US Real Estate Review 2006 - Colliers | Chicagoproperty.colliersbk.com/PDF/MARKET_REPORTS/COLLIERS_INTERNA… · C O N T E N T S United States Real Estate Review Contents colliers.com

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Colliers International US Real Estate Review

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Colliers Research

Colliers Research Services Group is recognized as aknowledge leader in the commercial real estate industry,and provides clients with valuable market intelligence tosupport business decisions. Colliers researchers providemulti-level support across all property types, rangingfrom 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 70 North American metropolitan areas.

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 North American markets as well as quarter-to-quarter comparisons and aggregated national statistics.Investment sales prices and 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 encouraged to consult their professionaladvisors prior to acting on any of the material contained in this report.

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United States Real Estate Review Contents

colliers.com

US City Analyses and Forecasts

Atlanta, GA 13Austin,TX 14Bakersfield, CA 15Baltimore, MD 16Boise, ID 17Boston, MA 18Charleston, SC 19Charlotte, NC 20Chicago, IL 21Cincinnati, OH 22Cleveland, OH 23Columbia, SC 24Dallas/Ft. Worth,TX 25Denver, CO 26Detroit, MI 27Ft. Lauderdale/Broward County, FL 28Fresno, CA 29Greenville, SC 30Hartford, CT 31Honolulu, HI 32Houston,TX 33Indianapolis, IN 34Jacksonville, FL 35Kansas City, MO-KS 36Las Vegas, NV 37Little Rock,AR 38Los Angeles, CA 39Los Angeles, CA – Inland Empire 40

Los Angeles, CA – Orange County 41Louisville, KY 42Memphis,TN 43Miami, FL – Dade County 44Milwaukee,WI 45Minneapolis, MN 46Nashville,TN 47New Jersey – Central 48New Jersey – Northern 49New York, NY 50Oakland, CA 53Orlando, FL 54Philadelphia, PA 55Phoenix,AZ 56Pittsburgh, PA 57Pleasanton/Walnut Creek, CA 58Portland, OR 59Raleigh/Durham, NC 60Reno, NV 61Sacramento, CA 62San Diego, CA 63San Francisco, CA 64San Francisco/San Mateo Peninsula, CA 65San Jose/Silicon Valley, CA 66Seattle/Puget Sound,WA 67St. Louis, MO 68Tampa, FL 69Washington, DC 70West Palm Beach, FL 72

Letter from the President and CEO 1Letter from the Director of Market and Economic Research 2Office Market 3Industrial Market 5Retail Market 7Investment Market 10

Global Office Occupancy Costs – Central Business District 73Global Office Occupancy Costs – Suburban/Out-of-Town 75Glossary 77Colliers Office Locations 78

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To Our Clients and Colleagues:

As a knowledge leader in the commercial real estate industry, Colliers seeksto provide you with in-depth, forward looking information that can help youmake sound real estate decisions. In this spirit, I am pleased to present Colliers International’s 2006 US Real Estate Review, our analysis of nearly 60 commercial real estate markets.

Colliers’ collaborative approach to developing client solutions was recentlyrecognized when we were included in an elite group – the Global Outsourcing100, a list of the world’s leading outsourcing service providers. One of the reasons Colliers was included in this prestigious group is because of the quality of market knowledge we provide. Our ability to collaborate is driven by our structure as an organization of independently owned firms.Local ownership provides our clients with a deep understanding of individualmarkets. Partnership with Colliers allows you to achieve high-quality service in more than 250 markets around the world.

The economic outlook in the United States continues to be very promising.We anticipate another solid year, characterized by rising wages, low unemployment and excellent corporate profits. With long-term interest rates still relatively low and the global economy continuing to improve, wehave reason to be optimistic about our industry. We look forward to workingwith you to solve your real estate challenges.

Margaret S. WigglesworthPresident & CEOColliers International USA

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Are We at the Beginning of Something Big?As 2006 begins, markets from coast to coast continue to gain traction andshow signs of entering the growth stage of the real estate cycle. As we looktowards the horizon through to the end of 2006 we have the growing sensethat markets may be tightening quicker than many may appreciate. Before wedelve into how we see the coming year unfolding it may be instructive toreview the past year, both our projections and results.

Put very simply, 2005 will be remembered as a good year, exceeding almosteveryone’s expectations, including our own. We viewed ourselves as being considerably more bullish than the crowd but in hindsight we were not nearlyas optimistic as we should have been. While we were more or less on targetwith leasing markets we grossly underestimated the strength of the investmentmarket. The appetite for income producing real estate was exceptionallystrong caused in part by long term interest rates which stayed surprisingly lowand the perception real property still offered reasonable risk adjusted returns.As a result, cap rates, which were anticipated to plateau at best, sank evenlower defying our projections and indeed many others. The reasons for thisappear to be continued low long term interest rates and the weight of capitaloverhanging the real estate marketplace. Enough of the mea culpa, what canmost industry participants expect in the coming year?

Let’s start with the economy. Apart from a very lackluster fourth quarter, theeconomy has been firing on all cylinders for the past several years with moreof the same expected in 2006. Particularly encouraging is the much improvedglobal economy. What is more relevant, particularly for those in the realestate industry, is the composition of growth with the consumer taking a backseat to the business sector which is anticipated to engage in relatively high levels of growth and expansion. This should be good news for owners of realestate as occupancy levels are almost certain to increase across all propertytypes. Office and industrial real estate in particular should see occupanciesimprove by a full percentage point. Retail is expected to maintain the statusquo, even in the face of somewhat sluggish consumer spending. Multi-family isalso expected to improve as demographics and a slowdown in the owner-occupied housing market pushes demand for rental housing higher.

That brings us to the investment market. With considerable trepidation our2006 forecast is that it will cool somewhat from 2005 as pricing appears to be discouraging new investment. This does not mark a complete withdrawal of buyers from the marketplace but rather sufficient headwinds may now existto keep some investors on the sidelines. Our belief is long term interest rateswill not rise significantly even though with rising short term interest rates aninverted yield curve is almost guaranteed.

So, are we at the beginning of something big? Our view is that unless the supply side of the equation suddenly surges, 12 months from now we couldfind ourselves in critically short supply of various forms of real estate.The entitlement process combined with dramatically higher construction costs mean real estate developments just aren’t proceeding. Most recently the market has underestimated the demand for real estate which we believewill be the case again in 2006. In certain sub-markets, rent spikes are almost guaranteed, surprising many. Get ready for an interesting ride.

Ross J. MooreSenior Vice President, Director of Market and Economic [email protected]

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2005 CLOSES ON A PROMISING NOTE

The U.S. appears to be awash in the steadyglow of a relatively unwavering good economy,which continues to bless most markets witha rising tide of new jobs, directly resulting ina very strong year for the office sector.Some markets posted major gains in occupiedspace, others saw record sales transactions,and even where the market has begun totighten, developers remained cautious possiblykeeping an eye toward the future, particularlypredictions of escalating rental rates.

The year closed ahead of projections, with109.3 million square feet of total absorptionbeating 2004’s 80.3 million by a considerablemargin, and also decisively surpassing the 80to 100 million forecast a year ago. The yearkicked off with modest absorption thatgained momentum, peaked in the third quarter,and slipped slightly off the top in the finalquarter. Absorption measured 27.8 millionsquare feet in the fourth quarter comparedto 33.7 million in the third, still well ahead of the 19.4 million square feet registered thesame time in 2004. All are indicators thatdemand remains high for office space, a trendthat is expected to continue due to the146,000 jobs created per month on averagethroughout 2005. Senior vice president ofmarket and economic research, Ross Moore,agrees,“This steady influx of new jobs willsupport the office market into the foreseeablefuture.” Indeed, just a handful of downtownoffice markets anticipate a slowdown duringthe start of 2006, with most anticipatingdemand to hold at current levels or creephigher. Suburban markets are all very active; virtually none are forecasting any kind of slowdown.

SLUMPING SUPPLY ON THEVERGE OF A SURGE

Construction completions rebounded in thefourth quarter jumping an astonishing 68%over the previous quarter. The solid 6.1 million square feet increase over third quarterlevels brought the fourth quarter total to15.1 million. This late push boosted the yeartotals to 46.3 million square feet, exceedingthe 45.3 million in 2004, which affirms ourprojection that 2004 may have hit a cyclicallow. The late upswing, in addition to a goodamount of construction underway, couldpoint toward a surge in completions over thenext year to eighteen months. Office spaceon its way to the market clocked in at 73.2million square feet at the end of the year,well above the 53.9 million under constructionat the close of 2004. This could send completions skyward with predictions showing a possible 35% jump perhaps rendering 60.0 million square feet of newconstruction in 2006.

Despite the rise in new construction,vacancy rates fell steadily throughout 2005.Rates dropped 34 basis points during thefourth quarter to finish the year at 13.65%,compared to a rate of 15.30% at the end of 2004. Downtown and suburban marketsboth showed solid gains with the CBD and non-CBD rates dropping to 13.2% and13.9%, respectively. Vacancy rates are nowsubstantially down from the cycle high of16.40% at the end of 2003.

RENTS:A PREDICTED SLEEPING GIANT

Glancing beneath the national numbers andgoing to the heart of the office market, thesigns point to rents, both the fact that they

Office Market Overview

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were surprisingly stagnant through 2005, and theaccepted notion that it’s just a matter of timebefore they take off. In 2005, rents in Class Adowntown and suburban markets rose marginallyto $34.53 per square foot and $24.04 per squarefoot respectively. But that’s about to changeaccording to those in the trenches.

The San Francisco office market saw a recordnumber of transactions, with prices extremely high, points out senior vice president of leasing,Jerry Evans. He says the new landlords are bankingon a spike in rental rates,“The 2005 buyers havevery high expectations as to where our marketrents are going. They’re not even in a rush to landleasing deals. They’re prepared to sit on the sidelines for a year or more and capture tenantswhen the market rises.” Such optimism is tied to asurge of jobs and investment capital in the life andscience technology sectors, as well as the anticipatedlack of space for new office space in the future.Evans says rents have begun to climb already, withClass A high-rise view space jumping more than20% due to limited supply.

Other cities report similar trends. PhoenixArizona had a breakthrough year according to senior vice president of marketing office products,Phil Breidenbach,“If you were trying to sell anoffice building here, you were pretty happy, becauseyou had more buyers than you could ever imagine.”Breidenbach says rental rates are on the riseacross the board with a jump anywhere from tento fifteen percent, which was pretty unprecedented.However he concedes that tenants are resistingrate hikes,“Tenants are reacting negatively, andrenewing leases and staying put, or living in smallerspaces instead of relocating.” He says a proposedbuild-to-suit office building was tabled after thetenants learned of the projected leasing costs.But he assumes that attitude will change,“Corporate America is in for a rude awakening in terms of what it’s going to cost to rent space.If they don’t begin to pay the freight, that will cause problems down the road, because landlordswon’t build buildings.”

Still, all indications are the market is no longer inthe hands of tenants. Many economic factors arealready beginning to force rental rates up, withmore increases to come predicts Moore,“The latest office market indicators show the pendulumcontinues to swing away from tenants and towardslandlords. Tenants continue to have fewer andfewer choices and the supply pipeline continues tobe largely muted, promising a further tightening inthe coming quarters.”

GOOD NEWS AND BAD NEWS

Looking ahead, the office market should prove positive for landlords and new investors, but tenantswill experience the downside with rising rents cuttinginto their bottom lines. Unprecedented salesprices, decreasing land availability, plus the incessantrise in construction costs exacerbated by theunprecedented spike in demand for materials andlabor due to the devastation of Hurricane Katrina,demand from Asia, and a relatively robust economyall point to more out of pocket spending for thoselooking for office space.

Barring any major terrorist attack, or a significantsurge in petroleum prices, even the naysayers arehard pressed to come up with an economic indicator forecasting a coming gloom. In fact,although the economy is showing a slight deceleration off the rapid growth over the pasttwo years, the continued growth will still supporthealthy demand for office space. Most economistsstill expect the economy to expand upwards of3.0% in 2006, a very good sign for the office market. Occupied space is anticipated to grow byclose to 2.0%, leasing should stay at current levels,after adjusting for demolitions and conversions,new construction might see a 1.0% hike, thenational vacancy rate will continue to fall by yearend to 12.6%. Finally, rents will jump at least 5.0 to 10% with some markets seeing rents launchupwards by as much as 25%.

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

1999 1,229,987,000 11,994,000 16,598,000 8.5 36.812000 1,362,616,000 15,155,000 27,844,000 7.4 42.832001 1,409,861,000 10,680,000 -50,873,000 11.8 38.102002 1,475,159,000 22,959,000 -18,324,000 14.4 33.202003 1,495,760,000 17,665,000 4,333,000 15.0 32.002004 1,534,474,000 11,624,000 15,318,000 14.5 33.252005 1,546,174,000 11,750,000 29,217,000 13.1 34.69

Downtown Office


1999 2,369,864,000 112,853,000 86,529,000 10.0 26.532000 2,502,799,000 98,091,000 107,434,000 9.3 27.232001 2,825,066,000 118,780,000 -20,847,000 14.6 26.402002 2,957,530,000 73,824,000 -14,302,000 17.0 23.902003 3,004,905,000 40,794,000 22,430,000 17.1 23.602004 3,063,584,000 33,690,000 65,523,000 15.7 23.482005 3,103,943,000 34,580,000 75,799,000 13.8 24.04

Suburban Office

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AYEAR TO REMEMBER

Coast to coast, north to south, industrial realestate in the United States closed 2005 on atriumphant note. In fact, predictions at theend of 2004 proved low, and at the time wewere considered too bullish! As the yearprogressed activity grew, and as anticipated,the fourth quarter rolled in great numbers,including the highest absorption rate postedin five years. This momentum is due in largepart to the ever-growing need for warehousing.

By all accounts the market demonstrated a remarkable achievement given the year,particularly the second half of the year, wasfraught with the worst hurricane season inhistory, including the aftermath devastation of Katrina in New Orleans and along theGulf coast.

Full-year absorption totaled a whopping222.8 million square feet—the highest totalin square feet on record—representing a 2.3percent growth in occupied space comparedto the 171.7 in 2004, and the 62.3 millionsquare feet posted in 2003. This expansion isin line with the market benchmark absorptionrecorded back in 2000. Undeniably, Colliers’initial 2005 warehouse absorption forecast of150-200 million square feet was definitelytoo conservative. Fourth quarter resultscapped off a banner year with 57.5 millionsquare feet absorbed, just 3.8 million squarefeet shy of the third quarter, but 2.2 millionmore than the year prior. This outstandingfinish came about despite the historic spikein energy costs, hurricanes, and additionalincreases in short term interest rates duringthe shaky previous quarter. Senior vice president and director of market and economic research at Colliers, Ross Moore,

believes such confirmation of marketstrength bodes well for the future,“Eventhough GDP growth slowed in the fourthquarter, industrial production, imports, exportsand manufacturing all registered solid growthsupporting demand for warehouse space.These trends show no signs of reversing.”

HIGHS AND LOWS

The number of new construction projectscompleted during 2005 jumped substantially.The total space added to the market soared21.0 percent with 144.5 million square feetbuilt versus 119.4 in 2004. Year-end figuresshowed further increases with a slight up tick at 40 million square feet over the thirdquarter’s 39.9 million, but a substantial boostover the 33.8 million at the end of 2004.The number of developments under construction totaled 108.6 million squarefeet by the end of the fourth quarter, a solid leap over the third quarter’s 94.5,and a spike compared to the 70.5 in 2004.

Vacancy rates steadily declined, although at a slower pace in the latter part of 2005.This could be the first sign of a new trend, asthe industrial vacancy rate dropped just 17basis points during the fourth quarter to landat 8.45 percent at the end of the year. That’squite a disparity given vacancy rates had beenplummeting almost double that amount overthe past several quarters. The gap is attributedto rising construction activity, amounting to a good news versus bad news scenario that is likely to persist into the coming year.It appears that vacancy rates are now edgingcloser to 2001 levels after they peaked in2003. Rents showed remarkable sluggishnessat the end of 2005 given the tightening marketfundamentals and rising construction costs

Industrial Market Overview

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that should send rents skyward. However, theybarely moved in the fourth quarter, rising by just1.0 percent. Still overall, they registered at $4.98per square foot at year-end, a 4.6 percent rise,more than doubling 2004’s 2.1 percent increase.

GEOGRAPHY MATTERS

National year-to-date numbers tell only part of the2005 story. Zooming in for a closer look at theregional action offers a more varied perspective on2005 and perhaps where things are going in 2006.Certainly, the national numbers reflect the soaringtransaction activity in local markets where theterm “banner year” was a verifiable understatement.Chicago racked up incredible numbers with 25 million square feet in sales, 35 million square feetin lease transactions, and absorption that increasedby more than 35 percent relative to 2004.The growing demand in this region for mega distribution center development is expected tocontinue given the abundant and attractively pricedland in the western and southwestern outer ring ofthe market, the direct rail access and proximity tointermodal facilities, and welcoming communities.On the other hand, southern and western majormarkets are experiencing land squeezes and recordprices and costs, slowing construction, and sendingsales and rental rates skyrocketing.

Both southern and northern California are goodexamples of what occurs when land becomesscarce. With little land availability, and record highprices for any found, construction activity remainslow in these regions. Extremely tight conditionsare forcing companies to become creative in orderto meet their needs, or consider finding new locations to base operations. Many are looking atmarkets outside Los Angeles and the Bay Area forlower cost premises. According to reports fromPhoenix, others are opting to leave the stateentirely, as many logistics firms are consideringrelocating from Los Angeles and other Californian locations.

Similarly southern and central Florida are facingsoaring construction costs, record sales, and ashortage of availability due to lack of entitled land.Miami’s gateway location mediates the difficultiesand has therefore seen substantial activity regardless. However, the central part of the statehas its hands tied, says Colliers industrial brokerDeborah Mickler,“It has to do with our rapid population growth, and the fact that we don’t haveenough roads, don’t have enough schools, andother infrastructure, so even though we are generating 40-thousand jobs a year, development isrestricted to a certain extent.” Mickler however,reports these conditions have created a surprisinglyhot sales market,“Space that I would have sold fiveyears ago for twenty dollars a square foot, youcould probably get seventy-five a square foot now,and there’s no rhyme or reason for that.”

2006 A MIRROR IMAGE OF 2005

The outlook for 2006 remains bright, even withsome markets predicting a gradual tapering off insome areas. The more mature and desirableregions dealing with space issues still anticipatestrong increases in absorption, rental rates, plentyof new development particularly in submarkets, andcontinued declines in vacancy rates. Steady demandfor warehousing, plus the reasonably strong economy are fueling these trends. Leasing shouldalso mimic the upward movement seen in 2005, asrobust demand for warehousing, distribution,manufacturing, consumer spending, import andexports shows few signs of slowing. Though someareas may see a slip in construction due to availability and costs, overall projects now underway will translate into a 30 to 40 percentrise in completions in 2006. Despite an increase in construction, the national vacancy rate isexpected to finish 2006 just slightly below 8.0 percent. Rents will likely jump upwards of 10 percent reflecting tighter market conditions andequally important the premium developers will bepaying for both the land and the construction itself.

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

1999 8,828,117,000 196,621,000 184,566,000 6.7 4.812000 9,242,097,000 198,243,000 192,644,000 6.4 5.592001 9,589,872,000 218,526,000 -16,750,000 9.0 4.952002 10,330,560,000 123,049,000 -17,633,000 10.2 4.662003 10,427,153,000 97,037,000 62,305,000 10.3 4.722004 10,590,853,000 119,368,000 171,707,000 9.6 4.802005 10,693,913,000 144,521,000 222,786,000 8.5 5.01

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NO SU-SPENDING THIS HABIT

Americans are spenders at heart.Properly predicting where they prefer toexchange currency for goods is key to keeping the retail market on an upwardswing. Consumers tend to be fickle, andover the years have abandoned many populartrends. However, through all the meandering,and inconsistent spending habits, one constantremains: when discretionary cash is available,or presumed to become available, peoplespend it. In 2005, the consumer affirmed thistendency, with sales settling comfortably onthe plus side for nearly every retail type.

