local recovery gained momentum throughout 2004with many of the area’s largest transactions occurring in thefinal half of the year. Le Natures signed for a 500,000square foot build-to-suit in the Southeast Valley, with delivery scheduled for Fall 2005. Meanwhile, one of thelargest sales of the year occurred in the Southeast Valleysubmarket where the 83,600 square foot CereprobeCenter sold for $11.2 million, or $133.97 per square foot.

Rental rates remain relatively stable with the largestincrease found in the Northwest Valley with an increase of$0.10 per square foot on an annual triple net basis. Clearly,recovery is under way in Phoenix and building momentumheading into 2005. Look for continued gains in occupancyand decreases in vacancy in 2005 with the potential forincreased rental growth as the market further tightens.

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With current overall vacancy at 18.9%, the Pittsburgh officemarket remains very weak. Little activity was reportedduring the fourth quarter of 2004 with no major leasestransacted. Office lease rates remained low and vacancyrates remained high throughout most of the area’s submarkets. Moribund market conditions are beginning tohave an impact on landlords in the area as two significantoffice buildings went to sheriff ’s sale this past month.Dominion Tower, a 600,000 square foot Class A officetower recently sold at auction for just $42 million.Thisbuilding had been purchased by its previous owner for $80million in 1999. Another sale of note was the purchase ofFoster Plaza Nine by a local investment group. The buildingis a Class A structure located along the airport corridorand is substantially leased.

Leasing activity in all submarkets is minimal. Few tenantsare active in the marketplace and this has not changeddespite the improving national economy. However, job creation, particularly in those sectors that most directlyimpact office demand, has not yet occurred. Despite thesoft market conditions, it is unlikely that landlords will further lower lease rates as they are already as low as theycan go. Incentives and additional concessions remain alandlord’s best bets for enticing tenants. The Parkway Westsubmarket continues to have some of the largest vacancieswith 64,000 square feet available at Westpointe CorporateCenter; 90,000 square feet available at Penn Center West;and 80,000 square feet available at Foster Plaza Ten. It ishoped that improvements in the national economy willbegin to positively influence market dynamics in 2005, butdon’t look for any significant improvement until job creation begins in earnest.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 76,427,000 857,000 699,000 17.9 4.002003 76,918,000 491,000 1,299,000 16.7 3.902004 77,225,000 307,000 1,033,000 15.7 4.40

Robert Cornell, SIOR

Suite 1800 Benedum Trees Building223 Fourth AvenuePittsburgh, PA 15222Tel 412-391-3500Fax 412-391-3511


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 29,550,000 0 -514,000 13.8 21.102003 29,550,000 0 -179,000 18.0 21.602004 29,650,000 100,000 89,000 18.0 20.80

Downtown Office


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 N/A N/A N/A N/A N/A2002 19,500,000 200,000 -352,000 22.7 18.202003 19,560,000 60,000 -4,000 21.3 18.202004 19,660,000 100,000 145,000 20.5 17.90

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Industrial

Office IndustrialPittsburgh’s industrial market continues to struggle withrecovery, lagging behind that of most major metropolitanmarkets throughout the nation. However, the good news is that as 2004 came to a close positive signs could beseen. Local vacancy declined to 15.7% at the close of theyear. This marks the lowest vacancy rate recorded in thepast two years. Since 2002, vacancy had hovered in the17% range. Occupancy growth of over one million squarefeet in 2004 helped to bring these totals significantly lower.

The industrial market remains soft, but market conditionshave improved over the final half of the year and this trend should continue. Stabilized market conditions havemotivated tenants and buyers and there has been anincrease in activity in the marketplace. Rental rates in themarket have also stabilized and are actually strengtheningfor select properties in key submarkets. Much of the industrial activity continues to be in the North submarket,including Cranberry and Leetsdale. Cranberry continues to be a popular location due to proximity to I-79 and thePennsylvania Turnpike. While there has not been significantnew industrial growth in this area, a fair percentage ofPittsburgh’s quality industrial and flex space is located inCranberry. Leetsdale, which is located along the Ohio Rivernorthwest of downtown Pittsburgh, is another significantlocation for industrial activity. Chapman Properties hasstarted construction on a new 100,000 square foot Class Awarehouse and completion is expected in the first quarterof 2005. In the West submarket, the Elmhurst Group ismoving forward with plans to build a multi-building parknear the airport. McClaren Wood’s first building is a63,000 square foot project for Lewis-Goetz & Company.The park should total nearly 300,000 square feet upon completion.

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2004 was a year of rebuilding for the Portland office market. We began the year with vacancy nearing 16% andended 2004 with vacancy at 13.8% and over 1.6 millionsquare feet of positive net absorption. This matches a level of growth recorded only three times in the last two decades. While the market has not yet reached equilibrium, it has made considerable strides throughoutthe year and all indications point to this trend continuinginto 2005. Today’s falling vacancy rate has been aided by a significant slowdown in speculative office constructionwith just over 550,000 square feet of product deliveredthroughout the year. Roughly 260,000 square feet of product was delivered during the fourth quarter alone.Despite this, vacancy during that same time decreased from 14.3% at the end of September to today’s currentrate of 13.8%.

Despite the positive gains of 2004, Portland’s recovery isstill largely a submarket-by-submarket affair. With currentvacancy remaining near 14%, most prudent developers willwait before moving forward with any large speculative developments without significant commitments in place.Increased land and construction costs as well as the political difficulties of moving new development forward in Portland may also be factors in this process.Look for development to continue to be focused on smaller buildings and build-to-suits.

The Portland office market still faces some challenges, buthas finally turned the corner after four lackluster years.Full equilibrium—the point of equal bargaining betweenlandlords and tenants—is still unlikely to happen prior to 2006 in some submarkets, but should current trendscontinue, Portland’s stronger trade areas may be able torecord modest rental growth by the end of this year.


1999 124,046,000 2,087,000 1,683,000 8.1 4.102000 125,459,000 1,413,000 2,466,000 4.8 3.502001 126,511,000 1,052,000 -1,219,000 8.5 5.002002 127,447,000 936,000 455,000 16.4 5.002003 129,800,000 2,353,000 2,609,000 16.4 4.802004 130,913,000 1,113,000 5,001,000 13.9 4.60

Rob Aigner

601 SW Second Avenue, Suite 1950Portland, OR 97204Tel 503-223-3123Fax 503-227-2447


1999 18,891,000 0 56,000 6.3 27.302000 19,345,000 454,000 758,000 5.4 25.002001 19,415,000 70,000 -814,000 11.3 27.002002 20,183,000 768,000 -214,000 15.1 22.002003 20,371,000 188,000 212,000 12.7 21.002004 20,371,000 0 113,000 12.8 20.10

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1999 39,143,000 464,000 243,000 10.0 21.502000 39,960,000 817,000 1,306,000 7.9 23.502001 41,314,000 1,354,000 -18,000 12.0 23.002002 41,454,000 140,000 -794,000 14.0 23.002003 43,000,000 1,546,000 -252,000 17.3 21.002004 43,557,000 557,000 1,536,000 14.3 20.60

Suburban Office

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Office IndustrialThe Portland industrial market made great strides in 2004,recording occupancy growth of over five million square feetas vacancy dropped from 17.5% to 13.9% in just twelvemonths. This comes as welcome news to landlords whohave struggled with a stagnant market for most of the pastfour years and vacancy levels that hovered in the high teensfor much of that time. The fourth quarter of 2004 markedthe sixth consecutive quarter in which vacancy declined andcloses an 18-month period in which the Portland marketrecorded over 8.3 million square feet of positive netabsorption. Meanwhile, the availability of sublease space—aprimary indicator of economic downturn—declined by over50% during this same period. Less than one million squarefeet of industrial space remains available for sublease in thePortland metropolitan area, down from over three millionsquare feet just a few years ago.

Look for new development to increase in 2005. Just overone million square feet of space is currently in the construction pipeline with nearly all of these buildings slated for first and second quarter delivery. There are a fewspeculative projects in the works but this trend should beshort-lived as land prices remain too high to justify significant speculative development. Even with over a million square feet of new development slated for deliveryin the first half of the year, we expect vacancy within thePortland industrial market to continue to record decreases.Vacancy declines will not be as rapid in 2005 as they werein 2004, but they will continue to occur. Barring anyunforeseen developments, the market is on track to achieve equilibrium between supply and demand by late 2005 or early 2006.