Overall sales at year-end chimed in at 7.3% above 2004 levels, although gasoline stations skewed the year with a 21% rise.More consumers spent over the internet and through other Nonstore retail outletsboosting sales a solid 11.5% over 2004;Building Material and Garden EquipmentStores increased sales by 9.7%; and FoodServices and Drinking Places saw revenuesjump just over 7.0%. Some numbers reflectprice increases consumers contended withfor goods both needed and wanted, such as gasoline and building materials, and stillothers are more indicative of burgeoningtrends, for instance more Nonstore shopping,and more interest in eating out. This couldsignal a change in what people are willing to burn their gasoline and time on, perhapsdining rather than shopping at the mall.

Other year-end totals may provide moreinsight. While Health and Personal CareStores, Clothing and Accessories Stores,Miscellaneous Store Retailers, Electronics andAppliance Stores, and General Merchandise

Stores all ranged from a 5.9% to a 6.3% rise, Department Stores sunk into negativeterritory. The drop from 215,999 million dollars in sales to 214,682 million over theyear, registering a -0.6% slump, indicates a relatively small shortfall, however, among thebackdrop of steady growth everywhere else,it may echo a monumental shift given mostdepartment stores are anchors for regionalmalls. “People seem to be losing interest inmalls, particularly the department stores.The consumer now wants a place to gowhere there is more to do than just shop.The so-called lifestyle center, where youmight find a health center, gym, day spa, ormovie theater in addition to home and fashion retail outlets, appears to be the newvenue of choice,” points out senior vice president, Ross Moore. Statistics show thatsales in department stores have actuallydeclined in three of the last four years.Specialty shops have fared better in malls,but they have focused their future growthplans on other locations. In addition,specialty apparel and luxury retailers recorded substantial gains as well. In generalthe big picture looks bright for retail, givensales remain healthy and continue to climb.

DISCOUNTERS DOMINATE

As more consumers turn their wallets awayfrom traditional department stores, they areeagerly opening them alongside the discounter’scash registers. Sales at warehouse andsuperstores surpassed those of departmentstores for the first time in 2004, but thiscomes as little surprise since discountershave been seeing annual sales increases of 12to 20% for the last three years. Since sales in

Retail Market Overview

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warehouse clubs include gasoline, this caused aspike in the 2005 figures. Still, the trend is clear,discounters, particularly Wal-Mart and Target alongwith warehouse clubs are the consumer darlingsthese days.

The explosive expansion among Wal-Mart, its spin-off Sam’s Clubs, and Target, verifies consumershave enthusiastically endorsed the concept.However, vice president and director of retail innorthern California, Jim McMasters says Wal-Martstill faces opposition just about everywhere in hisstate,“Customers like them, but communities findthem to be threatening to the existing pool ofretail within their cities and towns.” This is especially true as the discount chain seeks todevelop more Supercenters, which include groceriesand are on average 88,000 square feet larger thanthe traditional 98,000 square foot Wal-Mart stores.Target appears to be following Wal-Mart’s mega-storeleaning as the company pushes forward with itsown version including groceries, called theSuperTarget. McMasters says that even in northernCalifornia where land is scarce, these chains arecreating opportunities in mixed use or infill areas,despite strong resistance in many cases,“Wherethey used to have stores that were 10 to 15 milesapart, they’ll put them now five miles apart….This area is a spending community. Retail loves it here.” Both retail giants are forging ahead withaggressive expansion plans, with Wal-Mart expectingto add another 335-370 stores nationwide in 2006.

RETURNING TO YESTERYEAR

Ironically, as discounters blaze new trails in biggerthan big box retailing, another trend emergingharkens back to a more nostalgic time, when smaller retailers cohabited alongside other businesses and venues. Such mixed-use developmentrepresents a return to urban patterns akin to acentury ago when zoning wasn’t a factor in citydevelopment, and housing, offices, stores, and evenfactories were “mixed” together. Over the lastseveral decades zoning ordinances separated“incompatible” uses in order to preserve propertyvalues, and now aside from factories and warehouses,most of these uses are coming back together tocreate a feel of the “downtown.” These are typicallylarge-scale developments or redevelopments.They can be urban, suburban or even exurban, butthe common thread is the integration of shoppingwith offices, housing, and entertainment, as well asvenues such as libraries, transit stations and government buildings. The idea is to give people a

sense of community while providing a more efficient shopping experience since it shortens the driving time, and often eliminates the need for an automobile altogether.

“It’s all about what the consumer demands, andputting it in place in a timely fashion. As societychanges, so do consumer preferences, so retailershave to almost look into a crystal ball in order tobe successful,” adds Moore who believes themixed-use concept is on target. This trend alsohappens to coincide within an era of shrinkingavailable land in major markets, subsequent escalating land costs, and skyrocketing constructioncosts. Developers and retailers are therefore confronting these restrictions and looking towardmore innovative solutions for future projectsincluding using existing urban buildings for suchmixed-use projects or in-filling industrial areas previously considered off limits in sub or tertiarymarkets. Cities and towns are also starting to realize mixed-use is a positive option confirmsMcMasters,“Cities are using the concept to revitalize their downtowns, to bring market ratehousing back into the core area, bringing greaterdensity in, and following that with new retail.It’s working well and it’s very exciting.” Adding to the irony, where municipalities once prohibitedretail in certain areas, now zoning boards areestablishing “mixed-use” districts helping to facilitate such projects.

A QUESTION OF IF, NOT WHEN

All indications are very encouraging for 2006 giventhe upbeat consumer spending, dropping vacancylevels, gradually increasing rental rates alongsidecostlier land and construction, and aggressivemovement in development among the discounters.Add to the mix strong job growth numbers, and abanner 2005 among investors, and it’s tough toimagine a downside. Interest rates are rising,however, cap rates are expected to show littlechange. “The only thing that could slow us downis residential shutting down to the point that retailbegins to drag. But my instinct says that’s notgoing to happen,” says McMasters, a thirty yearretail veteran. Barring such an event, the retail market will remain robust with sales growing atover 6% in most sectors, especially those relatedto housing such as furniture, appliances, electronics,and home improvement.

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Year-to-Date Sales Ending December

All Stores

Motor Vehicle and Parts Dealers

Gasoline Stations

Food and Beverage Stores– Grocery Stores

Health and Personal Care Stores

Building Material and Garden Equipment Stores

General Merchandise Stores– Department Stores (excluding leased departments)

Clothing and Accessories Stores

Furniture, Home Furnishings, Electronics and Appliance Stores– Furniture and Home Furnishing Stores– Electronics and Appliance Stores

Sporting Goods, Hobby, Book and Music Stores

Miscellaneous Store Retailers

Nonstore Retailers

Food Services and Drinking PlacesSour

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2005

4,186,021

917,055

387,908

522,643

467,150218,297

332,593

533,162214,682

201,668

209,477109,064100,413

81,543

114,295

260,198

407,182

2004

3,901,739

882,040

320,604

498,151447,677

205,404

303,071

502,845215,999

189,997

198,326103,78194,545

80,062

107,928

233,281

380,030

% Change

7.3%

4.0%

21.0%

4.9%4.3%

6.3%

9.7%

6.0%-0.6%

6.1%

5.6%5.1%6.2%

1.8%

5.9%

11.5%

7.1%

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InvestmentMarket OverviewINTEREST HIGH FOLLOWINGRECORD-BREAKING YEAR

There is little doubt these are remarkabletimes for commercial real estate investors.Many markets across the country reportedrecord-breaking sales activity throughout2005, and all the leading indicators projectthe favorable climate to continue. In fact,Colliers’ analysis of investment sales trendsreveals the most robust seller’s market everfor the start of 2006. This is due in largepart to stagnant alternative investments,coupled with the lag effect of capital flows.Boiled down it means that real estate will seea continued surge of investment capital overthe next twelve months. Senior vice presidentRoss Moore adds,“We’re going to see lots ofmoney flowing into real estate in 2006 withrelatively inexpensive debt capital, motivatedby poor returns in other investment sectors.Investors will definitely be aggressive buyersof real property in 2006.”

Where the capital originates however,is expected to change somewhat.Private capital will be less dominant eventhough this group has shown much activityrecently. These groups are now shifting focusto secondary and tertiary markets whileinstitutional investors, for example pensionfunds, will be the more aggressive buyers intier one markets as the year unfolds. Smallvalue-add investors will be attracted to thesesmaller suburban and tertiary markets, andwill be interested in Class B product in ClassA markets as well. Core buyers will seekClass A opportunities, and value-add buyerswill pursue Class B real estate. Class C realestate will effectively disappear for adaptivere-use. All this points to positive growth

according to managing director, multi-familyservices in Tampa Florida, John Stone,“Thereis no question there is more money trying tofind a home than there are places for it to go.”

The United States has been, and continues tobe, one of the safest places to invest, so theinflux also comes from many foreigninvestors. Australia proved one of the moreaggressive groups, purchasing shopping centers, and even entire companies toacquire the real estate. Many have bought atprices considered high and sold inside twoyears with an extremely lofty percentage inprofits. Senior vice president in Los Angeles,Fred Cordova believes there’s been a fundamental shift in the mechanics of theinvestment market,“The real estate markethas essentially matured. The informationavailability has created smarter investors whocan be out in front of the trends rather thanreacting to already demonstrated success.This minimizes the inefficiencies in the market; it makes it more perfect, and morestable.” Cordova anticipates 2006 to be evenstronger than 2005 for some sectors giventhe amount of capital he still sees chasing anever-shrinking product pool.

OFFICE

Investors eyeing the office sector areexpecting stronger market fundamentals tocontinue to cancel out rising short-terminterest rates, so long as they rise no higherthan 5.5%. Such improving fundamentals create vacancy value, and drive overall realestate values far more than cap rate compression, though the improving risk/return profile will continue to put downwardpressure on cap rates. According to Brad

colliers.com

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Calbert, Principle Denver Colorado,“Office seems to be the favorite investment right now…it’s driving a significant amount of investment dueto the size of it”. As 2006 unfolds, cap rates forthe very best office real estate will remain in the5.0 to 5.5% range, and unleveraged IRR’s for thevery best properties will remain in the low 7’s.Also boosting values are the higher replacementcosts due to skyrocketing construction costs, andprojected “critical shortages” in certain marketsand sub-markets. Such variables are setting thestage for rent spikes of upwards of 25% particularly in the top tier markets. Finally, a nearly complete recovery of the dotcom era isencouraging tech firms to return to the market,and depending on the extent of this re-emergence,investors may be in for a big surprise.

INDUSTRIAL

The industrial market is coming off a record-breakinginvestment year. Investor interest remains high andexpected to record another robust year thatshould be at least on par with 2005. Cap rates areshowing signs of leveling off, while spreads continueto hover at 3.0%. The very best industrial realestate will return cap rates in the 6.0% to 6.5%range over 2006, with most cap rates to remainstable, even in the face of rising interest rates.Other favorable indicators include projected vacancy levels to drop another full point to under8%, and previously directionless rents showingupward movement by $0.50 per square foot, asland prices also rise. New warehouse developmentis expected to surge by 30% to 40%, but due todemand across the board is not predicted to affectthe market’s momentum. Companies keeping theactivity on an upward climb include logistics, foodservices, automotive, airfreight, retailers, anddefense contractors.

RETAIL

As long as consumers continue to spend, investorswill be interested in retail. The good economy, jobgrowth, and rise in disposable income are strongsigns people will freely open their purses and wallets for the foreseeable future. Investors aretherefore looking at retail with a confidant eye,particularly given the steady, and in some placesexplosive sales growth over the last several years.Cap rates for the very best retail real estateremain on par with the best office and industrial in the 5.5% to 6.0% range. These locals are alsoposting higher rents as well. They include New

York’s Fifth Avenue at $950 per square foot, up11.8% over 2004; San Francisco’s Geary Street at$450 per square foot, up 15.1%; Los Angeles’Rodeo Drive at $300 per square foot; Chicago’sNorth Michigan Avenue at $245 per square foot,up a robust 22.2%; and Honolulu’s Kalakaua Avenueat 180 per square foot.

Investors are also turning their attention towardthe hot lifestyle format for new shopping centerdevelopment. In 2005, a vast 85% of all metros inthe country report lifestyle centers expanding intheir cities. Compare that to 60% reporting powercenter development, 49% streetfront, and a meager26% reporting enclosed malls. Much capital is alsoflowing straight downtown as well, and not just inthe dominant cities, but in urban centers acrossthe country. The number of cities reporting a risein urban retailing jumped 49%, showing a surge ininvestor interest in more than three quarters ofU.S. cities from Boston, to Dallas, to Miami, toSeattle and many urban areas in-between.

MULTI-FAMILY

Millions of potential renters will be graduatingfrom college as the echo boom generation comesof age over the next several years. It is estimatedthat this demographic will be turning 21 at the rateof a million per year for most of the next decade.This reality, along with incremental bumps in interest rates bode well for investors interested in apartment buildings. In many major marketssoaring housing and condo prices have alreadyexcluded many from home-ownership, and theseconditions will prove favorable for rental apartments.However, capturing the college grads will bedependent on rental rates which have also skyrocketed in some areas forcing many in theyounger demographic to opt out of the rental market and go back home to mom and dad.Still the cap rates in the very best apartment real estate are expected to remain in 4.0% to 5.0% range.

Strong fundamentals including the continued strongeconomy, job growth, dropping vacancy rates,slowing single-family housing market, and slowingnew construction due to rising construction costsare all encouraging signs for apartment investment.Some markets have topped out condominium supplies, which could make them more affordablefor would-be renters, however, in several soughtafter markets, condo prices are still out of reachfor many who are destined to remain in the rentalmarket. Condo-weary lenders are still very much

receptive to other multi-family investments,according to Stone,“You can get a loan for anapartment complex without even thinking about it, but if you use the word ‘condo,’ you’ve got an uphill battle.” Condo conversions are alsobeginning to wane and expected to drop off as the year progesses.

AFTER THE RUSH

Investment in commercial real estate has gainedrenewed vigor among veterans as well as newcomers.Whether they decide to stay the course is dependent on a variety of factors, including activityin the other capital markets. However, most insiders agree that the frenzied pace witnessedover the past few years reached its peak in late

2005, and is now beginning to show hints of slowing. That’s not to say there’s any sign of a bubble. On the contrary notes Senior VicePresident in Los Angeles, Mike Ross,“It’s not a bubble. It’s a recalibration of risk yield profile andexpectation and it’s a fundamental shift in realestate’s position among the capital markets.” This minor downward adjustment in some marketsmight prove somewhat disconcerting in the mindsof some according to Stone,“We’ve been going atsuch a reckless speed that slow will probably feellike the world is coming to an end, but it hasn’t,it’s just coming back to a more normal, more manageable pace.” That ever so slightly slowerpace will certainly maintain commercial realestate’s strong position as a top investment option in 2006.

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10.00

9.75

9.50

9.25

9.00

8.75

8.50

8.25

8.00

7.75

7.50

7.25

7.00

6.75

6.50

6.25

6.00

Capi

taliz

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tes

(%)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2001 2002 2003 2004 2005

Multi-Family Industrial Office-CBD Office-Sub Retail

Cap Rate Trends

Source: Real Estate Research Corp.

Office market numbers show 2005 was a solid year withmore improvement anticipated for next year. Relentlessactivity over the past twelve months resulted in an overwhelming 4.7 million SF of office space absorbed.This resulted in total vacancy dropping by 1.7 percentagepoints over 2004 levels, despite a 31% rise in deliveredspace totaling 2.1 million SF. Though rental rates remainedrelatively unchanged, Class A space still continued to showthe most positive gains with 3.2 million SF absorbed.Suburban markets once again experienced the most tenantactivity, however the Central Business District demonstrateddramatic improvement over the year. Absorption for 2005in the CBD totaled 1,049,411 SF, an increase of 216% fromthe previous year.

This surge in tenant activity can be attributed to many factors, most of which are a result of the renewed urbanismshaping the city. The opening of Atlantic Station, consideredto be the national model for Brownfield redevelopment;the new Georgia Aquarium, the largest aquarium in theworld; and also the number of condominium projects beingdeveloped on almost every available block of land are allthe leading the charge. The various activities taking placeeveryday in Atlanta’s CBD are playing a major role in thereal estate dynamics of the entire market. Real estateinvestment in Atlanta remained strong in 2005.

A record number of transactions occurred over the yearand the metro area remains a hotbed for investor capital.The outlook for investment activity in 2006 is optimistic.

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

1999 447,086,000 17,492,000 17,047,000 8.7 3.752000 463,256,000 17,465,000 15,615,000 8.5 3.702001 482,460,000 19,694,000 3,284,000 11.5 3.602002 489,357,000 7,189,000 -2,372,000 13.2 3.302003 492,273,000 3,227,000 1,077,000 13.5 3.252004 499,683,000 8,866,000 12,927,000 12.2 3.502005 508,142,000 8,537,000 12,020,000 11.3 3.75

Michael Spears, SIOR

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


1999 46,243,000 290,000 -110,000 7.5 22.202000 46,893,000 650,000 1,416,000 5.8 24.202001 49,741,000 2,848,000 -281,000 11.8 24.902002 50,965,000 1,224,000 -36,000 13.9 23.502003 51,453,000 488,000 277,000 14.2 23.302004 52,006,000 553,000 332,000 14.2 21.902005 52,326,000 320,000 1,049,000 12.7 22.40

ATLA

NTA

,GA

Downtown Office


1999 134,480,000 10,405,000 8,618,000 10.9 23.002000 142,459,000 7,979,000 7,125,000 10.8 23.302001 150,062,000 7,603,000 367,000 15.0 23.802002 154,106,000 4,044,000 -238,000 17.4 22.402003 156,594,000 2,488,000 658,000 18.2 21.502004 157,673,000 1,079,000 3,619,000 16.3 21.402005 159,492,000 1,819,000 3,761,000 14.6 21.30

Suburban Office

Industrial

Office IndustrialThe Atlanta industrial market remains brisk and reflects a steady continuation of the robust activity in 2004.Atlanta’s industrial space absorption topped 12 million SFfor the second consecutive year. Over the past 24 monthsvacant industrial square footage has dropped by over 10million square feet. The activity in 2005 is a direct result of the diversified industrial growth taking place in Atlanta:logistics firms have returned to the market; bulk warehousecontinues to be a hot commodity; build-to-suits show nosign of slowing; and smaller tenant activity between 20,000-80,000 SF remains strong. This year recorded some of thelargest industrial transactions the market has ever seen.The largest, Home Depot, Co. signed for a 1-million squarefoot distribution center in South Atlanta. Undoubtedly, thelarge space users proved the major force driving industrialspace absorption in 2005.

Most commercial real estate brokers in the city will agreethe Atlanta industrial market has recovered. Many share an optimistic outlook to 2006, projecting activity levels to remain as strong as they were in ’04 and ‘05.However, despite the positive outlook, the overwhelmingnumber of deliveries scheduled for the 2006 will present achallenge to the market. Just over 18 million SF are set todeliver next year, with only 35% pre-leased. Vacancy ratesare therefore probably going to rise. On the bright side,current market dynamics more than likely may suppressmuch of the onslaught of new space. Atlanta continues toattract industrial space users and the city remains a primechoice for regional locations.

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The Austin office market is quickly approaching rent and occupancy levels not seen since the late nineties.Continued absorption and rising rental rates have been the driving force for Austin’s thriving office market.Significant activity in the office investment market bygroups such as Equity Office and Aspen Growth Propertiesreflect the sentiment that Austin will continue to see a risein demand, which will sustain the increasing rental rates.New office construction will soon be necessary. The officemarket saw more than a million square feet of positiveabsorption in 2005; the second straight year with at leastone million square feet of positive absorption. Leading theway for the year was the Far Northwest submarket withover 700,000 SF and the Southwest submarket with over100,000 SF.

Austin is currently in the middle of an upswing in rentalrates and a shift to becoming a landlord’s market as city-wide average rental rates are at $20.37 per SF. SouthwestAustin saw an increase of over $3.50 per SF from a yearago, while the Far Northwest jumped over $2.70 per SF.Many seasoned commercial real estate professionals feel that Austin’s rental rates will continue to rise due to the increasing demand for office using jobs.Sublease space has also surged due to a couple of newlarge subleases in 2005. PPD Pharmaco is subleasing theirformer 168,000 SF campus on Ben White, and Freescale ismarketing 276,000 SF at their North Austin location onParmer. This skews a sublease market, which had seen itsvacancy drop every quarter since the first quarter of 2003.

Rick Whiteley

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


1999 6,903,000 146,000 46,000 4.5 28.302000 6,903,000 0 79,000 3.0 38.102001 7,229,000 326,000 -572,000 13.8 30.402002 7,931,000 702,000 154,000 21.2 24.402003 7,867,000 -64,000 -120,000 22.1 23.002004 8,427,000 560,000 54,000 25.0 24.202005 8,652,000 225,000 159,000 21.7 25.30

Downtown Office


1999 17,966,000 2,513,000 -351,000 8.2 –2000 19,066,000 1,100,000 1,715,000 4.7 –2001 22,084,000 3,018,000 -571,000 20.4 25.002002 28,326,000 6,242,000 -245,000 23.5 20.802003 28,628,000 302,000 212,000 23.6 17.902004 28,034,000 -594,000 1,104,000 17.4 18.602005 28,228,000 194,000 1,056,000 14.1 21.60

Suburban Office

Office

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The Bakersfield office market ends 2005 on a positive note.The downtown submarket is experiencing a 5.32% vacancyrate, up from the 2.71% of December 2004. The downtownmarket is comprised of county and city government officesin addition to several major law firms. Rents have remainedstable with an average of $1.45 per SF per month modifiedgross. Tenant improvement costs are approximately $12 to$25 per SF for second-generation space and $30 to $35per SF for new space. Over the coming year we expect the downtown market to hold its current vacancy rate.There are no new construction projects planned.The suburban submarket maintained a consistent vacancyrate ending 2005 at 8.42% compared to 8.86% in December 2004. Vacancy has remained steady as have rentswith the average rate of $1.65 per SF per month modifiedgross. Tenant improvement allowances for the suburbansubmarket are about the same as the downtown market.

Construction will continue into 2006 with approximately92,000 SF either in the planning stage or under constructionat this time. The most significant construction project completed in 2005 was the approximately 143,000 SF.Kern Schools Federal Credit Union building at 9500-9600Ming Avenue, with approximately 40,000 SF available forsublease. Kern County has an available, skilled, and affordable workforce benefiting companies in labor costs. According to statistics from the Kern EconomicDevelopment Department, doing business in Kern Countycan save businesses an average of $3.46 per hour in laborcosts compared with the national average. Even with therising costs of real estate for homebuyers, metropolitanBakersfield is still one of the most affordable cities in thestate with a median home price of approximately $250,000.Growth for the area’s population is expected to go from440,000 in 2005 to 501,400 by 2010.


1999 21,467,000 300,000 722,000 3.0 3.002000 21,907,000 440,000 800,000 2.7 3.102001 23,223,000 1,316,000 1,243,000 3.5 3.202002 25,716,000 2,493,000 1,576,000 4.9 3.202003 25,973,000 257,000 -263,000 7.0 3.202004 26,456,000 483,000 1,018,000 5.0 3.202005 27,026,000 570,000 870,000 3.5 3.60

David A.Williams, SIOR

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


1999 2,596,000 0 50,000 4.8 21.002000 2,696,000 100,000 94,000 5.8 16.202001 2,764,000 68,000 119,000 5.5 16.202002 2,798,000 34,000 73,000 4.0 17.402003 2,798,000 0 14,000 3.2 17.402004 2,798,000 0 24,000 2.7 17.402005 2,798,000 0 86,000 5.3 17.40

BA

KER

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A

Downtown Office


1999 4,404,000 -86,000 -453,000 14.9 21.002000 4,464,000 60,000 122,000 16.3 18.602001 4,464,000 0 125,000 13.5 19.202002 4,610,000 146,000 106,000 14.0 18.602003 4,707,000 97,000 307,000 9.4 19.802004 4,735,000 28,000 99,000 7.8 19.802005 4,925,000 190,000 218,000 8.4 19.80

Suburban Office

Industrial

Office IndustrialThe Southern Central Valley remained strong in 2005 withDreyer’s finishing a 400,000 SF expansion of “The largestice cream plant in North America” now at 650,000 SF.Tejon Ranch leased their 650,000 SF spec building toOneida and IKEA. Performance Foods finishing their160,000 SF distribution center in Shafter. The SouthernCentral Valley continues to receive more inquiries for largerdistribution centers as rental rates and land prices rise inthe Los Angeles Basin.

Vacancy rates have continued to fall (3.4 %) as tenantrequirements have jumped in number and size. The AllenGroup is putting the finishing touches on a 288,000 SF specbuilding and the City of Shafter is constructing major railfacilities in the International Trade and TransportationCenter (ITTC). Tejon Ranch has indicated some new product, however, nothing under construction to date.Sales of small buildings, from 5,000 to 9,000 SF, were verysuccessful during 2005. Land sales have also been brisk,which has caused a shortage of developed lots and drivenup prices. Vacancy rates will continue to drop while rentalrates and sale prices climb.

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Our outlook is positive, but cautionary. The Baltimore metropolitan area has seen two successive strong years ofjob growth, solid absorption, and sustainable construction.Office-occupying job sectors have continued to expand.The area’s strong federal presence—Ft. Meade,AberdeenProving Grounds, Edgewood Arsenal—have attracted anenviable roster of prominent government contractors,whose numbers are only expected to rise as the BRACrecommendations bring more jobs into the area.The demand for space near the military installations is likely to grow as the government displaces on-base contractors. A cautionary note, however, still seems warranted. The expected relocations into the area as aresult of BRAC are still a few years away. Certainly thegrowth rate of defense and homeland security spending isexpected to slow due to the fiscal deficit. The funding forweapons systems is being stretched out as the governmentmeets it commitments in Iraq, reconstruction of the Gulf Coast, funding of the prescription benefits plan, etc.

The cost of building and renovating space is more expensive,because of higher interest rates and the rising cost of basicconstruction materials. Approximately 60% of the spacecurrently under construction is still available for lease.If government contractors, which have helped fuel thegrowth in the BWI Airport market and to a lesser extentin Howard County, feel the pinch of fewer contract awardsand higher occupancy costs, they will probably try to cut costs rather than move into new, more costly space.Finally, from a historic perspective, the Baltimore markethas been able to sustain the 2-million SF rate of absorptionfor two years at a time before falling off and we are now atthat point given we have maintained this rate in 2004 and2005. We may now have the economic stamina to bestthat, but the past may prove a better indicator.


1999 74,848,000 2,529,000 2,608,000 11.6 4.752000 76,149,000 1,301,000 3,616,000 7.7 4.702001 80,050,000 3,901,000 917,000 13.3 4.502002 81,357,000 1,307,000 -322,000 16.8 5.002003 83,689,000 2,332,000 2,250,000 17.0 5.602004 84,827,000 1,138,000 -814,000 18.7 5.402005 87,354,000 2,527,000 3,924,000 16.5 5.90

Michael A. Elardo

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


1999 13,047,000 161,000 593,000 9.2 25.002000 13,271,000 224,000 171,000 9.3 26.502001 13,879,000 608,000 299,000 11.4 24.102002 15,569,000 1,690,000 33,000 19.6 21.402003 15,734,000 165,000 296,000 18.4 24.302004 16,115,000 381,000 294,000 17.7 24.002005 16,298,000 183,000 316,000 17.1 23.20

Downtown Office


1999 30,149,000 1,856,000 1,400,000 8.4 23.502000 32,595,000 2,446,000 1,913,000 9.9 23.702001 34,803,000 2,208,000 418,000 14.6 22.502002 35,804,000 1,001,000 14,000 17.4 18.402003 36,453,000 649,000 1,114,000 16.0 21.302004 38,128,000 1,675,000 2,213,000 14.2 22.502005 40,192,000 2,064,000 1,797,000 14.0 24.30

Suburban Office

Industrial

Office IndustrialThe Baltimore metropolitan area industrial market finished2005 with one of its strongest performances of the pastten years. Just under four million square feet of bulk distribution, flex, and office/warehouse space wereabsorbed, while 2.5 million square feet of new constructionwere added. The market remains segmented by buildingtype and location. Bulk distribution space, which constitutes70% of all industrial space, accounted for 90% of the absorption. The Baltimore-Washington Corridor is onceagain Baltimore’s strongest market. It absorbed 1.2 millionSF of bulk distribution space, while adding only 730,000 SF.This helped lower the vacancy rate for bulk distributionspace in the Corridor to 9.9%, its lowest rate since 2000.Despite a relatively flat year, the metropolitan areaoffice/warehouse market finished 2005 with a 12.8% vacancy rate, while the industrial flex market had a 14.2% rate, up slightly from the year before.

Investment sales activity remained strong even in thosemarkets with weaker leasing performance. Baltimore willrush into 2006 with a tailwind, due to the economy andunderlying real estate market. Since neither Maryland norBaltimore is a manufacturing center, Baltimore’s industrialgrowth is a function of distribution. Fundamentals for bulkdistribution are strong. One new bulk distribution buildingis under construction in the Corridor market, which onlyhas three Class A bulk buildings with 100,000 SF or moreavailable, one of these is under active negotiation at year-end. The one other sizable building under constructionat 4501 Hollins Ferry Road is a retrofit of a former brewery and flourmill. Big box users will find developmentoptions north of the city. Construction costs and interestrates will make new space more expensive, but rates in theCorridor are already in the $5.25 to $5.75 per SF NNNrange for bulk space and $5.75 to $6.75 per SF foroffice/warehouse.

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The Boise market experienced declines in office vacanciesand constant absorption throughout 2005. Vacancies indowntown Boise have finally dropped below the 10% barrier that it has been flirting with for over a year. ClassA direct vacancies have also tightened to less than 7%.Leasing activity has been solid in the downtown area and isexpected to remain strong there and in selected suburbanareas during the first quarter of 2006. One anomaly in theBoise market is the lack of upward pressure on rents.Rents have been increasing at rates lower than would beexpected in an environment where there are both decliningvacancies and rising construction costs. Lack of upwardpressure on rents has also made it more difficult to getnew office building projects off of the ground.

A key to the Boise office market in 2006 will be the rate of absorption of a new 180,000 SF building in the heart ofdowntown. The successful leasing of this new space maysignal other significant downtown building projects to move forward during 2006.

One main growth feature of Boise is the rapid populationexpansion west to smaller cities. In these areas, severalnewer large suburban office and business parks will continue to see strong leasing activity, while other westernsuburban locations may lag behind. Over the coming year, strong demand is expected in suburban markets forbusinesses looking to own smaller buildings in the 2,500 to 7,500 SF range.


1999 21,189,000 396,000 345,000 2.3 4.902000 22,550,000 1,361,000 1,558,000 1.5 5.002001 22,631,000 81,000 -712,000 5.0 4.502002 22,776,000 145,000 -476,000 7.7 3.502003 22,863,000 87,000 -468,000 10.1 4.402004 23,000,000 137,000 146,000 10.0 4.602005 23,088,000 88,000 288,000 9.1 4.60

George S. Iliff

755 W. Front Street, 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 – – – – –2002 – – – – –2003 3,011,000 75,000 -4,000 10.6 18.902004 3,263,000 252,000 187,000 11.7 18.802005 3,352,000 89,000 206,000 8.1 18.90

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 – – – – –2002 – – – – –2003 7,384,000 442,000 323,000 15.6 16.602004 7,553,000 169,000 157,000 19.2 17.602005 8,432,000 879,000 1,068,000 12.7 16.90

Suburban Office

Industrial

Office IndustrialBoise is still experiencing rapid residential and retail growthand there are indications that the industrial market willsoon take off in response. The Boise industrial market hasremained relatively unchanged over the past couple of yearsand is poised to follow the tightening vacancy trends thatthe retail and office markets are currently experiencing.Industries such as flooring, glass and other businesses thatsupport residential construction were those most activelyseeking industrial space in Boise during 2005. This trend isexpected to continue during 2006. Speculative building andbuild-to-suit projects are expected to prevail in 2006 compared to 2005 due to tightening vacancies and a limitedvariety of industrial space for lease. Boise is also poised tosee an increase in industrial condominiums to fit the needsof an growing number of tenants seeking small to mediumindustrial spaces in the 5,000 to 10,000 SF range.

Consistently stable rents are also expected to climb to ahigher rate in 2006 also due to tightening vacancies plus thelag of new construction coming onto the market. 2006 mayeven see Boise transition into a landlord’s market ratherthan the current tenant’s market where tenants claim mostbargaining positions. Nampa, west of Boise, has continuedto be a center of industrial leasing activity with very competitive rates. We anticipate this to expand in 2006 due to the shrinking supply and limited space variety inBoise. Further west in Caldwell, industrial leasing activity is also expected to experience growth during 2006.

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The downtown Boston market strengthened considerablyin 2005 with its Class A vacancy rate dropping to 13.9%from 14.8% in the third quarter and 17.9% one year ago.For the entire 58.4 million SF market, the vacancy rate fellto 14.4% from 15.3% in the third quarter and 17.9% inDecember 2004. Class A net absorption rang in at a positive 1.45 million SF for the year with the figure for allclasses topping 2.0 million SF, the 10th consecutive quarterof positive absorption. The Class A average asking rentclimbed over the $40.00 per SF mark to close the year at$41.40 per SF, up 8.2% from the $38.24 per SF one yearago. One of the largest leasing transactions for all of 2005,closing at year-end, was law firm Bingham McCutchen taking 320,000 SF at 1 Federal Street. The law firm will be relocating from 150 Federal Street where they occupy230,000 SF. On the investment side, ING Clarion has purchased 101 Arch Street for $121.7 million or just under $300 per SF.

The news was also positive for the 94.3 million SF suburbanBoston market as its overall vacancy rate dropped to 21.4%from 22.1% in the third quarter and 25.6% one year ago.The class A vacancy rate also came in at 21.4% at the closeof 2005, down from 28.0% in December 2004. Overall netabsorption finished the year at a strong 3.4 million SF.On the downside, the Class A average asking rent slid 3.0%to $20.10 per SF in the fourth quarter from $20.77 per SFtwelve months earlier. In the Cambridge submarket,Novartis leased 80,000 SF at 500 Technology Square fromowner MIT. Further west in Waltham, the 475,000 SFProspect Hill Office Park traded hands for $62.3 million or $131 per SF with Broadway Partners picking up thethree-building property. The metropolitan Boston economy improved somewhat over the fourth quarter as itsunemployment rate fell to 4.2% from 4.6%. Total nonfarmemployment climbed 0.7% to 2,450,000 from 2,432,000.


1999 55,830,000 795,000 2,170,000 9.7 6.002000 58,265,000 2,435,000 3,030,000 8.2 7.002001 60,327,000 2,062,000 -1,726,000 14.6 7.002002 61,185,000 858,000 -60,000 15.9 6.002003 61,942,000 757,000 -1,248,000 19.2 6.002004 62,557,000 615,000 -1,767,000 23.0 5.502005 62,557,000 0 503,000 23.7 5.50

Rick Kimball

50 Milk Street, 20th FloorBoston, MA 02109Tel 617-722-0221Fax 617-722-0224


1999 50,389,000 844,000 812,000 5.5 50.502000 52,239,000 1,850,000 2,290,000 4.5 72.002001 54,413,000 2,174,000 -1,935,000 11.9 55.302002 56,145,000 1,732,000 -860,000 16.2 43.702003 57,399,000 1,254,000 368,000 17.4 38.402004 58,207,000 808,000 -61,000 17.9 38.202005 58,427,000 220,000 2,045,000 14.4 41.40

Downtown Office


1999 77,921,000 5,599,000 7,904,000 12.3 25.602000 82,874,000 4,953,000 9,241,000 6.2 38.902001 89,707,000 6,833,000 -6,570,000 21.0 31.002002 93,157,000 3,450,000 -1,766,000 26.0 25.002003 95,541,000 2,384,000 -290,000 28.2 21.002004 95,363,000 -178,000 1,810,000 25.6 20.802005 94,321,000 -1,042,000 3,363,000 21.4 20.10

Suburban Office

Industrial

Office IndustrialThe 62.6 million SF Boston industrial market continues tohave a relatively steep vacancy rate though it did manage to fall 20 basis points over the fourth quarter to 23.7%.It remains higher, though, than the 23.0% from one yearago. Net absorption was a miserly 18,000 SF in the fourthquarter but the year to date total was 503,000 SF as inventory climbed by approximately 2.8 million SF.This contrasts significantly, however, to 2004 when therewas 1.8 million SF of negative absorption due to space givebacks by a variety of firms.

Average asking rents have been flat across the board forthe past year with warehouse/distribution space at $5.50per SF, bulk space at $4.50 per SF, flex/service space at$7.00 per SF and tech/R&D space at $8.00 per SF. In oneof the largest transactions on the industrial side in sometime, RREEF has purchased a 47-building flex/R&D portfoliofrom CrossHarbor Capital Partners for $507.5 million or $126 per SF. The properties are spread across New England with the majority (32 properties) in theBoston metropolitan area.

Research & development space was the name of the gameon the leasing side as Instrumentation Labs signed foralmost 400,000 SF at 180 Hartwell Road in Bedford,relocating from 250,000 SF at 101/113 Hartwell Avenue.In Marlborough, Sepracor, a pharmaceuticals group,renewed and expanded for a total of 96,000 SF at 33 Locke Drive (25,000 SF) and 111 Locke Drive (71,000SF), both flex buildings. Finally, Harvard Bioscience hasrenewed and expanded for 40,000 SF at New EnglanderIndustrial Park in Holliston with that flex building now 100 percent occupied.

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It was a banner year for the real estate market in theGreater Charleston area, with record sales prices and lease rates in all sectors. The region as has more than113,000 new rooftops approved or proposed for the area.This population potential will fuel future growth for themarket, both residential and commercial. Another consistentquarter for the downtown market resulted in positiveabsorption and a slight increase in rental rates.Opportunity for new development in an otherwise tightsub-market is underway with the completion of the New Cooper River Bridge and the demolition of the older structures.The ensuing open space will provide new residential andmixed use developments. The redevelopment of the “neck”area of downtown with notable projects such as theMagnolia master planned development and The GinnCompany’s new residential developments, are on the horizon for 2006 and beyond.

The thriving East Cooper submarket is competing directlywith downtown Charleston for the highest quoted officerental rates. Two bedroom communities are achievingrecord sales prices for office product as well as rental rates close to $30.00 per SF. Lower North Charleston saw a tremendous rebound with a significant amount ofabsorption bringing vacancy to an all time low, and settingnew highs for rental rates. Over the past four years, theprospects for this market have continued to be Fortune1000 tenants and defense contractors. North Charlestonis also enjoying a re-emergence as a top business city in the region, with large corporate announcements includingBoeing, Daimler Chrysler, Belhar Heat Transfer andShimano. Overall, this market will continue to absorbspace and 2006 will be the year that the region delivers a record number of major new office developments withactivity expected through 2007.