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,NC

The Raleigh/Durham office market turned in a solid performance in 2004, with over two million square feet ofspace was absorbed throughout the marketplace. The lasttime the office market absorbed over one million squarefeet of space in a year was at the height of the last economic cycle in 2000. Overall vacancy declined in thefourth quarter to its lowest point since the first quarter of 2002 and now stands at 18.8%. While this still illustratesa market facing some challenges, it is a significant improvement over year-end vacancy totals registered in2002 and 2003 when the vacancy rate exceeded the 20% mark.

Unemployment currently stands at less than 4% in theTriangle Area, thanks in part to major hiring efforts underway by Merck, Fidelity, Network Appliance and CreditSuisse First Boston. In total, some 25,000 expected jobsare to be created over 2005. This should ensure soliddemand for office space in the coming year. Combinedwith deals already in the pipeline, net absorption shouldcontinue at the pace of roughly 500,000 square feet perquarter. At this rate, vacancy may be reduced to the 12% range by year-end 2005.

We expect speculative mid-rise office construction willbegin again in 2005. Concessions will evaporate beforerental rates increase, perhaps as soon as the end of theyear. This will be the first evidence that tenants see of theshift in negotiating leverage from tenants back to landlords.In terms of asset sales, look for volume to increase asinvestors sense a clear transition away from the bottom of the market, although market assumptions will remain influx, leading to a spread in expectations between buyersand sellers.


1999 29,478,000 442,000 1,988,000 11.9 N/A2000 30,414,000 936,000 868,000 12.3 4.302001 33,354,000 2,940,000 101,000 21.9 4.302002 33,693,000 339,000 -464,000 26.5 4.002003 33,909,000 216,000 -106,000 27.3 3.502004 34,089,000 180,000 661,000 26.0 3.50

John R. Kelly

3110 Edwards Mill Road, Suite 210Raleigh, NC 27612Tel 919-789-4255Fax 919-789-0268

Industrial

Office IndustrialThe Raleigh/Durham industrial market showed significantsigns of improvement during 2004 and expectations arethat market conditions will continue to improve during2005. The region was severely impacted by the hi-techdownturn in the early 2000’s as well as outsourcing by electronics manufacturing firms such as IBM and Nortel. The market bottomed out in early 2004 whenmarket vacancies peaked at 28% in the second quarter ofthe year. Since that time, slow but steady absorption hasreturned with approximately 661,000 square feet of occupancy growth occurring throughout the year, the vast majority of which took place in the third and fourthquarters. Overall market vacancy now stands at 26.0%.While this is indicative of a market where tenants hold amajor advantage and where landlords continue to face significant challenges, all signs indicate that vacancy should continue on its current downward path in 2005.Significant new expansions are occurring by firms that arerelocating or expanding in the area. These firms includeCree Inc., and Silverline Window that have purchased significantly discounted vacant industrial buildings of176,000 and 434,000 square feet respectively.

Rental rates remain low due to high vacancy. However, thishas helped fuel recent expansion and relocations from firmslooking to capitalize on low rent costs. We believe rateshave begun to stabilize and expect rents for institutionalgrade properties will begin to tighten up as quality space isleased. B and C grade properties will continue to struggleand will need to offer rent discounts and/or concessions to compete for tenants.


1999 2,834,000 95,000 178,000 6.8 N/A2000 2,925,000 91,000 156,000 5.1 19.002001 3,112,000 187,000 46,000 9.8 18.002002 3,171,000 59,000 30,000 8.7 18.002003 3,218,000 47,000 -3,000 10.3 18.002004 3,505,000 287,000 250,000 10.5 18.00

Downtown Office


1999 25,143,000 3,586,000 2,551,000 6.9 N/A2000 28,225,000 3,082,000 2,186,000 7.7 19.502001 31,381,000 3,156,000 -2,473,000 20.0 18.502002 32,546,000 1,165,000 -148,000 21.4 18.002003 32,943,000 397,000 179,000 21.7 18.002004 34,565,000 1,622,000 1,761,000 19.7 18.00

Suburban Office

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Vacancy in the Reno office market currently stands at13.1%, up from the 9.8% rate recorded at the end of 2003.Activity slowed somewhat in 2004, with just 60,000 squarefeet of occupancy growth occurring, compared to 260,000square feet in 2003 and 336,000 square feet in 2002.We did not see as many California corporate relocationsto Northern Nevada as we have over the past few yearsand this is part of the reason for these declines. The goodnews is that the coming year will bring stronger activity,particularly for Class A properties. Repeating the trendstarted in 2004, most leasing activity will take place in the South Meadows submarket where rents are north of$24.00 per square foot on an annual full service gross basis.

Further inbound activity, particularly corporate relocationsfrom California, is expected in 2005 and this will facilitatemore activity in Class A buildings. The quality of Class Aproduct in Reno continues to increase, yet ironically,Garden Office rents, in some cases, have exceeded Class Arents. Due to high land and construction costs, the GardenOffice market is losing tenants to Class A buildings.Although a Garden Office purchase for an owner-user maybe economically feasible, landlords may face some difficultiesleasing this type of building in the near future. Reno willhave only three new Class A buildings delivered in 2005while 13 Garden Office projects in Reno are scheduled tocome online during that same time. These two categoriescombined for over 400,000 square feet of total constructionlast year but this will decrease substantially in 2005.Slowing construction activity, combined with increases in demand, should drive Reno’s vacancy rates for all categories closer to 10% in the coming year.


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 54,346,000 2,543,000 1,526,000 8.8 3.702002 55,605,000 1,259,000 717,000 9.8 3.502003 56,491,000 886,000 269,000 10.5 3.502004 58,127,000 1,636,000 2,483,000 8.7 3.50

Tim Ruffin

5345 Kietzke Lane, Suite 100Reno, NV 89511Tel 775-823-9666Fax 775-823-4699


1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 1,341,000 0 -28,000 13.8 N/A2002 1,341,000 0 19,000 12.6 20.002003 1,341,000 0 22,000 11.3 20.502004 1,341,000 0 -21,000 12.4 20.20

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1999 N/A N/A N/A N/A N/A2000 N/A N/A N/A N/A N/A2001 4,427,000 70,000 98,000 12.4 N/A2002 4,653,000 226,000 317,000 10.3 20.602003 4,887,000 234,000 238,000 9.4 20.502004 5,131,000 244,000 81,000 13.4 21.10

Suburban Office

Industrial

Office IndustrialConfirming our expectations, the year ended on a verystrong note, with activity on the upswing and vacancy dropping like a rock. Even with all indicators pointingupward, developers remained on the sidelines, worried thatspiking construction costs would push rental rates for newspace to unattainable levels. Gross absorption for thefourth quarter increased to more than 1.7 million squarefeet, 51% higher than the third quarter. This pushed theannual total to over 5.8 million square feet, the secondhighest ever recorded. Not surprisingly, most activityoccurred in our largest submarket, Sparks, but the SouthReno submarket also showed very strong activity.

Net absorption increased almost nine-fold over 2003, andReno ended the year with over 2.4 million square feet ofoccupancy growth. In early 2005, the vacancy rate will continue to subside and could reach 5% or lower beforeany new construction is completed in late summer. At thatpoint, increased construction costs and rising land priceswill result in asking rates of 10% to 20% higher than previous rates for new product. We continue to see manufacturing/assembly companies from California andlarge distribution users serving the west coast as the principal drivers of the current boom. Wal-Mart’s commitment to build a 900,000+ square foot food distribution center east of Sparks is further validation ofthis area as a distribution hub to the West Coast and willstimulate interest from other retailers. Reno continues tocompete strongly in the transportation/distribution sectorwith Northern California markets such as Oakland,Stockton and Sacramento thanks to a mix of lower pricesand the superior tax advantages offered by the State of Nevada.

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As the third quarter of 2004 came to a close, vacancy within the Sacramento office market had topped the 15%mark. From July to September 2004, nearly 500,000 squarefeet of new product came to market. Meanwhile, a numberof consolidations and relocations resulted in large blocks ofspace becoming vacant. By the close of the third quarter,the market had recorded nearly 400,000 square feet ofnegative net absorption and vacancy had reached 15.3%—unprecedented even at the lowest point of the most recenteconomic downturn. But, as we had reported at the time,not all of the news is bad. While the market may haverecorded the highest vacancy experienced since the recession of the early 1990s, leasing activity was on theupswing and space users were finally returning to the marketplace. The only problem was that developers werealso returning and that the surge in demand could not keeppace with an even greater increase in new development.

At the close of 2004 it appears that these trends havebegun to reverse themselves. Just over 225,000 square feetof product was delivered in the fourth quarter, down fromnearly 470,000 square feet of new space that came onlinein the third quarter. Meanwhile, a flurry of leasing activityresulted in over 675,000 square feet of occupancy growthin the fourth quarter alone. As a result, vacancy within theSacramento office market now stands at 14.6%.The trendhad been one of increasing vacancy but thanks to a strongfinish, the Sacramento office market ended the year withover 760,000 square feet of occupancy growth and vacancynear where it stood at the beginning of the year.


1999 136,757,000 3,050,000 3,702,000 7.3 3.602000 139,164,000 2,407,000 3,794,000 6.2 4.002001 149,482,000 10,318,000 1,318,000 12.6 4.202002 151,765,000 2,283,000 -44,000 13.8 4.202003 153,175,000 1,410,000 5,865,000 13.9 3.902004 155,116,000 1,941,000 2,166,000 13.8 4.00

Dennis F. Shorrock, SIOR

1610 Arden Way, Suite 240Sacramento, CA 95815Tel 916-929-5999Fax 916-649-0001


1999 10,429,000 336,000 409,000 9.5 27.102000 10,429,000 0 150,000 6.5 28.802001 10,429,000 0 89,000 6.7 25.002002 10,579,000 150,000 -161,000 8.6 21.602003 12,309,000 1,730,000 1,534,000 8.9 29.502004 12,309,000 0 -72,000 13.9 28.80

Downtown Office


1999 47,863,000 1,348,000 1,955,000 10.2 21.602000 48,836,000 973,000 1,533,000 9.3 23.202001 50,655,000 1,819,000 1,058,000 10.8 19.602002 52,243,000 1,588,000 943,000 11.5 21.002003 53,994,000 1,751,000 1,119,000 12.1 22.502004 55,222,000 1,228,000 833,000 14.7 22.80

Suburban Office

Industrial

Office IndustrialThe Sacramento market ended 2004 on a high note asincreased demand translated into over 1.2 million squarefeet of positive occupancy growth. Vacancy dropped to13.8%, down from the 14.3% level recorded just threemonths ago. Whereas new construction had been a factorin increased vacancy throughout most of 2004, it had littleimpact during the fourth quarter despite the fact that over500,000 square feet of new product came online.

The Sacramento industrial market remains two separateand distinct markets at this point in time. The market for smaller buildings or space within divisible buildingsremains extremely strong with vacancy in the 10% range.Meanwhile, it is definitely a tenant’s market when it comesto bulk warehouse/distribution space with vacancy in the20% range. Landlords of smaller or divisible properties—particularly those with new high-end buildings—are in thedriver’s seat and have recorded some rental growth. Aslong as demand continues to increase and constructionstays at moderate levels these properties will continue to perform well.

New construction will remain the most important factor indetermining how quickly the Sacramento industrial marketreturns to overall equilibrium. Industrial buildings can beconstructed in six months to a year, giving industrial developers the advantage in responding to market conditions more quickly than their office or retail counterparts. With current vacancy rates for smaller and divisible properties dipping beneath the 10% mark it is entirely possible that we may see a surge in the development of these types of buildings in the near future.In the meantime, look for vacancy to post modest decreases over the first half of the year as demand gradually ticks up.

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San Diego’s office market consists of approximately 64.7million square feet, with the largest inventory (roughly 9.2million square feet) located in downtown San Diego.Suburban markets vary in total size, and each offers a variety of amenities.

Net leasing activity trended up for the third straight quarter with the market absorbing over 17,000 square feet in the fourth quarter. For the year, San Diego Countyabsorbed approximately 145,000 square feet of officespace. Direct vacancy rate currently stands at 9.1%.Factoring in vacant sublease space, the total market vacancyrate is 11.2% countywide. The pace of new constructionhas increased as markets continue to see ample tenantinterest and a decline in lease options; however, developerscontinue to seek significant commitments prior to breakingground. Owner/user purchase activity, fueled by low interest rates, also remains strong.

Although absorption was not as strong as previous years,the market is seeing a rise in rental rates and an increase innew construction. Several of San Diego’s top markets haveposted the lowest vacancy rates in years. With continuedmoderate absorption, another stable year is forecasted for 2005.

Over the next 20 years, San Diego’s projected populationgrowth will be close to 45%. With its excellent employmentbase and diverse economy, the area will continue to be one of the strongest and most appealing office markets in the nation.


1999 157,403,252 11,380,786 7,102,412 7.9 7.202000 167,752,156 3,554,287 4,564,456 5.6 7.802001 171,306,443 3,437,445 2,362,734 8.2 7.502002 173,672,000 1,617,000 213,000 9.1 6.502003 175,688,000 2,016,000 684,000 9.8 7.602004 178,508,000 2,820,000 2,493,000 7.8 8.00

James J. Zimsky

4660 La Jolla Village Drive, Suite 200San Diego, CA 92122Tel 858-455-1515Fax 858-546-9146


1999 9,239,000 120,404 51,524 10.2 25.802000 9,239,000 0 140,000 8.4 26.402001 9,239,000 0 178,000 7.6 28.402002 9,239,000 0 -171,000 10.1 27.202003 9,239,000 0 -6,000 10.2 29.102004 9,239,000 0 43,000 9.4 31.10

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1999 52,045,000 2,250,105 2,783,999 7.4 27.002000 52,500,000 500,000 1,786,000 4.60 24.722001 53,353,000 1,539,000 -385,000 10.1 23.602002 54,680,000 1,327,000 -1,900,000 12.8 22.502003 55,234,000 554,000 757,000 11.3 29.402004 55,489,000 255,000 102,000 11.6 32.90

Suburban Office

Industrial

Office IndustrialIn 2004, San Diego County absorbed approximately 2.4 million square feet of industrial space—the strongest levelof occupancy growth recorded since 2000. Breaking downabsorption rates by market, the Central County and NorthSan Diego County regions both individually absorbedroughly one million square feet while the I-15 Corridorsubmarket recorded approximately 436,000 square feet of occupancy growth.

New development increased over the course of 2004.Along the I-15 Corridor, new projects total just over531,000 square feet; in North San Diego County approximately 827,000 square feet; and in Central Countyover 1.8 million square feet. Approximately 53% of all newconstruction is pre-leased or pre-sold.

At the close of 2004 the overall direct vacancy rate stoodat 6.4%. Taking into account vacant sublease space, thecombined vacancy rate was 7.7%. Factoring in developments currently under construction with vacancyupon delivery, the total market vacancy rate may be as high as 8.5%. Vacancy rates in most individual submarketsranged between 5.0% and 8.0%.

Over the course of 2004, most new development occurredin the Oceanside and Otay Mesa markets. Other marketsexperiencing an increase in new construction were TorreyPines, Eastgate/Campus Point, South Bay and Vista.County-wide, developers are planning just over 8.2 millionsquare feet of new projects. Some of the largest proposeddevelopments are R&D/biotech facilities located in centralsub-markets. With vacant space options beginning todwindle, the pace of new construction is likely to increaseover the course of 2005.

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The San Francisco office market experienced almost700,000 square feet of positive net absorption in the fourthquarter of 2004, and surpassed 1.2 million square feet forthe year. This marks a massive increase over 2003 whenjust under 150,000 square feet of occupancy growth wasrecorded. A steady stream of leasing activity, and a shrinkingoffice inventory due to the conversion of a number ofbuildings for residential use has tightened the San Franciscooffice market. The overall vacancy rate decreased to 15.4%during the fourth quarter of 2004, down 80 basis pointssince last quarter and down 150 basis points since thefourth quarter of 2003.

The vacancy rate for Class A properties decreased from18.4% to 16.8% for the quarter. The conversion of a numberof secondary properties to multi-family residential andother uses has also helped to tighten the market and forcevacancy rates downward. Office buildings representingalmost 900,000 square feet are proposed, planned, oralready in the process of becoming residential projects.This has resulted in the market experiencing somethingthat has not occurred since 2000: rental growth for someof San Francisco’s prime office properties, particularly top-of-the-line Class A space in the Financial District.

Investment activity is also on the upswing. Overall, morethan $2.5 billion of commercial property traded hands,exceeding the record set in 2000 of $2.4 billion. Multipleinterest rate hikes by the Fed in 2004 had no impact oninvestment demand for office properties. Strong competition among lenders has been a factor in this,but most investors recognize the strong economic fundamentals of the local economy and have been anxiousto ride the next wave of local growth.