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 1,447,000 18.5 3.402004 18,029,000 1,070,000 1,389,000 18.4 3.502005 20,801,000 350,000 1,692,000 7.8 3.70

Terry AnsleyPeter Fennelly

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


1999 – – – – –2000 1,403,000 0 49,477 8.0 23.752001 1,734,000 331,000 200,000 9.0 24.002002 1,764,000 30,000 17,000 10.3 24.382003 1,890,000 126,000 -75,665 13.3 24.312004 1,949,000 59,000 30,566 11.3 25.112005 2,045,000 96,000 55,234 11.5 27.44

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,SC

Downtown Office


1999 – – – – –2000 – – – – –2001 – – – – –2002 4,757,071 220,000 64,000 16.1 19.462003 5,539,274 782,203 412,540 20.5 19.092004 5,646,774 107,500 479,043 13.53 19.582005 5,976,000 329,226 442,221 10.9 23.57

Suburban Office

Industrial

Office IndustrialThe Charleston industrial market continued to evolve andgrow due to port related activity, defense contract workand the burgeoning aviation industry. Existing product wasabsorbed at a rapid pace, and land for new developmentcontinued to increase in price. Much of the growth is pushing north along I-26 toward I-95 for better access todistribution corridors. New third party logistics providershave arrived and have brought business with them andpicked up more business by virtue of their move.

The increase in product moving across the port docks has created a need for terminal expansion. Much of theexpansion will be handled on the southern end of the former Charleston Naval Base, where the State PortsAuthority has obtained control. New construction wasimmaterial in 2005, but the face of the industrial market isset to change in 2006. Defense contractors are relocatingto the Charleston area either to deliver on defense contract work or to pursue new contracts. While some ofthese users are absorbing traditional flex space, many aredemanding R&D space. The aviation industry is also on themap with the construction of the Vought/Alenia Aviationmanufacturing facility, where the main components of theBoeing 787 Dreamliner will be produced. Construction isunderway, and many of the project’s 75-100 supply vendorsare viewing the market as a must for a facility location.With the health of the market, rates will remain flat short term, while vacancy drops and absorption climbs.However, new construction will begin and with hopes ofsatisfying growing demand. This will cause a short-termincrease in vacancy, but it will be short lived and rates will again begin to creep up.

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The pace of leasing improved steadily over 2005 with endof year net absorption totaling just over 2.01 million SF,which includes 827,577 SF of net absorption in the fourthquarter alone. Class A buildings have absorbed most of thespace in 2005. Consequently, the overall market vacancyrate dropped from 14.2% to 12.6% at the end of the fourth quarter. While another 786,626 square feet is underconstruction, these positive absorption trends could lead to a reversal of the oversupplied market. While it is stillperceived to be a tenant’s market, in selected submarketsthere is a measurable shift in landlords’ attitudes and thelevel of concessions. In the majority of the suburbs,landlords are still fighting to keep existing tenants and to win new ones. The tide is shifting slowly, but it isundoubtedly turning. With the economy’s continuedimproving fundamentals, many firms are cautiously expanding. Many landlords are finding incremental expansions and early lease renewals of existing tenantsdriving the positive absorption, however, they continuetheir uphill battle to win “street deals.” Smart tenants willbe out in the market, taking advantage of the circumstancesand negotiating for their growth while the tenant’s marketlasts. We expect to see continued positive absorption,measured levels of new construction, steadily decliningvacancy rates and increasing rental rates. Slowly improvingstatistics, patience, and a careful eye on interest rates willbe the name of the game for early 2006.


1999 135,471,000 1,959,000 2,044,000 13.0 4.302000 136,821,000 1,350,000 1,712,000 9.7 3.802001 137,625,000 804,000 -644,000 14.4 3.602002 138,828,000 1,203,000 -486,000 17.2 3.402003 139,002,000 174,000 76,000 18.2 3.402004 139,365,000 363,000 981,000 17.0 4.102005 140,601,000 1,236,000 2,224,000 11.1 4.10

Robert A. Cochran

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


1999 17,488,000 1,145,000 938,000 5.1 28.002000 18,240,000 752,000 947,000 3.2 25.302001 18,907,000 667,000 126,000 5.4 24.502002 19,905,000 998,000 364,000 9.5 22.902003 20,005,000 100,000 -7,000 10.2 23.802004 20,005,000 0 77,000 9.7 23.802005 20,095,000 90,000 463,000 5.2 21.30

Downtown Office


1999 30,790,000 420,000 1,558,000 13.0 24.002000 31,927,000 1,137,000 1,423,000 11.8 21.802001 33,780,000 1,853,000 215,000 17.8 20.302002 34,637,000 857,000 98,000 19.8 20.002003 35,029,000 392,000 539,000 18.9 19.302004 35,692,000 663,000 89,000 20.7 19.302005 36,645,000 953,000 1,551,000 16.6 19.40

Suburban Office

Industrial

Office IndustrialThe Charlotte industrial sector continues to move in positive direction. We expect vacancy rates to steadilydecline and rental rates to slowly increase going into 2006.Speculative warehouse buildings will follow once ratesachieve the level that justifies new development; we anticipate that to be anywhere from $4.25 to $4.50 SF withminimum office requirement. The Charlotte industrial flexmarket continues to weaken with vacancy remaining aboutthe same from the third quarter to the fourth at 21.4%.Year ending absorption is negative at 132,652 SF.Surprisingly, rental rates increased this quarter to an average of $6.97 SF NNN from $6.84 NNN. Free rent is abundant in an effort to keep market rental rates up.The southwest flex market has seen the most activity due to the quality product located near I-77 and I-485,providing easy access to interchanges. Moving forward we expect the strong incentives South Carolina offers will bring speculative buildings across the state line.Also, the number of industrial jobs added to the Charlotteworkforce has made steady progress at 2.75%, which isabove the U.S. average. Charlotte’s unemployment rateshave stayed consistent with national averages of 5.25%.

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Despite a modest decrease in overall vacancy rate, the suburban Chicago office market was defined in 2005 by asubstantial decline in positive net absorption and a furtherweakening of the Class B and Class C segments. It was aninteresting year. The high number of large completed transactions proved insufficient to offset the return ofmany sizable blocks of space to the market, most notably in the Oak Brook East area.

Each submarket showed a decrease in vacancy rate compared to the same time period in 2004, with the East-West corridor posting the biggest changes. The overallvacancy rate for all classes measured 20.7%, down from the 21.8% posted at year-end 2004. Overall positive netabsorption totaled only 1.4 million SF, half of last year’snearly 2.8 million. Only one submarket outperformed its2004 total. The Lisle-Naperville market, perennially theweakest of all submarkets, achieved 400,531 SF of absorptioncompared to 306,923 SF in 2004. However, with the highest Class A vacancy rate of 28.7%, a full recovery will take several years. In the Class A segment, the poor year-end 2005 absorption figures truly do not reflect the “flight to quality” trend that most of the markets have experienced.


1999 984,340,000 22,227,000 24,189,000 5.6 5.202000 1,003,483,000 19,143,000 15,680,000 5.8 5.602001 1,013,831,000 10,348,000 -10,978,000 8.0 5.102002 1,027,192,000 13,361,000 1,305,000 8.9 4.402003 1,040,658,000 13,466,000 7,392,000 9.4 4.602004 1,057,936,000 17,278,000 13,221,000 9.5 4.502005 1,076,828,000 18,892,000 19,349,000 9.0 4.60

David A. Bercu, SIOR

6250 North River Road, 11th FloorRosemont, IL 60018Tel 847-698-8444Fax 847-698-8445


1999 116,522,000 2,600,000 -156,000 10.7 34.302000 117,326,000 804,000 2,140,000 10.2 36.002001 119,557,000 2,231,000 -685,000 12.7 35.002002 120,387,000 830,000 -3,404,000 16.6 32.002003 123,212,000 2,825,000 -945,000 16.9 32.002004 125,070,000 1,858,000 1,544,000 17.0 32.002005 126,726,000 1,656,000 207,000 19.5 34.00

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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 103,149,000 539,000 2,501,000 21.8 22.002005 106,091,000 226,000 1,365,000 20.7 23.60

Suburban Office

Industrial

Office IndustrialThe Chicago Industrial Market experienced explosivegrowth in 2005, with sales and leasing activity totalingapproximately 60 million square feet of space.The approximately 25 million SF in sales was most remarkable, though hardly overshadowed the impressive 35million square feet of leasing activity. Additionally, absorptionincreased more than 35%, to 19.4 million SF, resulting in avacancy decline to 8.66% in 2005, from 9.11% in 2004.Clearly, the market leader is the southwest suburban areawhere 14.9 million SF of lease and sale activity produced8.4 million SF of positive absorption. This represents anincrease of 40 to 60 percent over last year. This is not surprising since within this market are the I-55 and I-80corridors, recognized as the distribution hub ofChicagoland. Notwithstanding its “darling” status, this submarket’s vacancy rate remains the highest in the area at 14.65%, down from 17.18% one year ago.

Our greatest concern, however, is the south suburban market, one of only two submarkets to have negativeabsorption for the year. Rising Cook County real estatetaxes and a continued slow down in the manufacturing sector has plagued the south suburban area.Manufacturing weakness has also had a profound impact on this submarket, since many operations have closed orwere sent overseas, thus contributing to increased supplyand falling demand for this product type. Additionally, thedistribution needs of manufacturers are also sliding as fewerproducts are produced and distributed in Chicago.

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The last year was anything but quiet in DowntownCincinnati. Between a new office tower, Chiquita,Convergys, Fountain Square, the Banks, and corporatemergers, there was definitely a lot of buzz about theCincinnati Central Business Disctrict in 2005. As expected,Downtown Cincinnati’s vacancy increased a great deal in2005, particularly in the Class A market. CBD Class Avacancy rose to 11.2% by the end of 2005, an increase from 6.3% at year-end 2004. This large increase in Class Avacancy was partly due to consolidations and relocations,and partly due to the addition of a new office tower(188,000 SF) on the market. The Class B market performedstronger, with vacancy falling from 16.7% at the end of 2004to 16.0% at year-end 2005. However, the improvement inClass B wasn’t enough to offset the increase in Class Avacancy, as the overall market saw vacancy rise to 13.7% in 2005, up from 11.9% a year ago.

While the CBD market remained in a state of uncertainty,the suburban market showed stronger signs of growth.Overall net absorption for the suburban market totalednearly 730,000 SF for the year. Overall vacancy in the suburbs decreased slightly from 21.63% in 2004 to 21.02%in 2005, with Class A vacancy falling from 21.38% to19.15%. The positive absorption and decreased vacancyoccurred despite the addition of new speculative construction totaling approximately 590,000 SF.Almost 60% of new suburban office construction wasleased at the time of delivery, further illustrating thedemand for new space on the market. The other clear signof health in the suburban market relates to rental rates andconcessions. Landlords are now regaining control of rentalrates and realizing rent growth, as the suburban market isseeing a slight increase in rates and a reduction in rent concessions, particularly free rent.


1999 228,346,000 9,000,000 2,163,000 5.0 4.302000 236,346,000 8,000,000 2,500,000 6.0 3.302001 241,785,000 5,439,000 464,000 7.6 3.202002 243,885,000 2,100,000 1,003,000 8.5 3.202003 244,927,000 1,042,000 -35,000 8.9 3.202004 247,584,000 2,657,000 6,134,000 7.8 3.202005 250,612,000 3,028,000 7,636,000 5.8 3.20

Laura Brunner

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


1999 12,905,000 36,000 137,000 7.6 20.602000 12,918,000 13,000 55,000 6.9 20.902001 12,918,000 0 -110,000 8.2 21.302002 13,068,000 150,000 105,000 13.4 21.202003 13,068,000 0 8,000 13.0 21.202004 13,068,000 0 62,000 12.5 21.002005 13,256,000 188,000 -428,000 16.8 21.80

Downtown Office


1999 13,933,000 409,000 361,000 11.6 22.002000 14,917,000 984,000 225,000 12.9 16.302001 16,050,000 1,133,000 735,000 16.4 19.302002 16,693,000 643,000 149,000 22.9 19.702003 16,693,000 0 142,000 22.4 19.802004 16,693,000 0 -354,000 25.2 19.802005 17,284,000 591,000 730,000 23.9 19.80

Suburban Office

Industrial

Office IndustrialThe Greater Cincinnati industrial market had a great yearin terms of vacancy rates. By year-end vacancies haddropped 25%, landing at 5.82%, down from 7.83% at thesame time in 2004. In addition, overall market vacanciesdecreased for the second consecutive year, and reachedtheir lowest year-end level since 2000. In last year’s marketreport, we projected net absorption would exceed 7 millionSF in 2005, and it did just that. Across the board, netabsorption in Greater Cincinnati totaled over 7.6 million SFfor the year, the highest total for the market since 7.4 millionSF was absorbed in 2000. Increased production, businessexpansion, and new companies entering the market wereprimarily responsible for the healthy growth. The morethan 12 million SF of gross absorption in the market forthe year shows further evidence of the robust climate.

The bulk warehouse sector of the market saw the mostsuccess in 2005 and had the greatest impact on the marketturnaround. Bulk vacancy at year-end was 10.40%, downnearly 42% from 17.7% at year-end 2004, and down a staggering 49% from 20.18 at year-end 2003. Net absorptionfor the bulk sector in 2005 exceeded 4.6 million SF, andaccounted for nearly 60% of the total net absorption in themarket. The bulk sector recorded more than 7.3 million SFof gross absorption (or new transactions) in 2005, morethan double the total of 3.6 million SF in 2004. There were22 bulk transactions (excluding renewals) of more than100,000 SF in 2005, a clear indication of how strong thebulk sector performed during the year. As expected, newconstruction of industrial property in Greater Cincinnatiexceeded the previous year’s total for the second consecutive year. More than 3 million SF of constructionwas delivered to the market in 2005, compared to approximately 2.6 million SF in 2004.

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The Northeast Ohio region and Cleveland are gainingnational significance and reinventing themselves in part due to the growth of biotechnology companies and theinnovative technology projects in the area. Cleveland ishome to over 400 bioscience companies with 350,000employees and was recently honored as one of the sevenfinalists for the Intelligent Community of the Year award.Cleveland was the only US city to earn the designation.This ranking is based on several factors including the use of technology applications to spur economic development,marketing, forums on regionalism, and digital makeovers ingovernment and nonprofit sectors. Last year the boost inmarketing when Intel recognized the region as a WorldwideDigital Community no doubt played a role in this topachievement. Northeast Ohio is already reaping the benefits of making such an impression on the technologyworld. Partnerships have been established with Intel,Cisco Systems and IBM.

Colliers’ office market numbers show that Cleveland’s CBD(Central Business District) remains stable with slow growthwhile the suburban sub-market shows signs of improvement.In contrast to the year-end of statistics of 2004, Class ACBD vacancy is down by 3% and Class A suburban vacancyis down by 7.3%. The CBD has begun to turn itself aroundafter suffering a negative absorption of 318,997 SF for2004. The CBD has shown a healthy improvement withpositive absorption of 44,805 SF in 2005.


1999 341,850,000 3,300,000 3,724,000 7.4 5.502000 343,749,000 1,899,000 -3,088,000 8.9 5.502001 345,697,000 1,948,000 -7,162,000 9.4 4.502002 347,438,000 1,741,000 -1,120,000 9.6 3.502003 348,455,000 1,017,000 -5,682,000 10.3 4.102004 350,839,000 2,384,000 2,372,000 10.1 3.602005 351,653,000 814,000 3,928,000 9.2 3.55

Joseph J. Martanovic

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


1999 27,347,000 26,000 -134,000 15.3 23.002000 27,384,000 37,000 352,000 13.9 22.502001 27,384,000 0 -429,000 14.0 21.202002 28,089,000 705,000 -1,285,000 22.1 20.002003 28,104,000 15,000 -575,000 23.5 20.502004 28,104,000 0 -79,000 23.9 20.502005 28,104,000 0 45,000 22.2 20.90

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1999 51,982,000 578,000 218,000 14.9 22.502000 52,850,000 868,000 771,000 15.4 23.302001 53,276,000 426,000 173,000 17.1 22.002002 53,473,000 197,000 348,000 15.4 21.602003 53,583,000 110,000 -61,000 18.3 20.902004 53,674,000 91,000 311,000 16.5 19.102005 53,790,000 116,000 107,000 13.0 21.00

Suburban Office

Industrial

Office IndustrialCovering the seven counties of Cuyahoga, Lake, Summit,Lorain, Medina, Portage, and Geauga, the total industrialinventory at the end of 2005 was 173,485,000 SF. In thesecond half of 2005, two large buildings totaling 366,871 SFwere added to the market. As anticipated, absorption andvacancy continued to improve throughout 2005. In fact,absorption rates saw positive movement in each quarter.While tenants such as Logistics Partners Incorporated, RPI,and Lesco moved out of the market, Royal ApplianceManufacturing Company and Apex spearheaded the movement into the market. The net positive absorption for the Cleveland / Northeast Ohio market skyrocketed byover 2,500,000 SF. Similarly, vacancy rates in 2005 showedimprovement with the lowest rates in over three years.Sales activity perked up in 2005 as well. The net result wasan average price per square foot of $27.04. Comparing thisto 2004, the average sale rate per square foot jumped byover 17% and the number of deals increased by over 12%.

On the leasing front, three leases over 200,000 SF werenotable in 2005. At 745 Industrial Parkway in Avon Lake,255,316 SF was leased; Mr.Gasket Company signed a225,000 SF deal at American Greetings Business Park; andRoyal Appliance Manufacturing Company leased 216,190 SFat 1200 Babbitt Road in the City of Euclid on Cleveland’seast side.

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The Columbia office market continued to show signs ofimprovement over the second half of 2005, with positiveabsorption of 77,592 SF. Average rental rates increasedfrom $13.80 per SF at mid-year to $14.12 per SF at year-end2005. Although rental rates rose across the market, therewere noted declines in weaker markets. The Class A officemarket absorption dropped 4,288 SF, largely due to company downsizing in the Central Business District.In the suburbs, Class A absorption was 66,576 SF. Class Aoccupancy for the overall market currently stands at86.20% with an average quoted rental rate of $17.59 perSF, down from $18.72 at mid-year. Class A office space consisted of 2,820,000 SF, or approximately 31% of theoverall market.

The Columbia economy continued to perform well in2005. Job creation in November was up 1.6% over the previous year. Among the highest growth sectors were private services (legal, accountants, etc.) with 4,600 new jobs and government (federal, state and local) with 1,100 new jobs.

The Columbia office market will continue to strengthen in2006 as the regional economy expands further. We anticipatethe most robust submarkets to be the St. Andrews andNortheast areas of Columbia. As these markets steadilytighten, we should see a rise in quoted rents. Other marketforces, such as mounting utility costs and interest rates, willno doubt boost rents across the board. We may see atrend in early 2006 for small Class C tenants to move up into A and B space, locking in on rates before theyincrease significantly.