Scott Harper

Two Embarcadero Center, Suite 1000San Francisco, CA 94111Tel 415-788-3100Fax 415-433-7844


1999 71,888,000 525,000 2,634,000 2.6 45.102000 74,822,000 2,934,000 3,093,000 3.6 78.102001 76,995,000 2,173,000 -5,011,000 13.5 40.902002 79,338,000 2,343,000 -1,137,000 16.9 32.002003 79,563,000 225,000 138,000 16.9 29.102004 79,563,000 0 1,237,000 15.4 30.20

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In 2004, San Mateo County experienced early stage development activity, spurred by the long-anticipated accelerated growth in the biotech industry. Just as the tech revolution fueled record growth here in the 1990s, thebiotech industry is creating immense optimism for thearea’s commercial real estate market. San Mateo County is already one of the world’s leading biotech centers and iswell-positioned for future growth from this sector. Most ofthe activity was concentrated in proposed developmentand had some impact on the net absorption figures.

Overall vacancy in the San Mateo office market droppedone half of a percentage point over the final quarter of2004 to its current level of 26.2%. This marks a solid dropfrom the 29.3% rate that was recorded at the close of2003, but clearly indicates that the market has a long wayto go. A number of large blocks of space still account forthe vast majority of local vacancy, but demand is firmly onthe upswing. In fact, despite current vacancy rates, findingquality space in the 3,000 to 10,000 square foot range hasbecome increasingly difficult over the past year. Smallerspace users are returning to the marketplace and the market recorded just under 700,000 square feet of totalnet absorption.

There may be a local business mood shift as the biotechsector continues to generate momentum. Even thoughthere are dire predictions of the impact of offshoring professional jobs, there is a concentration of intellectualand financial capital in San Mateo County that will launchnew businesses and should continue to generate increaseddemand locally.


1999 42,528,000 100,000 297,000 1.8 9.602000 42,509,000 -19,000 682,000 2.5 31.202001 42,509,000 0 -3,333,000 9.8 10.102002 42,549,000 40,000 -1,877,000 11.6 10.002003 42,549,000 0 436,000 10.6 8.602004 42,549,000 0 1,179,000 8.3 7.90

David G. Chavez

950 Tower Lane, Suite 1725Foster City, CA 94404Tel 650-638-4300Fax 650-638-4318

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1999 27,420,000 1,704,000 1,455,000 4.6 49.002000 28,820,000 1,400,000 2,007,000 2.8 78.002001 30,044,000 1,224,000 -4,444,000 22.4 37.002002 30,927,000 883,000 -1,266,000 28.3 28.402003 30,927,000 0 189,000 27.9 24.702004 30,927,000 0 697,000 26.2 24.70


Office IndustrialActivity within the San Mateo County industrial marketremained steady through the fourth quarter of 2004.The demand to purchase industrial space has slowed down. Though low interest rates have been a major factorimpacting demand in recent years, recent increases by theFed may finally have had the impact of cooling the sales market. However, even as sales activity diminished, leasingactivity picked back up. The market reported over 1.1 million square feet of positive absorption in 2004 and isexpected to continue to post gains in 2005.

Another factor that should help to lower vacancy over the coming year is the current trend on the Peninsula ofconverting warehouse space to R&D/biotech space.Genentech recently purchased a 114,000 square foot warehouse for just such a project. Most of the activity isconcentrated in the East Bay, where there are newer buildings, as well as easier access to the ports in Oakland.

The highest vacancy again occurred in the North Countysubmarket with a vacancy of 9.5% at the end of the year.With just over two million square feet vacant, the SouthSan Francisco submarket accounts for 60% of the vacantspace in San Mateo County. South County experienced thelargest drop in vacancy, falling from a vacancy of 7.1% in thethird quarter to vacancy of 6.4% in the fourth quarter of2004. Asking rental rates fell slightly during the fourthquarter of 2004. The overall average asking rate currentlystands at $0.66 per square foot monthly on a triple netbasis. As demand continues to shift towards leasing, we will see asking rents gradually rise.

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The downtown San Jose availability rate at the end of finalquarter of 2004 stood at 22.2%, a decline of just over halfof one percentage point throughout 2004. And while availability of over 20% hardly reflects a market near equilibrium, the year’s declines do reflect the gradual trendtowards stabilization and recovery that is beginning to takehold in San Jose. All told, the San Jose/Silicon Valley marketrecorded over one million square feet of positive netabsorption throughout 2004, a radical contrast to the over2.3 million square feet of occupancy losses it recorded in 2003.

Local landlords had reason to feel upbeat as the year cameto a close. Leasing activity ticked up considerably over the final quarter of 2004. Yahoo! leased 184,000 squarefeet of space while the Silicon Valley Bank leased over213,000 square feet in the Santa Clara Marriott area.Meanwhile, Sivault Systems leased over 34,000 square feetof space in San Jose’s suburban market. Throughout thefinal three months of the year, the Silicon Valley office market experienced at least 15 lease transactions in the10,000 to 20,000 square foot range and 11 deals in the5,000 to 10,000 square foot range.

But perhaps the clearest reason for optimism within theSan Jose office market is that during the fourth quarter of2004 the Silicon Valley office market recorded a slightincrease in quoted asking rents. This hadn’t occurred since2000 and is a strong sign of returning confidence. Whilethe trend is still minimal, it illustrates that landlords arenow thinking that the Silicon Valley office market is beginning to turn around.

Office IndustrialThe Silicon Valley industrial market ended 2004 with over950,000 square feet of occupancy growth as overall vacancyclosed the year at 16.4%. Availability by product typebreaks down as follows: 15.2% of all warehouse/distributionspace is currently available; bulk warehouse availabilitystands at 10.3%; and R&D/tech space is currently at 23.8%.

For the second quarter in a row, all industrial producttypes recorded a decrease in gross absorption from theprevious quarter. R&D/tech space experienced occupancylosses of over 376,000 square feet. Bulk warehouse spacerecorded negative net absorption of nearly 88,000 squarefeet and the warehouse/distribution sector posted losses of just under 12,000 square feet of occupancy.

A dramatically reduced amount of new construction continues to be an essential factor in determining the market’s health. Only 81,000 square feet of space wasdelivered in 2004 and there is an additional 232,000 squarefeet of product currently in the development pipeline.Even as we are seeing some increases in demand,particularly at year’s end, the San Jose/Silicon Valley industrial market remains relatively fragile. While weexpect demand to continue to pick up and for the biotechsector to be a major player, the market still has a way to gobefore anything resembling equilibrium between supply anddemand occurs. Expect new development in 2005 to focuson build-to-suits. Minimal speculative development shouldhelp give the market time to absorb currently vacant spaceas demand gradually picks up momentum throughout the year.


1999 237,924,000 252,600 4,679,560 4.2 10.502000 242,912,000 4,988,000 11,230,000 1.3 8.402001 251,483,000 8,571,000 -7,312,000 7.6 8.402002 253,813,000 2,330,000 -8,607,000 11.7 4.302003 253,835,000 22,000 -12,987,000 16.8 5.502004 253,916,000 81,000 951,000 16.4 5.20

Michael J. Burke

450 W. Santa Clara StreetSan Jose, CA 95113Tel 408-282-3800Fax 408-292-8100


1999 6,174,000 0 96,000 5.4 45.102000 6,174,000 0 260,000 1.2 60.002001 6,516,000 342,000 -151,000 8.7 57.102002 6,516,000 0 -292,000 13.2 39.302003 7,172,000 656,000 -77,000 20.3 32.702004 7,172,000 0 -10,000 20.6 33.00

Downtown Office


1999 42,040,000 1,704,000 1,455,000 4.6 42.402000 44,063,000 2,023,000 2,559,000 1.9 84.002001 47,555,000 3,492,000 -171,000 10.7 42.202002 49,487,000 1,932,000 216,000 13.1 29.202003 49,796,000 309,000 -2,389,000 17.3 25.902004 49,802,000 6,000 1,035,000 15.2 24.80

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The overall Puget Sound office market performed well in 2004. Vacancy dropped and absorption increased due in large part to the activity within the suburban markets.The Eastside market saw the most significant improvementin its vacancy rate, dropping from 16.4% in 2003 to 12.6%in 2004. The largest lease of the year was 289,000 squarefeet by Symetra Financial in the Bellevue CBD on theEastside. Originally it looked as if downtown Seattle wouldlead the recovery but just the opposite has happened.Downtown Seattle’s vacancy rate was relatively stablethroughout 2004 with very little movement up or down.This is significant in that the market has had to deal withthe departure of three large tenants and the uncertainty of what will happen upon the completion in 2006 ofWashington Mutual’s new headquarters.

Asking rates continue to trend downward with one exception, the Eastside. With the considerable amount ofleasing completed in 2004, Eastside landlords are pushingrents. Construction plans that were halted three years agoare now being reconsidered. The biggest project underconstruction is the aforementioned Washington Mutualheadquarters building of 890,000 square feet. The building,a joint venture with the Seattle Art Museum, will be anowner-user building but there is uncertainty regarding howmuch square footage the bank will vacate in other buildingswhen the tower is completed. The office investment market experienced unprecedented demand for qualityproduct and set records for price per square foot.Four downtown Seattle high-rises traded in 2004,doubling the investment activity from 2003.


1999 195,437,000 1,483,000 606,923 4.7 4.402000 196,881,000 1,444,000 643,000 5.2 4.102001 199,991,000 3,110,000 -4,646,000 8.6 5.002002 201,140,000 1,149,000 -2,380,000 10.4 5.002003 201,988,000 848,000 -1,057,000 11.1 5.002004 205,112,000 3,124,000 6,496,000 9.3 5.00

Rob Aigner

601 Union Street, Suite 5300Seattle,WA 98101-4045Tel 206-223-0866Fax 206-223-1427


1999 31,875,000 808,000 736,000 2.5 36.002000 33,394,000 1,519,000 1,829,000 2.1 42.002001 35,320,000 1,926,000 -1,405,000 12.6 30.802002 36,173,000 853,000 -45,000 14.6 27.702003 37,021,000 848,000 361,000 15.3 25.902004 37,109,000 88,000 -167,000 15.2 25.80

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1999 45,469,000 2,627,000 2,088,000 3.8 22.002000 45,750,000 281,000 918,000 3.1 22.502001 49,023,000 3,273,000 -1,222,000 15.7 22.602002 50,116,000 1,093,000 166,000 17.5 23.002003 50,326,000 210,000 -90,000 17.6 22.902004 50,397,000 71,000 965,000 15.4 23.60

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Industrial

Office IndustrialThe Puget Sound industrial market has ended the year witha bang. Overall absorption is positive 6.5 million squarefeet, more than making up for the previous three years ofnegative. Vacancy ended the year at 9.3% down from 11.1%in 2003 absorption. All submarkets reported vacancy dropsand absorption gains with the best performing submarketbeing the Kent Valley. The largest lease of the year wasNorvanco expanding to a 492,000 square foot warehousein Sumner, Pierce County. The warehouse, called theSummit Building, began its life as speculative constructionand landed the tenant upon completion. This risky maneuver inspired other industrial developers with planned projects to break ground during the year.

Developers added 3.1 million square feet of new industrialstock to the market in 2004. Currently there is over 3.5million square feet of industrial product under construction.The bulk of the new space will be delivered in the southKent Valley and Pierce County submarkets. Close-in Seattlebuilding activity is concentrated on High-Tech/R&D buildingsfor the growing Life Sciences industry. Meanwhile, no newprojects have begun in the Northend and Eastside marketsas growth continues to be pushed further southward.Rapidly increasing construction costs and the cost of land are among the primary factors influencing what new projects go forward—and where.

Sales activity also continued to be strong for industrialproduct over the past twelve months. There were 52industrial sales over $3 million in the Puget Sound throughout 2004. The total sales volume was $400.7 million with an average price per square foot of $75.42.

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Employment in the St. Louis metropolitan area increased by42,000 jobs in 2004, a 3.2% increase which was secondlargest in the U.S. among major metropolitan areas.As businesses rebuilt their workforces, sublease spacedecreased by over 30% to 800,000 square feet. After twoyears of negative absorption, the year’s positive absorptionof 664,000 square feet exceeded that of 2001 but was stillless than half the amount achieved in 1999 and 2000. Mostof the year’s absorption occurred in West St. Louis Countyand South St. Louis County. Movement of doctor’s officesfrom hospital environs to off-site office buildings has pro-vided another stimulus in the absorption of office space.General office buildings have been converted to medicaluse, while new construction specifically for medical occu-pancy has mushroomed in recent years. Only 216,000square feet of new space was completed in 2004; eightypercent of the new space was occupied by year’s end. Theregion’s vacancy rate decreased by one and a half points tothe current rate of 16.0%. Effective rental rates are stableor slightly declining, as vacancy rates are still high by historical standards.

Several major investment transactions occurred during the year.The 700,000 square foot West Port office/retaildevelopment was sold for $60 million; the 400,000 squarefoot One Financial Plaza in downtown St. Louis sold for$37 million; and in Clayton the 186,000 square foot, threebuilding Old Town Executive Center sold for $32.5 million.Employment trends bode well for 2005 absorption.Construction underway will add 520,000 square feet in 2005 and a majority of the space is pre-leased. Look forvacancy to drop at least another percentage point.


1999 207,065,000 2,822,000 2,981,000 2.9 4.252000 210,285,000 3,220,000 1,142,000 3.8 5.002001 213,499,000 3,214,000 -2,956,000 6.6 4.002002 215,585,000 2,086,000 460,000 7.3 3.302003 216,349,000 764,000 447,000 7.4 3.502004 217,144,000 795,000 4,193,000 5.6 3.50

Rick Messey, CCIM

7701 Forsyth Blvd., Suite 500St. Louis, MO 63105Tel 314-862-7100Fax 314-862-1648


1999 11,837,000 165,000 153,000 15.9 18.502000 11,882,000 45,000 236,000 14.2 20.002001 11,882,000 0 -241,000 16.2 19.502002 11,882,000 0 -504,000 20.5 18.802003 11,882,000 0 -327,000 23.2 18.802004 11,656,000 0 243,000 19.7 18.50

Downtown Office


1999 29,404,000 2,012,000 1,585,000 6.5 26.302000 31,103,000 1,699,000 1,323,000 7.4 25.502001 33,800,000 2,697,000 812,000 12.4 24.502002 34,777,000 977,000 316,000 13.9 24.502003 35,829,000 1,052,000 292,000 15.6 23.502004 35,976,000 147,000 421,000 14.8 23.00

Suburban Office

Industrial

Office IndustrialIn 2004, the St. Louis industrial market recorded the largestamount of positive net absorption since we began trackingmarket trends in the 1980s. Including growth recorded inthe Eastside markets on the Illinois side of the MississippiRiver, industrial occupancy throughout the region increasedby 5.8 million square feet in 2004. Over 4.5 million squarefeet in leases of 75,000 square feet or larger were recordedby logistics and warehouse businesses, including Buske,Dart Advantage,Warehousing Specialists and AWI.Twenty-seven buildings totaling 3.1 million square feet wereadded to the industrial building stock in 2004. Four bulkwarehouses accounted for 2.1 million square feet of thetotal, including Hershey Foods’ 1.1 million square foot distribution center. Fourteen office/warehouses accountedfor 575,000 square feet. Another 1.2 million square feet inthirteen buildings are scheduled for completion in 2005.With absorption staying well ahead of construction, thevacancy rate for industrial space fell steadily through 2004,from 7.4% on the Missouri side at the beginning of the yearthe rate fell to 5.6% at year-end. By property type, bulkspace recorded the greatest decrease in vacancy for theyear, falling from 13% to 6.7%. Service center space vacancydecreased from 14.2% to 13.2%. Office/warehouse vacancydecreased from 5.9% to 5.1%. In spite of the decrease invacancy rates, landlords have been reluctant to raise leaserates on existing properties. On a weighted average basis,bulk lease rates have remained virtually unchanged whileoffice/warehouse lease rates have decreased by about tenpercent since 2003. Service center lease rates increased byabout 10%. Significant investment sales in 2004 includedthe 830,000 square foot Contico building in Earth Citywhich sold for $31,825,000, and the 812,000 square foot,seven building Calpers package which sold for $31 million.

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For the Tampa Bay office market, the big story in 2004 waspositive absorption. The market absorbed over 1.7 millionsquare feet of space in 2004 and recorded occupancy gainsin three of the last four quarters. Overall vacancy ratesdecreased in the fourth quarter for both the CBD and thesuburban office market and now stand at 11.6% for Tampa’ssuburban submarkets and 16.0% for properties in the CBD.Office construction has primarily been build-to-suit innature and this has helped the market to post such strongoccupancy gains. This trend is ongoing and of the 771,000square feet currently under construction, only 310,000square feet is available for lease.