1999 25,954,000 1,048,000 1,183,000 6.8 3.252000 27,035,000 1,081,000 781,000 8.0 3.252001 27,809,000 774,000 1,298,000 5.2 3.252002 29,414,000 1,605,000 -143,000 10.6 3.252003 29,414,000 0 -1,082,000 15.4 3.252004 29,632,000 218,000 1,253,000 10.5 3.652005 29,884,000 252,000 1,745,000 5.1 2.78

Woody Moore, CCIM

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


1999 – – – – 18.802000 4,104,822 0 50,000 4.6 18.502001 4,184,822 80,000 -267,000 10.9 18.802002 4,240,822 56,000 -18,000 11.2 18.002003 4,240,822 0 97,000 8.9 17.802004 4,590,822 350,000 -135,000 14.4 19.702005 4,481,000 0 -10,000 12.8 19.78

Downtown Office


1999 – – – – 16.502000 4,698,722 90,000 103,000 7.6 17.002001 4,733,722 35,000 -41,000 15.2 18.002002 4,833,722 100,000 236,000 12.4 18.002003 4,908,722 75,000 -248,000 21.3 17.502004 4,908,722 0 72,000 23.5 16.202005 4,798,000 35,000 229,000 22.4 17.12

Suburban Office

Industrial

Office IndustrialColumbia’s industrial market continued to show improvement and strength throughout 2005 with theabsorption of 1,744,800 square feet, greatly surpassing thelevel achieved in 2004. Since 2003, when occupancy ratesdropped below 85%, the market has shown significantimprovement with almost 3,000,000 square feet of industrial and warehouse space being absorbed and with year-end 2005 witnessing a 94.9% occupancy rate.There was limited new product coming into the marketduring the year. The recently completed Carolina Pines II,a 178,000 square foot speculative industrial building in thenortheast area on I-77 and marketed by Colliers Keenan,provided occupancy for both Shakespeare Company(100,800 sf) and Aaron Rents (75,250 sf). Along with occupancy, market rental rates continued to improve during the year from an average of $3.65 per square foot in 2004 to $3.78 per square foot at 2005 year-end.

There are many local and national factors that will influencethe industrial market throughout 2006. The current verylimited supply of Class A product, together with increasedcustomer demands and changing retail patterns, may spurthe development of additional speculative industrial productin the coming year. However, recent increases in the costof construction will require rental rates greater than themarket is currently supporting and developers may decideto wait and see if rates will rise enough to support newproduct before they commit to additional product. As theU.S. consumer demand for imports continues to escalate,the overall demand for warehousing and distribution spacewill increase. With the effects of Hurricane Katrina stillvery much evident in New Orleans and at its port, the Port of Charleston, as well as the midlands area of SouthCarolina, should see greater traffic and rising demand forstorage and distribution space.

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Vacant space appearing on the market has slowed. At theend of 2005, approximately 48 million square feet of officespace was vacant resulting in a rate of 18.5%. Class A andC vacancy rates improved in fourth quarter, a combineddecrease of over 2.5 million square feet. Sublease spacecontinued its downward trend representing 1.2% of themarket or 3 million SF down from over 3.4% or nearly 6.5 million SF in 2001.

Year-end absorption figures continued positive for a second successive year reaching 1.7 million SF. This trendfollows three consecutive years of negative absorption.Dallas’ suburban markets accounted for the positiveabsorption with nearly 1.9 million SF, while the Dallas CBDrecorded negative absorption of 176,000 SF.

One of the most notable deals in 2005 involvedCountrywide Financial’s initial lease of 500,000 SF in the Telecom Corridor (Richardson/Plano) with growthexpectations to over 5,000 employees in that sector.Other significant leases signed fourth quarter were HomeDepot’s 138,000 SF lease at Addison I in Far North Dallasmarket,T-Mobile inked a deal in Duke Bridges I and II forjust over 230,000 SF in Far North Dallas, and DriveFinancial Services 73,000 SF renewal in the StemmonsFreeway market.

Rental rates ticked up at year-end averaging $18.05 per SFfor the overall market compared to $17.74 per SF at thirdquarter. Lease rates began to stabilize in some sectors, anda number rents climbed substantially in Class A propertiesin prime locations. Landlords and developers will need tobe competitive and aggressive to secure leasing activity.Those tenants significant in size and/or credit worthinesscontinue to have multiple choices, while reductions in availability and subsequent reduction in options will be seen for smaller, less credit-worthy tenants.


1999 580,194,000 19,724,000 16,568,000 6.6 3.002000 595,632,000 15,438,000 10,403,000 7.1 4.102001 615,793,000 20,161,000 914,000 10.1 3.502002 626,234,000 10,441,000 7,369,000 10.4 3.002003 631,634,000 5,400,000 -2,634,000 11.7 3.002004 634,196,000 2,562,000 2,918,000 12.2 3.002005 640,198,000 6,002,000 10,846,000 11.1 3.35

Mark Noble, SIOR

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


1999 34,120,000 0 0 19.3 21.002000 34,120,000 0 -278,000 20.1 22.502001 34,249,000 129,000 115,000 20.0 25.002002 34,352,000 103,000 -578,000 22.0 19.002003 34,352,000 0 -456,000 23.3 18.502004 34,352,000 0 183,000 22.8 18.502005 34,352,000 0 28,000 22.7 19.10

DA

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H,T

XDowntown Office


1999 199,040,000 15,370,000 11,566,000 12.8 23.002000 205,292,000 6,252,000 6,424,000 12.3 22.702001 214,219,000 8,927,000 265,000 15.9 23.502002 217,727,000 3,508,000 -2,194,000 18.2 21.002003 220,462,000 2,735,000 389,000 19.1 20.502004 224,105,000 3,643,000 5,612,000 17.9 20.002005 226,735,000 2,630,000 2,238,000 17.8 22.00

Suburban Office

Industrial

Office IndustrialThe Dallas/Fort Worth industrial/flex market covers 10,892properties with a total of 640 million SF. Overall vacantspace experienced a slight increase of 0.2% to 11.1% or70.8 million SF, from the previous quarter. Sublease vacanciesdecreased to 3.2 million SF from 5.0 million SF a year prior.All sectors reported decreases from the previous quarter.The flex sector posted a 0.3% decrease, shallow-bay a 0.4%decrease, with industrial reporting a 1.7% decrease invacant space from year-end 2004. The majority of thevacancies were concentrated in Northeast Dallas, GreatSW/Arlington, and Northwest Dallas. The industrial sectorcontinued its trend of positive absorption closing 2005 with3.4 million SF and YTD absorption of 10.8 million SF. Sevenof the nine submarkets posted year-end positive absorption.

Recent lease activity in N. Fort Worth submarket includes:Nestle leasing 524,252 SF and LG Electronics’ lease renewalof 499,797 SF at Alliance Gateway; and Teleflex Medical leasing 367,815 SF at Westport at Alliance 3. In Lewisville,Rheem Sales Company leased 325,654 SF at Waters RidgeIII; and in the DFW Airport submarket, Exhibitgroup/Giltspurrenewed a 10-year deal at DFW Trade Center.

The average asking rental rate for warehouse and distribution space increased from $3.25 to $3.35 per SF.Bulk space rates of 100,000 SF or more improved slightlyfrom $3.10 to $3.20, while flex space increased to $6.50per SF. The strongest leasing activity will continue in themajor suburban markets of DFW Airport, Northeast Dallas,and Northwest Dallas based on the abundance of vacantspace available. According to Real Capital Analytics,Dallas/Ft. Worth ranked as the third largest acquisition market in 2005. Industrial continues to generate a great deal of interest from the investment community.Private investors account for the majority of the purchaseactivity over the past twelve months; however, private capital buyers will be less dominant in 2006.

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For the first time since 1999, the Denver area achievedpositive absorption in both direct and sublease space.With positive total absorption of 2.5 million square feet,2005 represents a banner year that rivals the late 1990’s.The real story; and the main reason 2005 will be recognizedas such an excellent year, is that 83% or 2.1 million of thesquare footage absorbed was space offered directly frombuilding owners. The Denver MSA overall vacancy rate continued to decrease and by year-end recorded 18.1%,down from its peak in 2003 of 21%. Over 220,500 SF ofClass B space was added to the Denver area inventoryduring 2005, which prevented a further decrease in thevacancy rate. At year’s end, Class A properties finishedstrong with a direct vacancy rate of 15.8% with a 2.3%vacancy rate on sublease space, while Class B reportedvacancy rates of 17.1% on direct space and 1.7% on sublease space.


1999 216,942,000 1,800,000 -471,000 5.5 4.002000 221,334,000 4,392,000 2,434,000 6.5 4.502001 225,723,000 4,389,000 1,920,000 7.1 5.902002 230,178,000 4,455,000 -264,000 8.5 5.652003 232,866,000 2,688,000 -666,000 9.6 5.602004 234,879,000 2,013,000 2,105,000 9.5 5.602005 236,502,000 1,623,000 2,850,000 8.8 5.55

Robert M.Whittelsey, SIOR

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


1999 25,106,000 22,000 288,000 7.3 24.402000 25,688,000 582,000 665,000 5.5 27.502001 25,894,000 206,000 -793,000 10.8 25.402002 25,894,000 0 -1,206,000 14.9 22.402003 25,894,000 0 -123,000 15.3 20.502004 25,894,000 0 -173,000 14.8 18.202005 25,894,000 0 447,000 14.0 18.50

Downtown Office


1999 72,948,000 5,028,000 2,106,000 9.5 26.502000 77,976,000 5,028,000 7,495,000 8.3 22.902001 82,575,000 4,599,000 1,652,000 15.1 21.502002 84,690,000 2,115,000 -1,300,000 18.7 19.002003 85,466,000 776,000 381,000 18.0 19.302004 86,409,000 943000 1,052,000 16.3 19.452005 86,617,000 208,000 2,130,000 14.5 20.40

Suburban Office

Industrial

Office IndustrialThe seven major counties in the Denver metro servicesshowed continued strength in 2005, absorbing more spacethan in 2004 (2,210,613 vs. 1,664,713). In fact, for six ofthe last eight quarters we’ve seen positive absorption, andwe anticipate more of the same in 2006. Shockingly, of this2,210,613 SF, a whopping 1,237,943 SF was flex space andonly 972,669 SF was classified as industrial. The averageindustrial lease rate at the end of 2005, including direct andsublease space, was $5.47 SF NNN, a slight decrease from2004 at $5.56. Sublease space tends to have an asking rateof 15% lower than direct space. Lease rates appear to havestabilized and with the trends of vacancy declining andabsorption increasing, we predict lease rates will stabilizeor begin to increase over the next twelve to twenty-fourmonths. Vacancy rates finished 2005 at 9.5% compared to10.1% at the end of 2004. At the end of the third quarter,vacancy rates were as low as 9.3% but then increasedslightly in the 4th quarter. The flex market showed themost significant decrease in vacancy, declining 2.1% fromthe previous year. The high-cube sector only declined 0.1%, but the good news is a large supply of cheaper sublease space was absorbed which should result in moredirect absorption in the upcoming year, leading to greaterdrops in vacancy.

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Metro Detroit’s long-term office vacancy and absorptionhas remained relatively static over the past 24 months and this may be seen as a positive sign that the market is “holding its own.” Rental rates while on the increasenationally, remain relatively unchanged in metro Detroit.The average overall rental rate at year-end was $20.49 persquare foot, and was the same as recorded in the previousquarter. Expect further decreases in face rates through2006 as anticipated vacancy is actualized and owners continue to fight to maintain occupancy. The overall vacancyrate stood at 15.7% at the end of the 2005 fourth quarter;relatively unchanged from the third quarter. Nationally, as in the Detroit region, investment sales volume slowed foroffice product while new listing offerings increased, nearlytwice as much as in 2004.


1999 431,272,000 5,000,000 -593,000 7.0 5.802000 439,103,000 7,831,000 -1,752,000 9.0 5.702001 445,159,000 6,056,000 -11,789,000 12.6 6.002002 447,488,000 2,329,000 -12,891,000 13.1 4.802003 448,632,000 1,144,000 -5,626,000 14.2 4.802004 449,916,000 1,284,000 1,647,000 13.0 4.802005 451,329,000 1,413,000 7,914,000 11.6 5.00

Cameron P. McCausland

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


1999 26,102,000 0 -103,900 8.6 25.752000 26,102,000 0 187,000 11.0 27.802001 26,102,000 0 -218,000 11.4 25.802002 26,248,000 146,000 -319,000 16.5 24.002003 27,328,000 1,080,000 569,000 17.3 21.002004 27,328,000 0 588,000 14.3 21.502005 27,328,000 0 -172,000 15.8 22.50

DET

ROIT,M

I

Downtown Office


1999 92,060,000 1,345,000 971,000 6.5 24.502000 93,958,000 1,898,000 -236,000 7.1 24.302001 95,875,000 1,917,000 -1,927,000 12.8 25.302002 97,311,000 1,436,000 -3,015,000 15.0 24.802003 98,151,000 840,000 -807,000 16.4 23.002004 98,982,000 831,000 598,000 16 22.002005 99,687,000 705,000 777,000 15.5 23.50

Suburban Office

Industrial

Office IndustrialMetro Detroit’s industrial/flex market continues to gainmomentum with increased net absorption and decreasedvacancy rates after four straight years of decline. The averageoverall asking rental rate has remained stable over the pasttwelve months at $5.60 per SF. In the Airport District,vacant space is a rarity and rates are high, while inWashtenaw County and most of the west submarket sectors reflect a more realistic rate. Effective rental ratesare usually up to 20% less than asking rates, due to concessions and face rate reductions used as incentives for tenants to commit to a lease.

The overall industrial/flex vacancy rate continued its declinein the fourth quarter and stands at 11.4%. This is 1.3%lower than at year-end 2004. Available sublease space represents a mere 2.5% of total overall vacancy. Just over1,400,000 SF is under construction; nearly all of which iswarehouse/distribution space concentrated in the central I-96 and I-75 corridors. In the metro Detroit market,demand for warehouse/distribution and flex product ishigher than for office product. After a flurry of activitythroughout the first half of the year, during the second half, the market has slowed a bit.

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FT.LAU

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DC

OU

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Y,FL

With an inventory of over 48 million square feet, BrowardCounty/Greater Fort Lauderdale continued to showhealthy growth. The overall vacancy rate decreased byapproximately three percentage points from year-end 2004.The amount of sublease space also dwindled as the markettightened. What used to be a tenant’s market became alandlords’ in 2005. The cities in Southwest Broward faredthe best for attracting new tenants. This was due in part toadequate and convenient parking, ease of travel to and fromwork, and along with the fact that many of the decisionmakers reside in these areas. The area of Cypress Creek,also referred to as “Uptown” is finally showing resurgence.It has excellent proximity to interstate travel, and rates arelower than the Central Business District. A recent leasesigned by Kaplan Inc. for 100,000 SF in a proposed buildingdue to be completed by the end of this year boosts optimism in this submarket.

There is currently over 1.5 million SF of office projectsunder construction, with the majority of these new properties going up in Plantation, Coral Springs, andSunrise; all cities in the western part of the county. Theavailability of land for new construction is becoming scarce.The Everglades are to the west and the Atlantic is to theeast, so developers are grabbing any acreage that becomesavailable, which has sent the price of land soaring. Also, themajor hurricane this season has put new emphasis on manyelements regarding business in South Florida. In addition toa temporary shut down of some businesses resulting infinancial loss, the long term affects on operating costs suchas sky-rocketing insurance will be interesting to watch asthe on the overall economy unfold. Local economists hopethis will impact only short-term growth, and the economywill continue to grow faster than average. A sure sign ofoptimism is the fact that Florida has the 5th lowest unemployment rate in the country at 3.5%, includingBroward, which boasts just 3.6%.


1999 85,654,000 2,794,000 -885,000 7.7 N/A2000 88,595,000 2,941,000 4,060,000 6.8 6.702001 91,925,000 3,330,000 2,049,000 9.4 5.802002 93,469,000 1,544,000 1,014,000 8.9 6.002003 95,000,000 1,531,000 2,379,000 8.0 6.302004 97,126,000 2,126,000 2,797,000 7.3 6.302005 98,536,000 1,410,000 3,675,000 4.8 6.95

Steven Wasserman, SIOR

6600 North Andrews Avenue, Suite 240Ft. Lauderdale, FL 33309-3082Tel 954-233-6000Fax 954-233-6010


1999 6,733,000 406,000 -71,000 6.3 29.002000 6,992,000 259,000 200,000 6.4 26.702001 7,169,000 177,000 49,000 12.5 25.502002 7,612,000 443,000 -55,000 17.5 26.202003 7,666,000 54,000 189,000 15.9 26.402004 7,716,000 50,000 1,000 16.7 26.702005 7,766,000 50,000 187,000 11.4 27.40

Downtown Office


1999 34,653,000 1,245,000 -686,000 10.1 21.502000 35,892,000 1,239,000 555,000 10.4 18.702001 38,346,000 2,454,000 967,000 16.3 24.702002 38,817,000 471,000 -12,000 15.5 23.702003 39,347,000 530,000 976,000 13.8 24.102004 40,028,000 681,000 1,285,000 11.9 23.902005 40,476,000 448,000 1,115,000 8.3 25.10

Suburban Office

Industrial

Office IndustrialHuge demand for industrial space is the big story here as the economy continues to boom in this strong manufacturing area of the country. This demand in turn iscreating robust tenant demand. Greater Fort Lauderdaleclosed 2005 with a countywide vacancy rate of 4.8%.Clear evidence the area has become a landlord’s market.Sublease space, which was abundant in years past, is nowalmost history. There is a surging demand for products,and the companies that provide them, as the populationcontinues to grow. Florida has the 5th lowest unemploymentrate in the country at 3.5%. As the unemployment ratedeclines, the population prospers, creating more need forindustrial space to produce products.

New construction totaled nearly 1.4 million SF of industrialand flex space. Half of this occurred in the northern partof Broward County, including Pompano Beach andDeerfield Beach. Also, 226.000 SF of new product becameavailable in Miramar in the southwest. Land is becomingscarce in Broward, and all of south Florida, and as a resultthe prices are skyrocketing. Land in Sunrise recently soldfor $13 per SF for condo development; and near the international airport, 33 acres sold for $13.20 per SF to beused for airport parking. A trend gaining popularity insouth Florida is building and purchasing condo warehouses.The majority of this speculative construction has focusedon small and medium sized businesses that are takingadvantage of low interest rates to establish ownership,rather than leasing. This trend crosses over into existingproperties, which developers are also snapping up mainly toconvert to condos. Prices for these condos vary accordingto size, age, and location. For example, in Pompano Beach,Panattoni is developing a 250,000 SF condo project withasking prices at $110 per SF starting at 22,500 SF units.

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The big story in the Fresno/Clovis metro area continues tobe the explosion in new building. Both general office andmedical office buildings are appearing along the HerndonAvenue business corridor. Fresno/Clovis, the hub ofCalifornia’s Central San Joaquin Valley, is undergoing thistremendous growth because the Valley has much availableland unlike the Los Angeles Basin and San Francisco BayArea. Many owners and users have taken advantage of historically low interest rates to purchase buildings or landto build a new office space. In addition, there have beenmany 1031 Exchange properties changing hands. As a result, capitalization rates are at an all-time low, with landand building per square foot prices at an all-time high.This strong market is expected to continue in 2006.Currently, approximately 700,000 SF of new office space is going up along the Herndon Avenue corridor, both inFresno and Clovis. There are three hospitals located alongthe Herndon Avenue corridor, so most of the new space isslated for medical offices. Land prices will likely increase asthe supply in existing prime areas for office developmentcontinues to evaporate.

Leasing activity is expected to remain strong for 2006.The vacancy factor actually decreased slightly in most submarkets during 2005 from an overall rate of 8.41% atthe beginning of the year to 7.25% at the end of the year.Vacancies will likely increase in 2006 as the 700,000 SF of new product comes on line, however, we expect thisproduct will be absorbed fairly quickly.