Lease rates for the suburban area and the CBD remainedsteady over the final half of the year. In fact, from the closeof 2003 to today, average asking rates vary by less than 15cents. Significant sales in the office market included CMDRealty Investors purchase of the 527,000 square footSunTrust Financial Center in the CBD for $139.59 persquare foot as well as Great Point Investors LLC’s purchaseof the Sunforest I & II buildings in Westshore for $117.08per square foot.

Significant lease deals in the office market include the following: Progressive Insurance leased 65,000 square feet at 4221 West Boy Scout Boulevard; First AdvantageCorporation leased 73,099 square feet at 100 CarillonParkway; and Freemont Investment and Loan leased 54,793square feet at 5404 Cypress Center Drive.

Russ Sampson

4350 West Cypress Street, Suite 300Tampa, FL 33607Tel 813-221-2290Fax 813-224-9403


1999 7,843,000 0 -221,648 13.9 19.002000 7,834,000 0 60,320 13.1 19.802001 7,843,000 0 -116,680 14.6 19.602002 7,843,000 0 -91,520 15.7 19.502003 7,856,000 0 -28,570 16.2 19.402004 7,856,000 0 21,542 16.0 19.80

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1999 55,959,000 1,341,400 1,260,572 7.6 20.402000 57,000,000 1,031,530 -896,380 10.9 21.302001 58,782,000 1,790,860 541,161 12.6 20.602002 59,263,000 496,160 626,866 12.3 19.802003 60,025,000 762,540 536,889 12.5 20.602004 61,401,000 1,376,000 1,769,940 11.6 20.50

Suburban Office

Office IndustrialFor the Tampa Bay Industrial market, overall absorption in the fourth quarter 2004 was positive for the third consecutive quarter and the market recorded over 780,000 square feet of occupancy growth for the year.Despite these gains, the overall vacancy rate for the areahas remained constant throughout 2004, hovering in theseven percent range. As the year came to an end it stoodat 7.3%, up slightly from the 7.2% recorded at the close ofthe third quarter, but less than the 7.5% rate posted at thistime last year.

New construction added over 1.5 million square feet ofinventory to the market over the past twelve months.More than 1.3 million square feet is currently under construction with the majority of these projects slated fordelivery during the first half of 2005. While the amount ofnew construction outpaced occupancy growth in 2004, it isvital to note that vacancy in the 7.3% range is indicative of astrong market. We are experiencing increased demand andthis trend is expected to continue throughout 2005. Assuch, current levels of new construction should not me amajor concern at this point. One of the more interestingdevelopments is a flex condo project being built in NorthPinellas by Harrod Properties. Of the 126,000 square foottotal under construction all but 8,000 square feet have beenpre-sold before the buildings are complete. At just 3.9%,this industrial submarket boosts the lowest overall vacancyrate in the region. The strongest development activityremains focused on Tampa’s tightest submarkets.


1999 168,783,000 1,255,000 1,038,000 4.5 4.582000 170,747,000 1,964,000 -274,000 5.8 5.022001 174,079,000 3,332,000 -221,000 7.7 4.532002 175,087,000 1,008,000 1,953,000 7.1 4.422003 176,639,000 1,552,000 1,861,000 6.9 4.542004 178,175,000 1,536,000 781,000 7.3 4.40

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Bolstered by the Federal Government,Washington, DC’soffice market prevailed as the hottest and healthiest in thecountry in 2004. The District’s year-end vacancy rate of5.8% was unchanged from one year ago and was again thelowest in the nation.

Net absorption remained healthy at 1.8 million square feetfor the year, a 337,000 square-foot decrease from 2003.The lion’s share of occupancy gains occurred in the EastEnd and Capitol Hill. Non-profits and law firms comprisednearly 50% of tenant demand in the second half of 2004.While non-profits focused on smaller blocks of space in the5,000 to 25,000 square-foot range, law firms concentratedon larger blocks of space in the Trophy and Class A markets.As a result of this segmented demand, rates on premiumspace trended up throughout 2004 with tenants willing topay $60 per square foot for premium space and $50 persquare foot for second generation Class A space. The Federal Government also maintained a strong presence in the market, signing five leases greater than 75,000 squarefeet in 2004.

Development in Washington, DC continued at a rapid ratewith 2.8 million square feet delivered in 10 buildings, 62%of which was preleased. Law firms, faced with a shortageof existing high-quality options, were the most active inthese developments, preleasing 27% of the new supply.

6.25 million square feet of new development is scheduledto deliver through 2007 and the majority of preleasingactivity has been from law firms and the Federal Government.The General Services Administration has projected a needfor three million square feet through 2007 for agenciesincluding the Veteran’s Administration, the Department ofJustice and the Department of Commerce. This bodes wellfor continued activity in the development pipeline, but alsobegs the question: where will the next corridors of growthand development be in the District?


1999 N/A N/A N/A N/A N/A2000 158,883,000 2,700,000 1,400,000 6.1 N/A2001 162,230,000 3,347,000 21,000 8.5 6.702002 163,994,000 1,764,000 -2,999,000 10.2 7.502003 166,435,000 2,441,000 656,000 11.2 7.202004 169,194,000 2,759,000 3,438,000 10.6 8.80

Industrial

Office IndustrialThe Washington, DC industrial market—which is overwhelmingly located in the Capitol’s Northern Virginiaand Maryland suburbs—recorded slight growth in 2004.The market closed the year with vacancy at 10.6%, downfrom the eleven percent range where it had hovered since2002. The good news is that occupancy growth was up in2004. Over 3.8 million square feet of space was absorbedover the past twelve months. Compare this to the roughly650,000 square feet absorbed in 2003 and the occupancylosses of nearly three million square feet in 2002 and itbecomes apparent that recovery began to take hold in2004 with significantly increased demand and deal activity.

Over 2.7 million square feet of new space was added tothe market in 2004 with another 1.5 million square feet in the construction pipeline as the year ended. So, whiledemand surpassed new supply, the relatively large amountof space delivered to the marketplace is one of the reasonswhy vacancy decreased only slightly. However, it is important to note that vacancy in the ten percent rangereflects a relatively healthy market, leaving enough immediately available space to provide options for rapidlyexpanding or relocating tenants. Meanwhile, it allows forrental growth—particularly for higher-end buildings inselect submarkets.

Looking ahead, expect demand to increase as the overalleconomy gains momentum. Look for continued interest in the Frederick, MD submarket as a warehouse and distribution center. Meanwhile,Washington’s weaker submarkets—such as the Dulles Corridor—will recordimproving conditions but will be among the last to rebound.

Jeffrey Flynn

1717 Pennsylvania Avenue, NW, Suite 1000Washington, DC 20006Tel 202-478-2300Fax 202-204-3276

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1999 93,511,000 1,401,000 1,393,000 4.8 42.002000 94,926,000 1,415,000 3,151,000 2.9 48.002001 98,882,000 3,956,000 2,536,000 5.2 49.002002 101,797,000 2,915,000 505,000 7.3 46.002003 105,018,000 3,221,000 1,915,000 7.8 41.902004 107,797,000 2,779,000 2,126,000 7.4 40.70

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2004 was an active year for the Northern Virginia officemarket, as vacancy rates and sublease space declined andnet absorption increased. At year-end, the market’s vacancyrate was 10.3%, down from 12.5% at year-end 2003.Northern Virginia’s overall availability rate, including sublease space, ended 2004 at 13.1%. Availability hassteadily declined since its peak of 19% in the first quarterof 2003, as the Federal Government and government contractors continue to stabilize the area. Sublease spacedecreased during the year to only 2.8% of inventory as aresult of leasing activity and underlying lease expirationsand buyouts. Only 4.2 million square feet of available sublease space remains in Northern Virginia, down 1.1 million square feet since 2003. Most of the remaining available sublease space is in Tysons Corner, Fairfax Centerand Herndon.

Net absorption increased by over 1.0 million square feetover the market’s 2003 total to reach 6.3 million squarefeet in 2004. The delivery of build-to-suit projects for theUnited States Patent & Trademark Office (USPTO), SallieMae, and the General Services Administration (GSA) allcontributed to the healthy net absorption levels. Leasingactivity in 2004 reached a pace not seen since to 2000,fueled by demand from government agencies and contractors as well as technology firms. Seven of the topten leases signed in the Washington metro area during2004 occurred in Northern Virginia. Most notable was TheCorporate Executive Board’s 620,000 square-foot preleaseat the Waterview project in Rosslyn which was the largestprivate sector lease transaction ever executed in theWashington metropolitan region.

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1999 121,967,000 10,036,000 8,642,000 4.9 30.502000 130,245,000 8,278,000 10,212,000 3.1 35.002001 139,067,000 8,822,000 -5,479,000 14.2 34.002002 145,102,000 6,035,000 -34,000 18.2 28.002003 147,452,000 2,350,000 4,862,000 16.1 26.002004 149,527,000 2,075,000 6,295,000 13.1 27.40

Suburban Northern VA Office

Office


1999 58,385,000 1,432,000 2,099,000 8.3 0.002000 60,496,000 2,111,000 3,008,000 6.0 32.002001 63,226,000 2,730,000 -242,000 11.7 31.002002 65,631,000 2,405,000 313,000 15.7 28.502003 66,926,000 1,295,000 -27,000 17.3 26.502004 68,277,000 1,351,000 2,743,000 14.6 26.10

Suburban MD Office

Jeffrey Flynn

1717 Pennsylvania Avenue, NW, Suite 1000Washington, DC 20006Tel 202-478-2300Fax 202-204-3276

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The Suburban Maryland office market experienced a surgein activity in 2004, with net absorption reaching 2.0 millionsquare feet, up significantly from 2003’s 40,679 square feet.The majority of net absorption came in the third quarter,which accounted for more than half of the year-to-datetotal. After the slowdown of the last few years, the turnaround in leasing activity is a positive development for themarket. Vacancy decreased by 160 basis points from year-end 2003 to 11.6%, the first decline in vacancy since 2000.Suburban Maryland has not seen large deals absorb vacantspace like in Northern Virginia. Instead smaller deals, mostlyin the 10,000 to 25,000 square-foot range, steadily pushedvacancy downward during 2004.

1.3 million square feet of new space was delivered to themarket in 13 buildings during 2004, 68.9% preleased.During the last few years, development was largely characterized by build-to-suits and significant pre-leasingprior to commencement. With solid demand in 2004 andvacancy inching downward toward 11.0%, this trend hasshifted looking ahead to 2005.

Only three office buildings were completed in theBethesda-CBD submarket since 2000 due to an office construction moratorium. However, a number of high-riseapartments and condominiums are emerging in the area.Four projects totaling 1,231 units have been added sincethe fourth quarter of 2003 with three additional projects tocommence in 2005. These new residential units are takingthe remaining developable land sites in the area, thus limitingpotential growth opportunities in the office market.

Bethesda-Rock Spring and I-270 Rockville expect to see afew speculative office developments break ground in 2005.Construction will begin on 6720 Rockledge Drive, the first new building in Rock Spring Park since 1993.This development comes on the heels of steadily decliningvacancy rates. Development of King Farm Building 4 willbring 220,000 square feet to the I-270 Rockville submarketin one of three additional buildings to be constructed in theoffice park. The return of speculative development reflectsinvestors’ bullishness due to the optimistic conditions inSuburban Maryland.

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High levels of occupancy growth in 2004 put the West Palm Beach office market in a strong position for2005. The market absorbed over 1.2 million square feet of space over the past year and ended the fourth quarterwith vacancy at 10.5%. The improving economy is definitelyhaving an impact on leasing activity. Job growth and corporate expansions are occurring once again and largerblocks of space are being absorbed. One by-product ofthis trend is that investors are paying top dollar for office projects throughout the county. Strong demand, interestrates that are still relatively low, competition among lendersand the strength of West Palm Beach County’s office market are all driving prices upward. In Boca Raton, a242,000 square foot Class A office building recently sold for$206 per square foot. Overall supply is waning, not just inPalm Beach County but also throughout all of South Florida.

The county is still finalizing the location where the ScrippsInstitute plans on building a 364,000 square foot researchfacility. This $137 million project was originally destined fora 1,900-acre parcel of land west of Palm Beach Gardens.Alternative venues are being considered as environmentalistsand the County work out various issues. In anticipation ofthis, land values are soaring and investors are scooping upall available acreage. Downtown West Palm Beach is experiencing a revival, both in commercial and residentialactivity. The condo boom, with more than 4,000 unitsplanned or under construction, will encourage various business opportunities. The influx of residents will give aboost to retail business and office space requirements.In anticipation of this, older buildings are being renovatedby optimistic investors.


1999 N/A N/A N/A N/A N/A2000 42,113,000 773,000 -45,000 6.1 6.502001 42,833,000 720,000 229,000 6.1 6.802002 43,192,000 359,000 154,000 6.3 6.402003 44,206,000 1,014,000 -103,000 8.6 6.702004 44,929,000 723,000 643,000 6.4 6.70


6600 North Andrews Avenue, Suite 240Ft. Lauderdale, FL 33309Tel 954-233-6000Fax 954-233-6010


1999 N/A N/A N/A N/A N/A2000 8,696,000 65,000 -176,000 10.4 29.902001 9,204,000 508,000 415,000 14.6 28.402002 9,204,000 0 -26,000 13.3 30.302003 9,244,000 40,000 -37,000 13.8 30.002004 9,262,000 18,000 311,000 10.8 27.80

Downtown Office


1999 N/A N/A N/A N/A N/A2000 27,991,000 835,000 831,000 8.7 27.202001 28,604,000 613,000 -226,000 14.0 28.602002 28,744,000 140,000 -286,000 13.0 27.602003 29,183,000 439,000 421,000 12.7 27.602004 29,436,000 253,000 932,000 10.5 25.80

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Industrial

Office IndustrialThe Palm Beach County industrial market continues tobenefit from strong fundamentals that have helped theregion maintain a single digit vacancy rate. Vacancy stood atjust 6.4% as 2004 came to a close, with the market havingabsorbed some 643,000 square feet of space throughoutthe year. This increase in occupancy growth is a reflectionof the improvement in the local economy. It also marks avast improvement over 2003 when the market experiencedover 100,000 square feet of occupancy losses. At that timevacancy stood near the nine percent mark—the highestthat it had been in years.

Sales of existing buildings were also strong in 2004, withlong-term investor interest remaining high throughoutWest Palm Beach as well as all of South Florida. If anything,the market was hampered by a lack of available productwith more potential buyers than would-be sellers. This, ofcourse, has also helped to drive up prices. Meanwhile, pricesfor land have more than doubled from a year ago as developers and speculators alike are acquiring at a rapidpace any of the available scarce land. The potential of theScripps Institute Research Center being developed in thewestern part of the county is providing an immense economic boost to this region and has had a direct impacton prices. Office Depot recently announced that it will be selling its prime 23-acre site in Boca Raton, generating a great deal of interest from commercial developers.

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Market (US$PSF/Year) (US$PSF/Year) (US$PSF/Year) (US$PSF/Year)

Europe/Middle East/AfricaAbu Dhabi, UAE 13.91 14.67 16.70 17.58Amsterdam, Netherlands 19.65 22.82 38.03 42.47Antwerp, Belgium 15.85 19.65 17.75 21.55Belgrade, Serbia & Montenegro 29.66 39.57 33.47 44.06Bratislava, Slovakia 21.30 25.10 24.34 27.38Brussels, Belgium 24.09 29.79 38.03 45.00Bucharest, Romania 24.34 28.90 30.43 34.99Budapest, Hungary 19.78 25.10 25.86 30.43Cape Town, South Africa 8.89 12.05 17.50 20.66Copenhagen, Denmark 24.72 28.02 28.14 31.44Dublin, Ireland 57.81 68.20 68.20 92.80Durban, South Africa 6.85 10.33 8.26 11.80Düsseldorf, Germany 20.69 N/A 34.99 N/AFrankfurt, Germany 34.23 39.55 47.92 52.48Geneva, Switzerland 29.56 31.61 49.27 51.73Hamburg, Germany 30.27 N/A 38.03 N/AIstanbul,Turkey 16.73 24.20 23.42 37.47Johannesburg, South Africa 2.95 5.31 4.36 6.79Kiev, Ukraine 31.23 44.61 36.80 51.30Lisbon, Portugal 33.45 37.26 36.31 41.64London - City, UK 67.42 88.61 90.54 117.51London - Docklands, UK 44.31 53.94 67.42 77.06London - West End, UK 105.95 138.70 144.48 188.79Madrid, Spain 38.75 44.19 45.64 51.08Milan, Italy 43.10 50.71 54.51 63.39Moscow, Russia 51.12 59.01 74.35 83.64Munich, Germany 20.14 N/A 42.60 N/AOslo, Norway 28.40 31.47 38.38 41.84Paris - Central, France 68.46 78.60 79.87 93.81Paris - La Défense, France 53.24 63.39 57.05 67.19Prague, Czech Republic 27.00 36.51 30.12 45.64Pretoria, South Africa 5.11 7.48 8.16 10.62Rome, Italy 39.30 45.64 48.17 55.78Sandton, South Africa 10.93 13.89 21.64 24.59Sofia, Bulgaria 20.06 24.62 28.90 33.47Stockholm, Sweden 40.75 46.37 53.40 60.42Stuttgart, Germany 18.26 22.82 24.34 28.90Vienna,Austria 15.21 22.82 33.47 50.20Warsaw, Poland 24.34 30.43 38.03 45.64Zurich, Switzerland 453.27 482.83 837.56 876.98