1999 43,400,000 750,000 2,800,000 8.6 3.602000 44,400,000 1,000,000 1,200,000 6.0 3.202001 44,600,000 200,000 100,000 8.0 3.402002 45,000,000 400,000 0 9.0 3.202003 45,800,000 800,000 -30,000 10.8 3.202004 46,200,000 400,000 20,000 11.6 3.202005 47,000,000 800,000 1,923,000 9.1 3.20

Michael Schuh

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


1999 – – – – 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 22.802005 2,928,000 -2,000 -19,000 11.2 23.00

FRESN

O,C

A

Downtown Office


1999 12,098,000 213,000 160,000 12.0 23.502000 12,401,000 303,000 830,000 11.3 19.202001 12,962,000 561,000 694,000 10.4 19.202002 14,132,000 1,170,000 1,343,000 8.1 16.202003 14,191,000 59,000 60,000 7.0 19.202004 15,110,000 919,000 601,000 7.9 25.202005 15,455,000 345,000 417,000 6.5 26.40

Suburban Office

Industrial

Office IndustrialThe Fresno industrial real estate market experienced anunprecedented seller’s market and record sales prices forbuildings and land. In some instances properties sold at orabove the listing price, or bidding wars ensued. A largenumber of industrial projects have traded hands, fueled bybuyers from outside this region seeking higher returns.Some of these properties were fully or partially leased, andothers were vacant in need of rehabilitation. Over all,industrial real estate values increased by 25% to 30% duringthe past 12 months. With few buying opportunities forbuildings and land, we expect leasing activity to pick-up significantly and sales prices to cool off some. The leasingactivity for 2005 was dominated by lease transactions under40,000 SF in size. We expect leasing activity for largerproperties, 75,000 SF to 150,000 SF, to return. New projectswill be curtailed because readily available industrial land is difficult to come by. This will cause further downwardpressure on our vacancy rate, and rents to rise.Developers who have “land-banked” industrial land willprofit significantly. Tenants will be leasing new projects atrental rates reflective of higher construction costs and aland squeeze.

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ILLE,SC

The Greenville office market continued to strengthenthroughout 2005. The CBD occupancies increased 1.9%since mid-year. The struggling suburban office market occupancies also jumped 2.6% during the same time period.Large office vacancies experienced in the early 2000’s are becoming absorbed with new and expanding tenants,fueled partially by increased employment and interest rates. Increased building and land costs make it more difficult for office users to construct their own buildings.With Greenville’s attractive business climate, new companiesare forming, expanding, and filling up the large, dark spaces.Reported rental rates have stayed relatively flat while occupancy rates have risen. The average quoted rentalrates have remained around $15.71 per SF. From mid-yearto year-end 2005, overall occupancy rates rose from 81.2% to 83.7%, a 2.5% jump and 7.4% increase from a year ago.Given the robust and rising pace of leasing activity, Class Aproperty landlords are giving fewer tenant concessionssuch as free rent or tenant improvement allowances.Class B properties have shown improvement in occupancy rates but still offer generous incentives to drive prospect activity.

Bill Streyer, CCIM, SIOR

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


1999 – – – – –2000 2,123,133 0 87,500 14.0 18.752001 2,356,334 44,600 107,000 14.3 18.252002 2,580,834 183,000 153,852 13.8 18.252003 2,609,800 29,000 1,200 16.1 18.252004 2,671,315 61,500 9,400 16.3 18.502005 3,268,645 87,000 101,486 10.8 18.90

Downtown Office


1999 – – – – –2000 2,320,155 0 63,550 21.0 17.252001 3,327,893 434,100 113,447 19.6 17.252002 3,461,463 0 -49,639 28.1 17.502003 3,536,500 75,000 -76,800 30.7 16.002004 3,414,465 28,000 60,129 28.8 16.752005 3,837,000 29,000 107,000 21.0 16.63

Suburban Office

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Three of the four suburban sectors showed markedimprovement in vacancy levels while the Central BusinessDistrict (CBD) and North market held steady for thefourth quarter in 2005. Through the first three quarters,the CBD absorbed just over 200,000 SF. The suburbsabsorbed over 500,000 SF for the year; something it hasnot done since 2000. Class A vacancy, all market sectorscombined, closed 2005 at 15.85%, the lowest since year-end 2001. Overall, office users are optimistic abouthiring/expansion/growth. Good leasing activity from FIREusers in 2005; i.e., financial, insurance and real estate.We expect an overall strong 2006 for the suburbs and aslightly sluggish start for 2006 in the CBD. The subleasemarket in Greater Hartford has finally dipped below500,000 SF from a high of 1.2 million SF in June 2003.Sublease space now represents only 1.89% of total inventory and 9.58% of available space. Sublease space seldom competes with direct space today aside from occasional plug n' play situations or opportunities.

Depending on the market, some rates ticked up while others lost some ground. Rent waiver concessions are stillprominent, equivalent to about a half month for every yearof committed term. Turnkey improvement packages utilizingstandard building materials are being presented in lieu of offering and accounting for actual build-out dollarallowances. It is still a tenant's market with the majority of activity found in the 3,000-10,000 SF users. Cap ratescontinue a slow steady decline as more "risk takers" enterthe investment market. We expect sales to be robust withthe main dilemma likely to be the availability of product.


1999 61,211,000 150,000 150,000 14.5 4.002000 61,461,000 250,000 250,000 14.3 4.502001 61,611,000 150,000 160,000 14.2 4.502002 61,711,000 100,000 300,000 13.9 4.502003 62,528,000 817,000 900,000 13.2 4.302004 62,782,000 254,000 484,000 13.4 4.302005 62,932,000 150,000 241,000 13.2 4.50

Keith J. Kumnick, SIOR

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


1999 9,731,000 0 96,000 25.1 22.002000 9,731,000 0 470,000 20.8 22.102001 9,731,000 0 106,000 19.8 22.102002 9,731,000 0 -305,000 19.9 24.202003 9,731,000 0 -141,000 20.5 24.202004 9,731,000 0 48,000 18.8 24.002005 10,103,000 372,000 210,000 20.6 24.30

HA

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RD

,CT

Downtown Office


1999 12,746,000 0 849,000 15.7 20.002000 12,746,000 0 451,000 12.2 21.502001 12,871,000 125,000 -486,000 16.1 20.802002 13,170,000 299,000 -157,000 18.1 19.902003 13,643,000 473,000 -97,000 20.7 20.602004 13,779,000 136,000 214,000 18.2 20.202005 14,102,000 323,000 316,000 17.7 20.10

Suburban Office

Industrial

Office IndustrialThe Connecticut industrial market continues to showincreased activity. Warehouse distribution users are moreactive than manufacturers. Several large facilities have beenbuilt with several more proposed. The more active usershave been national retailers looking to fill out their supplychain. Manufacturers have either been locally owned, ornational companies with existing locations. Previously, thelarger manufacturers have been looking to consolidateoperations outside of Connecticut. Well-located modernbuildings are in short supply and we have seen price appreciation in many cases. Investors continue to actively seek investment properties with several facilitiestransferring at year-end.

We anticipate the market will continue to be robustthrough 2006. It continues to favor facilities with clearheight above 24 feet and column spacing of 40 feet by 40 feet with 50 feet preferred. These buildings are in shortsupply, a situation that has motivated several users to consider a build-to-suit. We expect this trend to continue.There is an oversupply of older manufacturing and warehouse/distribution space and we anticipate this area toremain weak. Connecticut is a central location in relation toseveral large nearby population centers (Boston, New Yorkand New Jersey) and has multiple interstates. Large tractsof land are still available making it a viable location for awarehouse supplying the northeast. Demand for investmentproperty mirrors the national market with continuedstrength anticipated.

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,HI

Honolulu’s office market posted its third consecutive year of strong occupancy growth with nearly 250,000 SFrecorded for 2005. Since the beginning of 2003, more than650,000 SF of new occupancy filled Honolulu office buildings. This healthy growth is the result of more than9,000 office positions added to payrolls in Honolulu sincethe end of 2001. The Professional and Business Servicessector generated the lion’s share of this increase by postinggrowth of more than 8,650 jobs, or an annual employmentgrowth rate of 4.2% over this four-year period. Vacancyrates fell by five percentage points from a decade high of 13.75% at mid-year 2002 to 8.74% at year-end 2005.Having succeeded in falling below the market equilibriumpoint of 10% at mid-year 2005, the Oahu office marketcontinued its expansion phase and fulfilled the optimistic

Colliers forecast of an island-wide office vacancy rate of 9% by year-end. As a lagging economic indicator, real estatevacancy rates tend to decline only after a period of economic growth. This growth provides a stimulus for businesses to begin hiring, resulting in increased demandfor office space. Hawaii’s economy is benefiting from theupswing in air passenger arrivals, increased constructionactivity, rising personal incomes and property values, whichboost optimism and confidence. Noted economists forBank of Hawaii, University of Hawaii, and the State ofHawaii forecasted job growth to continue for 2006 within arange of 1.5% to 1.6% above year-end 2005 figures. This is anoted decline from the more robust forecasts for 2005where these economists predicted job growth of 2.1% to2.4%. For the office sector, job growth between October2004 and October 2005 was 3.1%, significantly strongerthan the Oahu economists’ job forecasts. Should hiringcontinue on this current pace, or even slow slightly, theoffice market should post healthy net absorption for 2006.


1999 34,212,000 20,000 350,000 6.4 6.002000 34,252,000 40,000 833,000 4.0 8.642001 34,287,000 35,000 -181,000 4.4 8.302002 34,387,000 100,000 174,000 3.6 8.002003 34,437,000 50,000 199,000 2.7 10.922004 34,557,000 120,000 340,000 1.7 11.502005 34,907,000 350,000 425,000 1.8 11.85

James M. Piane

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


1999 – – – – –2000 – – – – –2001 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 29.402005 7,932,000 0 184,000 8.7 31.50

Downtown Office


1999 – – – – –2000 – – – – –2001 7,383,000 0 -146,000 13.4 N/A2002 7,383,000 0 -116,000 15.0 N/A2003 7,383,000 0 174,000 11.5 N/A2004 7,383,000 0 133,000 9.6 N/A2005 7,383,000 0 65,000 8.6 N/A

Suburban Office

Industrial

Office IndustrialThe industrial land parcel sales frenzy of the past eighteenmonths has given way to warehouse development activitymoving full steam ahead. More than 350,000 SF of newwarehouse space was added to the inventory over the past year. A majority of these projects are owner-userdevelopments where companies capitalized on the lowinterest rate environment and opted to build their ownfacilities. Despite this increase in new inventory, the vacancyrate remains extremely low, at 1.80%. Net absorption for2005 soared to 425,344 SF, the greatest jump in new occupancy since 2000. Most of this industrial growthoccurred in the Mill Town, Kapolei, Campbell and KenaiIndustrial Parks, as a result of construction completionsbeing added to inventory. Appreciation in land values,increase in construction labor and raw material costs, andthe lack of developable industrial land all play a pivotal rolein keeping the industrial market from reaching an overbuiltsituation. Additional industrial warehouse construction will likely remain constrained as costs outweigh currentmarket rents. Until rents increase substantially, speculativeconstruction will be principally limited to industrial condominium projects.

The robust tourism sector and the corresponding strengthin the retail market boosted demand for goods and servicessupplied by the industrial sector and as a result, demand forwarehouse space remains healthy. Industrial jobs grew by4,550 over the past year; this increase was predominantlyspurred by the growth in construction jobs. Both residentialand commercial construction activity are posting records.The year-to-date building permit volumes surpassed the $1billion level for the second year in a row. Contractors arealready swamped and are hard pressed to fill vacant positions. Price inflation is impacting construction materials,labor and property values. Speculative developmentsremain financially impractical due to skyrocketing construction costs, despite the rapid rise in industrial rents.

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The Houston office market ended the year with a decreasein vacancy, positive net absorption, a slight increase in rentalrates and seven buildings completed in the fourth quarter.The vacancy rate fell from 15.4% in the third quarter to15.0% in the fourth quarter. It steadily decreased over thecourse of 2005; it was at 16.2% in the first quarter and15.6% at the end of the second quarter. The vacancy ratein the Central Business District in Houston shifted slightlyin an upward direction with a small increase from 19.4% to 19.5%. The decrease in the vacancy rate overall wasattributed to the more substantial decrease in the suburbanmarket. That rate fell from 14.4% to 13.9%.

Net absorption grew from 843,415 SF in the third quarterto 950,261 SF in the fourth quarter and the CentralBusiness District experienced negative absorption in thefourth quarter. It fell to 73,392 SF from 169,940 SF.However, absorption in the suburbs continued on anupward trend, jumping from 673,475 SF in the third quarterto 1,023,653 SF in the fourth quarter. The average quotedrental rate for all classes at the year-end was $17.60 persquare foot. This was a 0.5% increase from the end of thefourth quarter of 2005 where rents were reported at$17.51. The average rate for Class A Central BusinessDistrict space increased from $19.83 to $19.99 per squarefoot. The last quarter of 2005 saw a total of 307,854 SF ofnew office construction completed in the Houston market.This represented a slight decrease over the third quarter,which delivered a total of 11 buildings totaling 462,718 SF.


1999 372,021,000 6,457,000 485,000 7.7 4.202000 376,617,000 4,596,000 -1,276,000 8.4 6.102001 381,455,000 4,838,000 2,046,000 8.6 5.302002 386,497,000 5,042,000 -3,412,000 9.8 5.302003 389,491,000 2,994,000 -2,218,000 10.6 4.302004 392,652,000 3,161,000 7,559,000 8.8 4.202005 400,262,000 7,610,000 11,503,000 7.3 5.20

Gary Mabray

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


1999 40,065,000 0 245,000 10.2 23.002000 40,065,000 0 769,000 7.8 22.702001 40,065,000 0 -282,000 9.5 24.202002 41,803,000 1,738,000 -1,145,000 15.0 24.202003 43,336,000 1,533,000 -1,095,000 21.4 22.402004 43,336,000 0 222,000 21.1 21.302005 43,632,000 296,000 751,000 19.6 21.20

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1999 159,519,000 3,949,000 882,000 13.7 21.402000 162,545,000 3,026,000 3,450,000 13.1 21.602001 165,167,000 2,622,000 1,680,000 15.7 20.402002 167,125,000 1,958,000 -1,591,000 16.3 20.902003 168,457,000 1,332,000 -512,000 16.6 20.302004 169,097,000 640,000 1,162,000 16.2 19.602005 170,467,000 1,370,000 2,529,000 14.4 20.00

Suburban Office

Industrial

Office IndustrialThe Houston industrial market closed 2005 with a vacancyrate of 7.3%, down from 7.8% in the third quarter. Netabsorption for the year recorded a positive 1,572,972 SF.Although the number remains positive, it is down from the previous quarter’s positive 5,606,265 SF. The total year-to-date absorption was over 11.5 million SF. The overallrental rates for all classes ended 2005 at $4.93 per SF, alsodown from the third quarter when it was $6.06. Therewere 18 buildings delivered at year-end totaling 620,699 SF,with 1,977,119 SF under construction. The leasing activitydropped slightly from 2.83 million SF in the third quarter to2,547,232 SF. Cap rates have been lower in 2005, averaging9.64%, compared to 2004 when they averaged 10.04%.One of 2005’s largest transactions was the sale ofGreenbriar Southwest in Stafford. This 981,099 SF buildingsold for $31,564,000, or $32.17 SF. The two buildings in theBayport Industrial Park totaling 564,000 SF and 16684 AirCenter Blvd., a 140,700 SF facility, are the major projectsnow underway.

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Overall vacancy rates continue their decline, while newconstruction continues to take place and overall absorptionin the Indianapolis market remains positive for the thirdyear in a row. When viewed separately, both the Suburbanand the Central Business District (combined Midtown andDowntown submarkets) continue their trends of fallingvacancy rates. Suburban vacancy at the end of 2005 was18.0%, down from the year-end 2004 level of 18.4%.The year-end 2005 vacancy rate for the Central BusinessDistrict was 14.6%, down from 15.6% on December 31,2004. Developers brought new product online in 2005 in both the Northwest and North/Carmel submarkets.The North/Carmel and Keystone submarkets currentlyhave multi-tenant buildings under construction totalingover 330,000 SF. New construction is planned for 2006 and 2007, with over 100,000 SF to be built in theNortheast submarket, over 160,000 SF in Fishers, over230,000 SF in the Northwest, and an additional 461,000 SFof multi-tenant space to be added to the very activeNorth/ Carmel submarket.

Both Suburban and CBD asking rates held steady throughthe last three quarters of 2005. Looking ahead, the vacancyrate will continue to decrease in the Suburban submarketsand the Downtown submarket will experience an increasein vacancy of nearly two percentage points during the third and fourth quarters of2006. Overall, new construction of office product remainsat the 500,000 SF level for each of the next few years andthe North/Carmel and Northwest submarkets continue toattract the larger tenants as new construction of Class Aoffice product continues in both areas.


1999 187,647,000 5,537,000 4,765,000 6.9 4.252000 193,295,000 5,649,000 8,085,000 5.4 3.502001 199,255,000 5,960,000 316,000 8.1 4.502002 204,731,000 5,476,000 2,658,000 9.2 5.902003 207,019,000 2,289,000 3,837,000 8.4 4.802004 212,590,000 5,571,000 5,397,000 8.2 4.302005 215,529,000 2,939,000 4,825,000 7.3 5.90

Luke Wessel, SIOR

One American Square, Suite 1300Indianapolis, IN 46282

Tel 317-634-6363Fax 317-639-0504


1999 10,809,000 54,000 4,000 12.0 21.002000 11,023,000 214,000 -270,000 16.0 21.002001 11,388,000 365,000 22,000 18.5 21.502002 11,388,000 0 109,000 17.5 19.602003 11,404,000 16,000 189,000 16.0 19.602004 11,406,000 2,000 44,000 15.6 19.602005 11,406,000 0 112,000 14.6 19.60

Downtown Office


1999 14,584,000 972,000 647,000 10.9 21.002000 16,152,000 1,568,000 640,000 15.7 23.002001 16,606,000 454,000 622,000 16.0 20.802002 17,045,000 439,000 -58,000 18.5 19.002003 17,619,000 574,000 137,000 20.4 19.002004 18,053,000 434,000 692,000 18.4 19.002005 18,321,000 268,000 297,000 18.0 19.10

Suburban Office

Industrial

Office IndustrialThe Indianapolis industrial market continued its pattern ofexplosive growth throughout 2005. We continued buildinglarge bulk distribution facilities on both a speculative andbuild-to-suit basis, which were then leased or purchased bymajor players such as: Epson America, Inc., (750,000 SFBTS); Becton Dickinson & Co., (653,000 SF BTS);Caterpillar Logistics Services, Inc., (457,000 SF lease);Nice-Pak Products, Inc., (426,000 SF lease); OHL (425,000SF lease); and O’Reilly Automotive, Inc., (406,000 SF purchase). These deals led to a year-end net absorptiontotaling 4.8 million SF. While this falls short of last year’stotal of 5.4 million SF, it is important to remember thatmany of the larger deals signed in 2005, including Epson,Becton Dickinson, and Caterpillar, will take occupancy in2006. These three transactions alone will account for nearly2 million SF of absorption in 2006. Furthermore, this levelof occupancy growth easily dwarfs the totals posted in2001 (316,000 SF), 2002 (2.7 million SF) and 2003 (3.8 million SF).

Clearly, Indianapolis is excelling in terms of both attractingand keeping businesses in the region. Vacancy, meanwhile,has consistently declined over the last 4 years.After peaking at 9.2% during the 4th quarter of 2002,the overall industrial vacancy rate has lowered to 8.4% (year-end 2003) to 8.2% (year-end 2004) to its current levelof 7.3%. This figure represents nearly a full percentage-pointreduction over the last year and is the lowest vacancy hasbeen since posting a 5.4% vacancy rate at the end of 2000.