Latin AmericaBogotá, Colombia 14.10 16.91 16.57 20.72Buenos Aires,Argentina 14.28 16.73 18.62 21.19Lima, Peru 11.94 14.17 15.61 17.84Mexico City, Mexico 26.77 29.55 31.23 34.57Rio de Janeiro, Brazil 20.95 26.40 30.59 34.36Santiago, Chile 13.05 15.37 18.85 21.17Sao Paulo, Brazil 28.07 4.27 36.04 5.2480

Class A Net Class A Gross Top Class A Net Top Class A GrossRent Dec. 2004 Rent Dec. 2004 Rent Dec. 2004 Rent Dec. 2004

Market (US$PSF/Year) (US$PSF/Year) (US$PSF/Year) (US$PSF/Year)

North AmericaAtlanta, USA 12.39 21.89 19.20 28.70Boston, USA 21.74 38.24 33.50 50.00Calgary, Canada 18.26 29.05 24.90 35.69Chicago, USA 15.75 32.00 23.75 40.00Cleveland, USA 12.53 20.53 23.00 31.00Dallas, USA 9.25 18.50 18.75 28.00Denver, USA 8.63 18.63 17.00 27.00Detroit, USA 9.75 21.50 13.25 25.00Houston, USA 11.96 21.33 22.95 32.32Los Angeles, USA 11.06 25.20 33.86 48.00Miami, USA N/A 30.29 N/A 37.00Minneapolis, USA 15.08 26.00 21.08 32.00Montreal, Canada 14.73 28.22 19.71 33.20New York - Downtown, USA 16.06 33.56 37.50 55.00New York - Midtown, USA 40.03 57.53 117.50 135.00Ottawa, Canada 21.21 35.78 24.23 38.80Philadelphia, USA 16.01 23.32 30.19 37.50Phoenix, USA 10.35 19.35 19.00 28.00Pittsburgh, USA 10.46 20.75 18.71 29.00San Francisco, USA 13.57 30.15 43.42 60.00San Jose - Silicon Valley, USA N/A 32.98 N/A 35.40Seattle, USA 16.83 25.83 26.00 35.00St. Louis, USA 10.50 18.50 14.00 22.00Toronto, Canada 19.70 40.99 26.56 47.85Vancouver, Canada 13.28 26.56 20.75 34.03Washington, USA 24.70 40.70 46.00 62.00

Asia PacificAdelaide,Australia 13.91 19.56 19.56 26.08Auckland, New Zealand 19.50 26.17 28.38 35.05Bangalore, India 11.25 12.62 12.62 14.00Beijing, China 26.73 30.63 33.00 36.90Chennai, India 10.43 11.80 11.53 12.90Delhi, India 27.44 31.01 41.17 45.01Guangzhou, China 15.43 18.80 19.55 23.59Hong Kong, China 61.20 77.76 93.13 114.55Jakarta, Indonesia 10.43 15.05 20.02 27.81Manila, Philippines 10.63 14.05 12.54 16.20Melbourne,Australia 19.92 26.45 32.60 40.57Mumbai, India 31.56 34.85 38.42 42.54Perth,Australia 14.49 21.74 26.08 34.05Seoul, South Korea 22.03 31.05 27.38 35.43Shanghai, China 26.43 34.68 36.80 47.96Singapore 23.81 33.85 28.58 38.83Sydney,Australia 34.42 43.11 68.83 79.70Taipei,Taiwan 18.37 21.66 24.77 29.03Tokyo - Central Wards, Japan 81.76 106.36 124.30 163.60Wellington, New Zealand 17.03 23.70 19.36 26.71

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OfficeInventory – Includes all existing multi or single tenantleased and owner-occupied office properties greater than or equal to 10,000 square feet (net rentable area). In somelarger markets this minimum size threshold may vary up to 50,000 square feet. Does not include medical or government buildings.

Vacancy Rate – Percentage of total inventory physicallyvacant as at the survey date including direct vacant and sublease space.

Absorption – Net change in physically occupied spaceover a given period of time.

New Supply – Includes completed speculative and build-to-suit construction. New supply quoted on a net basis after any demolitions or conversions.

Annual Quoted Rent – Includes all costs associated withoccupying a full floor in the mid-rise portion of a Class Abuilding inclusive of taxes, insurance, maintenance, janitorialand utilities (electricity surcharges added where applicable).All office rents in this report are quoted on an annual, grossper square foot basis. Rent calculations do not include sublease space.

Cap Rate – (Or going-in cap rate) Capitalization rates in this survey are based on multi-tenant institutional grade buildings fully leased at market rents. Cap rates are calculated by dividing net operating income (NOI) by purchase price.

Note: SF = Square FeetPSF = Per Square FootCBD = Central Business District

IndustrialAbsorption – Net change in leased space over a givenperiod of time.

Bulk Space – 100,000 square feet or more with up to 10 percent office space, the balance being general warehouse space with 20 to 36 foot ceiling heights.All loading is dock-height.

Flex Space – Single-story buildings having 10 to 18 footceilings with both floor-height and dock-height loading.Includes wide variation in office space utilization, rangingfrom retail and personal service through distribution, lightindustrial and occasional heavy industrial use.

Inventory – Includes all existing multi or single tenantleased and owner-occupied industrial warehouse, light manufacturing, flex and R&D properties greater than orequal to 10,000 square feet.

New Construction – Includes completed speculative andbuild-to-suit construction. New construction quoted on anet basis after any demolitions or conversions.

Service Space – Single story (or mezzanine) with 10 to16 foot ceilings with frontage treatment on one side anddock-height loading or grade level roll-up doors on theother. Less than 15% office.

Tech/R&D – One and two story, 10 to 15 foot ceilingheights with up to 50% office/dry lab space (remainder in wet lab, workshop, storage and other support), withdock-height and floor-height loading.

Triple Net Rent – Includes rent payable to the landlordand does not include additional expenses such as taxes,insurance, maintenance, janitorial and utilities. All industrialand high-tech/ R&D rents in this report are quoted on anannual, triple net per square foot basis in U.S. dollars.

Vacancy Rate – Percentage of total inventory available(both vacant and occupied) as at the survey date includingdirect vacant and sublease space.

Warehouse – 50,000 square feet or more with up to 15percent office space, the balance being general warehousespace with 18 to 30 foot ceiling heights. All loading is dock-height.

RetailCommunity Shopping Center – Usually configured as a strip often in a straight line or “L” or “U” shape.Anchor tenant is typically a discount department store (i.e.Wal-Mart,Target), supermarket or super drug store.A community center typically offers a wider range of apparel and other soft goods than a neighborhood centerdoes.Total gross leasable area is often between 100,000 and 400,000 square feet.

Neighborhood Shopping Center – These centers aredesigned to provide convenience shopping for the day-to-dayneeds of consumers in the immediate neighborhood.Anchors are likely to be supermarkets or drugstores.Other tenants might include stores providing sundries,snacks and personal services. Generally, neighborhood centers are 30,000-150,000 SF in size and are configured asstrip centers without an enclosed walkway or mall area, butmay possibly have a canopy to connect the storefronts.

Power Center – These centers are designed to providetremendous selection in a particular merchandise categoryat low prices.Anchors are likely to be category killers,home improvement stores, discount department stores,warehouse clubs or off-price stores. Generally, regional centers are 250,000-600,000 SF in size and are configuredwith several freestanding (unconnected) anchors and a minimal number of small specialty tenants.

Lifestyle Center – Nonanchored open-air specialty center with high concentration of mall type fashion,home, restaurant and entertainment retailers.

Premier Fashion Streetfront – Destination retail corridor in urban center typically occupied by fashion retailers and able to command top rents.

Rents – All retail rents in this report are quoted on anannual, triple net per square foot basis.

Note: SF = Square FeetPSF = Per Square Foot

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Colliers International 2005Contributor – Garrick Brown,[email protected]

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