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In many respects, Jacksonville has faired better in 2005 thanmost comparable office markets. Nevertheless, it’s been aslow turnaround from the previous slide. Speculative construction has been controlled and it’s projected toremain so until occupancy increases in the Class A officemarket. At present, there are few build-to-suit projectsunder construction. Most build-to-suit projects inJacksonville are tenant driven, multi-tenant buildings, whichbring in additional user space upon completion of theseprojects. Net absorption is continuing to show an overallpositive gain in 2005, beginning the year with 699,000 SF of office space under construction, with 85% already pre-leased.

As the costs of construction rise, however, speculativeoffice development will be less likely in the near future.As a result, demand for real estate investment remainsstrong in Jacksonville and CAP rates will generally stay low. Thus, owners of existing buildings have a substantialadvantage, as the supply of buildings for sale decreases.Office building sales in the Jacksonville market remainstrong. In the first six months of 2005, the price per square foot averaged $92.07, versus $86.39 per squarefoot for the same period in 2004. All indicators showJacksonville is continuing to grow in every direction,offering many opportunities. As the local job marketbecomes stronger, absorption will continue upward andeventually rental rates will also rise both Downtown and in the suburbs.


1999 – – – – –2000 – – – – –2001 77,760,000 438,000 -1,800,000 10.0 4.402002 78,230,000 470,000 -418,000 8.7 3.502003 80,006,000 1,776,000 2,126,000 8.7 3.502004 81,619,000 1,613,000 605,000 7.9 3.602005 83,575,000 1,956,000 2,073,000 8.1 3.70

Fran Pepis

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


1999 – – – – –2000 – – – – –2001 12,191,000 49,000 -269,000 9.7 18.902002 12,218,000 27,000 27,000 10.4 19.602003 12,358,000 140,000 -146,000 12.3 20.002004 12,358,000 0 -120,000 16.7 19.502005 12,358,000 0 514,000 16.7 23.00

JAC

KSO

NV

ILLE,FL

Downtown Office


1999 – – – – –2000 – – – – –2001 23,502,000 688,000 137,000 14.0 18.002002 23,880,000 378,000 -170,000 16.1 18.502003 24,523,000 643,000 1,057,000 13.6 18.002004 24,815,000 292,000 372,000 10.7 19.802005 25,023,000 208,000 224,000 13.2 19.80

Suburban Office

Industrial

Office IndustrialLand prices are climbing and the rents are slowly increasingin Jacksonville. There is a tremendous lack of affordable anddevelopable industrial land throughout northeast Florida.Asking prices for land have doubled in this market over thepast two years. This trend even includes land not vestedfor development rights with the city of Jacksonville. In fact,many potential projects have been put on hold due in partto this dearth of developable industrial land. However, severalprospects are on the horizon. These developers are mainlyinterested in new “build-to-suit” facilities in establishedbusiness parks in Jacksonville, with announcements on these companies expected by the end of the first quarter of 2006.

Overall, demand has peaked the interest of other industrial developers who may have previously passed onJacksonville’s opportunities, but are now back searching forland. The industrial market in Jacksonville probably hasroom enough for one or two more industrial developers,but with historical absorption on the larger facilities ataround 1 million square feet per year, the pace of deals is unable to support the rate of development. Jacksonvillewill remain an attractive location for large distributors and manufacturers due to the skilled work force, serviceproviders, and transportation corridors that it offers industrial users. The outlook for 2006 is bright as long as the city does not experience an abundance of newspeculative development.

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Recovery has continued at a steady pace for metropolitanKansas City’s 42.2 million SF office market. Five of the lastsix quarters produced net absorption of 200,000 SF ormore. Vacancy at the end of 2005 was 19.8%, down from20.9% a year earlier.

The downtown market had a year-end vacancy of 24.9%.However, it will change significantly over the next 2-3 years.A 500,000 SF headquarters for H&R Block will becompleted in late-2006. The Kansas City Live entertainmentdistrict will open in stages in late 2006 and 2007.A 21-story office tower has started for the FederalReserve Bank of Kansas City. A 1.1 million SF processingcenter for the IRS is also under way. The 18,500 seatSprint Arena is schedule to open near the end of 2007.With these changes and a growing residential population,the downtown office market should improve in 2007.

South Johnson County, Kansas, with 12.7 million SF of officespace, produced 492,000 SF of net absorption in 2005, outof a total of 766,000 for all of metro KC. Its vacancy was16.4% at the end of 2005, down from 19.6% a year earlier.The Plaza posted KC’s lowest vacancy at 12.8%.

Construction completed in 2005 totaled just 426,000 SF.Completions for 2006 should total about 600,000 SF.Class A lease rates stabilized in 2005, and averaged $20.55at the end of the year. The strongest submarkets may seeincreases in Class A rates during 2006. The average Class Brate at the end of 2005 was $16.47 per SF.


1999 155,926,000 3,561,000 3,396,000 5.0 3.802000 161,248,000 5,322,000 4,362,000 5.5 4.402001 164,387,000 3,139,000 -3,037,000 9.1 4.402002 166,770,000 2,383,000 1,207,000 9.7 3.802003 168,018,000 1,248,000 -823,000 10.9 3.802004 169,508,000 1,490,000 3,869,000 9.4 3.802005 171,588,000 2,080,000 1,234,000 9.7 3.95

Mark Fountain, SIOR, CCIM

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


1999 9,792,000 272,000 365,000 10.3 21.352000 9,792,000 0 4,000 10.3 21.752001 9,984,000 192,000 -76,000 12.8 20.952002 10,114,000 130,000 -439,000 18.2 21.002003 10,603,000 489,000 -186,000 23.8 20.402004 10,438,000 -165,000 -197,000 24.4 20.402005 10,625,000 187,000 26,000 25.5 20.80

Downtown Office


1999 27,009,000 1,195,000 1,136,000 6.5 22.452000 28,750,000 1,741,000 865,000 9.1 22.352001 30,356,000 1,606,000 105,000 13.6 22.152002 30,795,000 439,000 -1,745,000 20.5 21.802003 30,971,000 176,000 -84,000 21.2 21.452004 31,397,000 426,000 826,000 19.7 21.202005 31,621,000 224,000 741,000 17.9 20.40

Suburban Office

Industrial

Office IndustrialFor Kansas City’s 171-million-square-foot industrial market,2005 was a good year, but not a great one. Net absorptionwas 1.2 million square feet. Strong years such as 2004 produce net absorption of four million square feet.Vacancy was steady at 9.7% at the end of 2005, up justslightly from 9.4% a year earlier. Net additions to the market (construction less demolition) totaled 2.1 million SF.Build-to-suit projects dominated, contributing 70% of thetotal. This will likely be the case again in 2006.

While the market as a whole performed only moderatelywell, modern distribution space was very successful in 2005.It had net absorption of 1,943,000 SF. That volume in 2005edged out 2000, making this year the most productive ofthe last ten for this product type. Year-end vacancy formodern distribution space was 4.0%. A 215,000 SF facility is under way for FedEx Ground.Additional build-to-suitstotaling almost one million SF are also under consideration.Meanwhile, existing modern distribution properties offeronly three spaces of 100,000 SF or more.

The Johnson County submarket contains 43.6 million SF of industrial space, or one-quarter of the metro total.Johnson County is consistently KC’s most successful submarket. In 2005 it produced 809,000 SF of net absorption, accounting for 66% of the metro total.This was essentially “the norm.” Over the ten-year span of 1996 – 2005, Johnson County produced 11.3 million SFof net absorption. This was 64% of the metro-total of 17.7 million SF for that period. Johnson County’s year-endvacancy was 7.0%.

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Vacancy in the Las Vegas Valley speculative office marketdecreased to 8.7% in the forth quarter of 2005, that’s downfrom 9.3% in the third. This marked an abrupt end to athree-year trend where vacancy had decreased through the first three quarters of the year, and then increased dramatically during the fourth quarter. The vacancy rate has now declined for four consecutive quarters, the lowestoffice vacancy rate recorded since the fourth quarter of2000, when it was 8.1%. Although growth in employmentsectors traditionally associated with office slowed thisquarter, in the end the trend is still positive. Office sectoremployment rose dramatically over the past three quarters.The average monthly asking rent was $2.20 per SF fullservice gross in the fourth quarter, an increase of $0.07 per SF full service gross over the previous quarter.

The absorption-to-completion ratio in the fourth quarterwas 1.36 feet of demand for each foot of new supply.Office completions decreased in the fourth quarter by 92,344 SF from the third, to a total of 560,479 SF.Direct net absorption decreased by 511,574 SF and closedout 2005 at 696,896 SF. The Las Vegas office market isprobably as strong now as it was during the late 1990’s.Employment in the industries traditionally associated with office space posted quarterly growth for the fourthconsecutive quarter. Office-using jobs increased by 1,800from September 2005 to November 2005. This representsa growth rate of 0.8%, down from last quarter. Employmentgrowth year-over-year was 9.3%, an average of 2.3 % perquarter. Employment growth this period was concentratedin the Financial Activities sector, which added 1,000 jobs.The Health Care & Social Assistance sector added 600 jobs and the Professional & Business Services sector added 200 jobs.


1999 64,350,000 3,424,000 3,622,000 7.9 N/A2000 67,884,000 3,534,000 4,451,000 6.0 4.002001 72,881,000 4,997,000 1,521,000 8.4 4.602002 77,238,000 4,357,000 2,865,000 10.2 3.802003 80,161,000 2,923,000 1,434,000 11.5 4.802004 83,996,000 3,835,000 6,182,000 7.8 4.702005 87,516,000 3,520,000 6,490,000 4.4 5.50

Michael Mixer

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


1999 1,676,000 0 35,000 5.7 28.202000 1,701,000 25,000 -95,000 14.8 24.002001 1,858,000 157,000 110,000 13.4 27.902002 2,165,000 307,000 22,000 21.9 27.202003 2,789,000 624,000 -64,000 24.7 20.702004 3,005,000 216,000 33,000 17.4 28.802005 3,005,000 0 89,000 14.6 28.90

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1999 16,766,000 1,405,000 1,436,000 10.1 24.602000 18,356,000 1,590,000 1,458,000 10.0 24.502001 20,247,000 1,891,000 722,000 13.6 25.902002 21,809,000 1,562,000 1,236,000 13.5 27.202003 23,067,000 1,258,000 956,000 13.4 29.802004 25,134,000 2,067,000 2,043,000 12.0 29.802005 27,546,000 2,412,000 3,195,000 8.3 31.80

Suburban Office

Industrial

Office IndustrialAll in all, the industrial numbers at year-end were very positive. The Las Vegas valley’s industrial market has beenstrong for two solid years. The valley’s speculative industrialvacancy rate decreased to 4.2% in the fourth quarter from5.1% in the previous quarter. A total of 1,037,500 SF ofcompleted industrial space closed out the year, more thandouble the total in the third quarter. Our direct net absorption of 1,763,000 SF was also up substantially from 693,759 SF, and was higher than new completions.The amount of industrial space under constructionincreased to 4,588,500 SF and planned space decreasedslightly to 3,663,000 SF. Our year end vacancy rate was thelowest since Colliers International began reporting on theindustrial market in 2001. Since 2004, industrial vacancy hasdecreased by 3.5 points, and asking rents have increased by$0.09 NNN per SF. Completions were slightly lower in2005 than in 2004, with 334,950 SF less space completed in 2005.

The big story, though, was demand. Compared to 2004, direct net absorption increased by 863,779 SF.This represents an absorption-to-completion ratio of 1.79 feet of demand for each square foot of new supply.What will 2006 hold? When all of the industrial spacepresently under construction is completed, 4,588,535 SFwill be added to the valley’s inventory. This would beat2005’s new completions by 733,428 SF, and does not takeinto account the 3.6 million SF of planned industrial space,some of which will be completed over the next twelvemonths. Supply will increase in 2006, but the question iswhether demand will increase to meet it. The general consensus appears to predict an economy that is unlikely to charge ahead in 2006 as it did in 2005. Such “leveling off”conditions in the Las Vegas economy, may translate into rising vacancy rates as 2006 comes to a close.

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The Little Rock office market continued to rebound in2005. The 290,243 SF of total absorption was the best inseveral years. Class A downtown properties led the packwith 173,062 SF for the metropolitan area. The overall suburban market vacancy rate dropped to 9%, returning to the single digit arena enjoyed for over a decade prior to 2003. New construction slowed dramatically in the suburbs, with only one building completed in 2005 offeringspeculative lease space. Development of owner occupiedbuildings slowed as well. Downtown construction was limited to residential condo conversions. Rental rates heldsteady through 2005 and will likely creep slightly higher in 2006 as the market continues to firm up. Land pricesmoved consistently higher in suburban areas. The far westsuburban market remains the high growth area for bothresidential and commercial uses.


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 14,399,000 215,000 327,000 12.5 3.802005 14,553,000 154,000 14,000 13.3 3.25

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 5,879,000 53,000 149,000 14.7 14.102005 5,717,000 -162,000 173,000 15.2 14.20

Downtown Office


– – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 6,980,000 20,000 -39,000 8.8 N/A2005 7,040,000 60,000 117,000 9.0 17.90

Suburban Office

Industrial

Office IndustrialThe central Arkansas market continued its sluggish pace,with vacancy levels slightly better at year-end than thirdquarter levels. There appears to be very little new construction on the horizon as a result of ample inventoryin our market area. This region seems to have stabilizedwith rates beginning to move up slightly. In general, theindustrial market in central Arkansas remained slow in2005. Demand for smaller spaces in the 10,000 SF rangewas greater than for larger spaces. There is a good supplyof space available in our market at very competitive pricing.Looking forward, we remain optimistic for 2006. We expectlease rates to remain flat with increases during the fourthquarter. Our market vacancy level is a reflection of corporations moving out of state and out of the U.S.leaving behind obsolete manufacturing facilities. Most ofthese facilities coming on the market cannot be convertedto general warehouse space.

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1999 657,236,000 26,408,000 38,090,000 5.4 6.602000 692,273,000 35,037,000 44,337,000 4.4 6.102001 722,077,000 29,804,000 14,628,000 6.3 6.602002 730,300,000 8,223,000 6,233,000 6.4 7.002003 737,407,000 7,107,000 11,085,000 3.6 6.402004 744,290,000 6,883,000 10,951,000 2.8 6.502005 750,763,000 6,473,000 11,075,000 2.7 6.85

Richard DavisCarla Gazzolo

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

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Office IndustrialDemand for industrial space in Los Angeles and VenturaCounties remained very strong throughout 2005, but lackof availability constrained the amount of activity that wasable to take place. The vacancy rate at year-end was just 2.7%, the lowest of any major market in the U.S.,despite the completion of 6.5 million SF during the year.Net absorption in 2005 totaled 11.1 million SF, representinggrowth in occupied space of 1.5%, an exceptionally fast pacefor a large, mature market with virtually no availability.Rental rates climbed at a robust pace in 2005, ending upapproximately 7%, and sale prices per SF also rose at a very healthy pace closing the year up nearly 13%.

The forecast is for continued strong demand, but will be limited by lack of supply in a number of areas and market segments. At year-end, only 2.1 million SF wasunder-construction, which, when complete, will expand thebase by only 0.3%. Construction activity is likely to remainlow, due to a general lack of vacant land and very high landprices. Market conditions are projected to stay hyper-tightinto the foreseeable future. Firms will increasingly have tofind creative solutions to meet their real estate needs.A growing number will also consider relocating to outlyingareas, in particular, the adjacent Inland Empire.

39

In 2005, demand for office space in Los Angeles and VenturaCounties grew at a strong pace in the fourth quarter, andnet absorption totaled 1.3 million SF. The year ended withtotal net absorption of 6.2 million SF, representing growthin occupied space of 4.3%. Construction completionsremained restrained, and only 794,000 SF came on-line during the year. The vacancy rate fell to 12.0% overall, andinto the 8% to 10% range in West Los Angeles, the SanFernando Valley and the Tri-Cities Area (Glendale/ Burbank/Pasadena). Rental rates began to climb once again, and wereup by approximately 7% year-over-year in the areas withthe lowest vacancy rates.

The outlook is for continued tightening. Both the economyand demand for office space are projected to remain strongfor at least another 12 months. Construction continues tobe restrained, with only 1.3 million SF underway. Whencomplete, this will expand the base by just 0.8%. Single-digitvacancy rates are projected by year-end 2006 for the entirearea, and sub-8% rates in the prime submarkets. Tenants,particularly those looking for large blocks of contiguousspace, will find it increasingly difficult to locate space thatwill meet their needs. Investor demand for office space inLos Angeles County is strong, and sale prices per SF are up10% to 15% year-over-year. Cap rates have fallen into themid-six percent range.


1999 31,151,000 -100,000 -622,000 18.9 24.002000 31,151,000 0 -88,000 19.4 24.502001 31,225,000 74,000 478,000 18.4 24.602002 31,225,000 0 -67,000 19.5 24.002003 31,225,000 0 -86,000 19.8 24.202004 31,225,000 0 162,000 20.3 25.202005 31,280,000 55,000 1,186,000 16.3 27.70

Downtown Office


1999 125,525,000 5,788,000 6,654,000 11.9 28.002000 133,596,000 8,071,000 11,159,000 11.9 31.002001 136,536,000 2,940,000 -2,938,000 14.2 30.302002 139,402,000 2,866,000 -1,864,000 16.7 29.002003 140,753,000 1,351,000 1,252,000 17.0 28.302004 141,268,000 515,000 2,944,000 14.0 29.302005 142,062,000 794,000 5,042,000 11.1 30.10

Suburban Office

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Richard DavisWilliam Welch

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

IndustrialDemand is definitely on the rise in Los Angeles’ InlandEmpire. Net absorption in 2005 totaled 11.8 million SF,representing growth in occupied space of 5.9%. A stronglocal economy, hyper-tight conditions in the adjacent Los Angeles market, and competitive rental rates and prices (despite sharp increases over the past two years) all spurred this growth in demand. The vacancy rate in theInland Empire at year-end 2005 stood at 4.0%; a very lowrate for an area that witnessed the addition of 11.7 millionSF the previous year. Also on the upswing, rental ratesclimbed by 11% and sale prices per SF by 20% in 2005.

Despite these strong increases, the Inland Empire had thelowest rental rates and sale prices in the Los Angeles basin,and were as much as 40% lower than comparable productin Los Angeles, Orange and San Diego counties. The out-look is for continued healthy market conditions, even withthe large amount of construction taking place (4.8 millionSF underway). The local economy is projected to remainstrong for at least another year which, when combinedwith limited construction activity in adjacent markets, willserve to direct firms looking for space toward the area.Vacant land in the western part of the Inland Empire isbeginning to dwindle, and development is shifting to theeast and to the south.

40


1999 – – – – –2000 – – – – –2001 – – – – –2002 196,343,000 168,000 1,594,000 9.0 4.702003 202,795,000 6,452,000 9,149,000 6.2 4.702004 209,664,000 6,869,000 7,147,000 5.8 4.702005 221,374,000 11,710,000 11,783,000 4.0 5.15

Industrial

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Demand for office space in Orange County grew at a heated pace in the first three quarters of 2005, however,slowed to a low to moderate pace in the fourth quarterand net absorption totaled 178,000 SF. The year endedwith total net absorption of 3.0 million SF, representing growth in occupied space of 4.8%, a strong finish overall.Construction completions remained sluggish, and only106,100 SF came on-line during the year. The vacancy ratefell to 7.9%, down from 8.1% last quarter and down sharplyfrom 11.9% one year ago. Rental rates also climbed by 9.7%year-over-year. We’ve seen the market suddenly shiftingfrom a tenant market to one more balanced between tenant and landlord needs.

The outlook is for continued tightening. Both the economyand demand for office space are projected to remain strongfor at least another 12 months. Construction lingers withonly 1.4 million SF underway. When complete, this willexpand the base by just 2.0%, or approximately eightmonths supply under normal economic conditions. As aresult, the market should continue to tighten, provided the economy remains strong. Tenants, particularly thoserequiring large blocks of space, will likely have a difficulttime finding space that suits their needs. Investor demandfor office space in Orange County is strong, and the median sales price has reached $229 per SF. A growingnumber of transactions are taking place in the $300 per SFrange. The average cap rate has fallen to the mid-6% range.


1999 – – – – –2000 – – – – –2001 – – – – –2002 204,116,000 892,000 -1,458,000 6.6 7.002003 205,339,000 1,223,000 2,083,000 6.6 7.202004 205,971,000 632,000 5,218,000 4.5 6.502005 206,481,000 510,000 2,667,000 3.6 7.20

William Welch

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


1999 – – – – –2000 – – – – –2001 69,993,000 3,522,000 -644,000 17.7 31.102002 71,079,000 1,086,000 288,000 18.8 29.802003 72,086,000 1,007,000 2,918,000 16.2 27.402004 72,121,000 35,000 2,580,000 12.4 27.902005 72,227,000 106,000 3,021,000 7.9 31.30

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Office IndustrialThe Orange County industrial market had a strong 2005with healthy demand for space, particularly for small buildings for-sale. Contributing to a robust year was astrong economy, relatively low interest rates and hyper-tightmarket conditions in the adjacent Los Angeles County market. Net absorption totaled 2.7 million SF, representinggrowth in occupied space of 1.4%, considered a moderatelystrong pace. We surely would have seen even higher levelshad more space been available. Construction completionsin 2005 totaled just 509,800 SF. The vacancy rate fell to3.6% at year-end, down from 4.5% a year ago. Rental ratesclimbed by approximately 5% on average year-over-year,and sale prices per SF by 20%. Sale prices reached a countywide average of $125 per SF. They were exceptionallyhigh at $175 per SF countywide for smaller buildings, and$216 per SF in the Airport submarket. We anticipate continued tightening moving into 2006. Construction activity at year-end totaled 2.9 million SF; while up fromprevious activity in 2005, it still represents an expansion ofthe base of just 1.4%, a level that can be rapidly absorbed.Rental rates are expected to climb by at least 5% and saleprices per SF to remain firm.

In addition to the standard industrial market, OrangeCounty has a large flex/R&D market with 67.9 million SF.Vacancy rates have dropped in the R&D market as well, to5.8% as of year-end 2005. Construction of 362,000 SF isunderway and when completed will expand the base byjust 0.6%. The vacancy rate is projected to continue dropping, and subsequently rental rates are projected to climb sharply.

41

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The outlook for 2006 shows no slowdown in the positivetrends begun in 2005. The rise in activity over the past twoyears is expected to continue, however, growth may occurat a more cautious pace. The office market is witnessing arebound, showing that positive economic news has had an impact on the area. Growth, however, remains sluggish.The lack of new construction and company expansionshave helped push the overall market vacancy rate below18%. In fact, due to the shortage of large blocks of space,several companies have had to, or will have to considerbuild-to-suit options. The downtown market is vibrant, evenwith the addition of Brown & Williamson’s 215,000 SF ofClass A space to the market, the submarket saw only modest increases in vacancy rates. Many companies arenow feeling secure and we expect to see expansions,consolidations of multiple locations, and relocations tonewer buildings. The key factor for continued improvementin the office market will be steady economic growth andthe positive effect it has on overall demand. The office market remains favorable to tenants.

In the suburban market, where demand is catching up with supply, we expect rental rates to strengthen.However, some areas, such as the Linn Station Road sub-market, with high vacancy rates and supply continuingto exceeding demand, tenants can still expect lower effective rates and incentives continue to make higher quality properties more attractive. For the near term,landlords will likely continue making concessions to attracttenants and retain current occupants. Due to the lack ofsupply of large blocks of space, we anticipate some limitedspeculative development in the suburban market. Vacancyrates are expected to continue to post modest declines in2006. Absorption should remain positive as indicators pointto a moderate but sustained economic improvement.


1999 – – – – –2000 – – – – –2001 – – – – –2002 78,734,000 561,000 -231,000 19.0 3.402003 79,459,000 725,000 1,716,000 16.7 3.302004 80,708,000 1,249,000 1,854,000 7.5 3.802005 82,768,000 2,060,000 2,734,000 7.9 3.95

Douglas H. Owen, SIOR

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


1999 – – – – –2000 – – – – –2001 17,248,000 0 -374,000 16.2 16.102002 17,489,000 241,000 -125,000 18.5 20.002003 17,489,000 0 -25,000 21.0 19.402004 17,565,000 76,000 -150,000 23.4 19.402005 17,565,000 0 312,000 16.9 19.40

Downtown Office


1999 – – – – –2000 – – – – –2001 8,150,000 146,000 176,000 19.5 17.902002 8,419,000 269,000 261,000 19.1 17.502003 8,419,000 0 172,000 17.7 17.702004 8,419,000 0 -13,000 17.7 18.002005 8,419,000 0 -43,000 16.3 17.60

Suburban Office

Industrial

Office IndustrialThe Metro Louisville Industrial Market has made a strongrecovery during the past 24 months. The positive absorption,resiliency in local and national economies and a period ofmoderate speculative construction drove the market vacancy below 8%. As of January 2006, the market findsitself at a turning point. Announced plans for new speculative construction total 1,700,000 SF combined with an additional 2,000,000 SF of space currently underconstruction will test the true velocity of the market.

At the present time, the market offers existing andannounced vacancies providing 1,553,430 SF of Class Aspace. The rate of absorption of this product and the speculative projects will determine if the rental rates cankeep pace with the rising construction costs. UPS continuesto act as a driving force in Louisville. In addition to the517,000 SF that the company purchased at the end of 2004, UPS SCS has committed to purchasing an additional822,500 SF facility to accommodate pharmaceutical clients.Based on current market activity of new and existing companies, we are optimistic that market conditions will remain stable for the next six months.

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After five consecutive quarters of negative net absorption,the fourth quarter of 2004 Memphis posted positive netabsorption. A minor setback was experienced in the firstquarter of 2005. Since then, we have seen three consecutivequarters of positive net absorption for 2005, totaling450,482 square feet. Year-end 2005 numbers showed positive net absorption in each of the four largest sub-markets, which are East Memphis, Downtown, the 385 Corridor and the Airport area. Demand for Class Aspace in the East Memphis sub-market remains strong,with a vacancy rate of 6.4%. Quoted lease rates postedincreases, throughout 2005. The average quoted rate foravailable office space, in all classes, was $16.02 at year-end2005, compared to that of $15.76 at year-end 2004, whichrepresents an increase of approximately 1.6%. This trend is expected to continue, in part, due to price increases in building materials, and consequently, the cost of new construction.

Vacancy rates for Class A, Class B and the overall markettrended lower each quarter throughout 2005, in directcontrast to the vacancy rates for Class C office space.Year-end 2005 vacancy rates for Class A, Class B and theoverall market, when compared to those of year-end 2004,decreased by 1.7%, 2.2% and 1.1%, respectively. The year-end2005 vacancy rate for Class C, when compared to that ofyear-end 2004, increased by 2.1%. While it is encouragingto note the improved vacancy rates, it is necessary to keepin mind that with the exception of Class A office space, allvacancy rates remain at higher levels than at year-end 2003.All considered, it is difficult to expect much new developmentin the Memphis office market, other than in the EastMemphis Class A sub-market. The vacancy rate in this sub-market stood at 6.4% at year-end 2005 with an average quoted lease rate of $23.84 per SF.


1999 109,174,000 4,900,000 5,600,000 14.4 4.002000 115,674,000 6,500,000 8,200,000 12.8 2.802001 119,024,000 3,350,000 2,100,000 14.0 3.002002 121,524,000 2,500,000 -2,700,000 16.9 2.502003 125,522,000 3,998,000 3,972,000 16.3 2.402004 126,561,000 1,039,000 3,164,000 17.2 2.602005 132,498,000 5,937,000 7,398,000 15.1 2.60

Eugene Woods, SIOR

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


1999 6,472,000 0 -20,000 25.0 19.002000 6,647,000 175,000 200,000 24.2 18.002001 6,662,000 15,000 -27,000 21.2 18.802002 6,662,000 0 206,000 21.5 16.602003 6,662,000 0 -18,000 23.4 17.002004 6,662,000 0 80,000 21.4 16.702005 6,662,000 0 91,000 18.3 16.60

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1999 20,936,000 240,000 100,000 14.5 19.002000 21,651,000 715,000 600,000 12.7 21.002001 22,949,000 1,298,000 -117,000 14.5 18.802002 23,729,000 780,000 70,000 15.6 18.902003 23,977,000 248,000 159,000 15.4 19.502004 24,011,000 34,000 278,000 16.7 20.402005 24,102,000 91,000 317,000 15.3 20.50

Suburban Office

Industrial

Office IndustrialThe North Mississippi submarket lead the way, as Memphisproduced the strongest absorption in history—ending theyear with over 7 million SF absorbed. This is an improvingmarket, ushering a “changing of the guard” for speculativedevelopment from the Southeast submarket to North Mississippi, with over 4 million SF of current speculative development.

The Memphis warehouse market comprises 134,205,591 SFwith 16.2% vacancy and absorption of 7 million SF for theyear. This is a 1.9% decrease in vacancy over 2004 and anincrease in absorption of over 4.9 million SF, a further indication of an improving market. Average asking rateshave increased from $2.46 per SF NN at over year-end2004 versus $2.52 per SF NN in 2005. The market haddeliveries of 5,953,723 SF with an additional 3,748,954 SFunder construction.

The most notable submarkets are the Southeast,comprising 55% of the total market and North Mississippiwith 12%. The Southeast totaled 74,266,158 SF of warehouse product and ended the year with 2,172,835 SFof absorption and vacancy of 14.5%. Product type determined our success, with Class A posting a vacancy of 8 to 9% and 1.6 million SF of absorption, while Class Band C showed little movement with vacancies of 24 to 25%and approximately 681,419 SF of absorption. The submarketadded over 1.9 million SF of product with an additional 1.3 million SF currently under speculation.

North Mississippi hit its stride in 2005 and posted over 2.9 million SF of absorption. The submarket had a totalwarehouse size of 17,259,663 SF and vacancy of 15.2%,attributed to new speculative buildings. The absorptiontotal represents 42% of the Memphis market while the submarket represents just 12%. The submarket added 3.9million SF of product in 2005 with an additional 2.7 millionSF of speculative developments under construction.

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Miami-Dade County, with over 72 million SF of officespace, showed a single digit vacancy rate of 8.5% this quarter, down almost three percentage points from a yearago. Of the major sized submarkets, Kendall in the southhas the lowest rate at only 3%, the Central BusinessDistrict (CBD) is at 9.3%, Coral Gables at 6.7%, the Brickellsubmarket (adjacent to the CBD) comes in at 11.1%.While some areas are experiencing slower absorption,overall the county is faring very well. New construction this quarter was almost at a standstill with only 48,000 SFadded, giving great opportunity for existing buildings withvacancies to fill up.

Experts feel the office market will remain stable during2006, with conditions becoming increasingly favorable forlandlords. Much optimism for the future of the office market has developers overseeing 980,000 SF now underconstruction. One of these projects Class B 230,000 SFoffice building in the CBD called Latitude One is to becompleted in the fall and is already 100% leased. Also, inCoral Gables, a prestigious and desirable submarket ofMiami, another 500,000 SF is under construction.Of these six buildings, five are already 100% pre-leased.The development of office condos and the re-developmentof existing office buildings into condos are hot topics andpopular trends in this county. For example, recently indowntown Miami, a fourteen story, 142,343 SF office building at 14 NE 1 Avenue sold for $20 million. The newowners intend to offer this building to condo users.While interest rates remain low, business owners are seizing the opportunity to purchase their office space andtake control over their operating costs, while building equity.


1999 186,749,000 2,355,000 -2,589,000 6.9 N/A2000 188,168,000 1,419,000 1,319,000 7.1 6.002001 191,063,000 2,895,000 -556,000 9.8 5.002002 192,790,000 1,727,000 1,302,000 9.4 5.902003 193,804,000 1,014,000 2,934,000 8.2 5.902004 195,028,000 1,224,000 2,881,000 6.5 6.002005 196,476,000 1,448,000 4,524,000 4.3 7.35

Michael T. Fay

95 Merrick Way, Suite 380Coral Gables, FL 33134Tel 305-446-0011Fax 305-446-1907


1999 8,142,000 0 -154,000 10.0 28.002000 8,142,000 0 34,000 10.0 28.002001 8,142,000 0 0 10.7 27.802002 8,142,000 0 -284,000 11.9 28.202003 8,142,000 0 42,000 11.6 29.602004 8,142,000 0 72,000 12.4 30.302005 8,142,000 0 158,000 9.2 30.40

Downtown Office


1999 58,164,000 624,000 -744,000 8.4 0.002000 58,164,000 0 1,541,000 6.5 27.202001 59,639,000 1,475,000 -449,000 11.8 28.002002 61,072,000 1,433,000 -114,000 12.3 28.702003 61,797,000 725,000 533,000 12.5 29.702004 62,901,000 1,104,000 2,062,000 11.3 28.902005 63,608,000 707,000 1,746,000 8.7 30.00

Suburban Office

Industrial

Office IndustrialMiami-Dade has a healthy countywide vacancy rate of 4.3%,down about 1.5 percentage points from year-end 2004.We’ve seen great demand continuing for industrial space asthe local economy prospers in this strong manufacturingarea. This year absorption recorded over 4.5 million SF,with new product of over 1.4 million SF, leaving developersstruggling to keep up with demand. Miami is the largestmarket in the tri-county area and therefore is a populargateway distribution stop for the Caribbean and LatinAmerica; the city has also been increasing linkages to Asiaand Europe. Miami is currently in the process of becomingthe Free Trade Area of the Americas, which will bring evenmore business to the area. In spite of escalating constructionand land costs, some major development is underway inMiami-Dade County due to a demand for large blocks of space. For example, Lincoln Property is set to start construction this year on a 650,000 SF park situated on 39 acres they purchased last year (before the land boom of South Florida). Construction has also begun in Medleyon the Turnpike Distribution Center, and several additionalprojects are proposed for the Airport submarket. There isapproximately 1.63 million SF under construction in the county, with the majority in Medley and the AirportWest areas.

Another trend in South Florida is building, and purchasing, condo warehouses. Mostly small and mediumsized businesses are investing in this speculative constructionto benefit from low interest rates and owning, rather thanleasing. This allows them to have control over costs andbuild equity, providing more potential profitability.For example Cardinal Development plans to break ground on a 136,000 SF project in Medley with askingprices at $177 per SF.

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The Milwaukee market is holding steady with little movement since the third quarter of 2005. The most activity in the office sector is in sales of leased propertyand in build-to-suits. Sales of leased property (investmentsales) is the best it has been in decades. TIC investors,REITs and 1031 individuals are still leading the office investment market. At least three significant transactionsoccurred in the second half of the year with the sale of 411 E Wisconsin (downtown "A") and 875 E Wisconsin(downtown "A") to TICs, the sale of the Honeycreek officecomplex (suburban "A") to a TIC and the sale of theCrossroads Corporate Center (suburban "A") to a REIT.We are slowly seeing a positive absorption with regard toleasing activity in office properties, a trend that has beenevolving for several quarters now. However, the pace ofdeals in either downtown or in the suburbs remains slow. Two significant transactions underway are the 150,000 SF WellPoint/Blue Cross Blue Shield departurefrom downtown to West Allis (suburb) and potentially theManpower 250,000 SF addition-build-to-suit downtownfrom Glendale (suburbs). These leases show that larger tenants such as GE Medical, M&I Trust, Foley & Lardner,Godfrey & Kahn, Quarles & Brady,American Family andFroedtert Hospital are taking advantage of favorable marketconditions in 2005, a trend that we expect to continue into2006, or at least until interest rates increase to more historic levels.

We expect the build-to-suit market will grow into 2006.By then, if absorption continues, it is possible that the speculative market will also open up again. In addition weanticipate that the investment market will cool slightly asinvestors become more adjusted to recently increasedrates. We project developers will start looking deeper intothe office market to take advantage of a leasing renaissance.


1999 252,203,000 2,000,000 3,750,000 2.9 4.002000 255,203,000 3,000,000 4,000,000 3.7 4.002001 257,703,000 2,500,000 1,200,000 6.0 4.002002 259,203,000 1,500,000 -1,500,000 7.7 4.002003 264,523,000 5,320,000 14,376,000 6.7 4.302004 271,011,000 6,488,000 4,933,000 7.1 4.302005 272,050,000 1,039,000 537,000 7.2 4.20

Patricia A. Lange

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


1999 13,379,000 167,000 105,000 15.7 -2000 13,494,000 115,000 74,000 15.0 23.502001 13,494,000 0 -976,000 14.5 23.002002 13,689,000 195,000 250,000 9.3 23.002003 14,210,000 521,000 1,003,000 10.7 23.002004 14,210,000 0 121,000 9.9 22.002005 14,210,000 0 -1,029,000 11.9 22.00

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1999 42,851,000 550,000 110,000 9.2 0.002000 43,368,000 517,000 318,000 9.1 21.502001 43,962,000 594,000 371,000 1.5 21.002002 44,168,000 206,000 0 11.9 21.002003 44,668,000 500,000 918,000 10.8 21.002004 45,168,000 500,000 1,398,000 8.3 21.002005 45,190,000 22,000 -341,000 8.9 21.00

Suburban Office

Industrial

Office IndustrialThe metropolitan Milwaukee industrial market logged asmall increase in vacancy rate and recorded a slight bit ofnegative absorption as 2005 came to a close. In general,however, the vacancy rate, at around 7%, is still low compared to the national vacancy rate and we predict thatpositive absorption will occur in the first quarter of 2006.

Over 2005, this region saw a sharp increase in the price persquare foot for industrial buildings, particularly for smallersized buildings and for investment sales. This trend shouldlevel off during 2006, but elevated construction costs willkeep the price of existing buildings relatively high.

Furthermore, we predict that lease rates will gradually rise during 2006 as tenants are offered fewer choices and owners seek to bring lease rates in line with higher purchase prices. Finally, the supply of well-located industrialland is quite low. This will tend to keep land prices up andwill pose a challenge for industrial developers looking tobuild new product.

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The Twin Cities had a superb year. In 2005 closed with a total positive absorption of 1,466,000 SF with Class Abuildings contributing a positive 1,308,000 SF, Class B yielding a positive 479,000 SF, and Class C recording negative absorption of 320,000 SF. No submarkets experienced a net decrease for the year. The current market-wide vacancy rate is 17.4%, down from 19.9% lastyear. The market-wide Class A vacancy rate at year-end was 12%, compared to 16.2% a year ago.

Leasing conditions have continued their swing toward alandlord’s market, but at a slower pace than many expected.Lease rates have slowly ticked up throughout the year insome areas and remained static in others. Concessionssuch as moving allowances and free rent remained a fixturein many deals, although they diminished as the year progressed. Rising rents and slimming concessions havebeen more pronounced in Class A buildings where occupancies have seen the most improvement.Some tenants are seeking long-term leases to avoid havingto renew or move in the midst of the coming landlord’smarket. Some landlords are arguing that tenants lockedinto longer term leases will be unable to take advantage of newly developed space when it is brought to the market as a result of continued recovery.


1999 81,124,000 3,600,000 2,870,000 8.6 4.602000 83,324,000 2,200,000 1,846,000 9.4 4.702001 86,587,000 3,263,000 1,084,000 13.4 4.302002 89,571,000 2,984,000 1,546,000 17.0 4.402003 89,622,000 51,000 1,673,000 14.0 4.102004 89,622,000 0 113,000 14.8 6.002005 90,866,000 1,244,000 3,737,000 13.0 4.30

Dennis McClinton, SIOR, CCIM

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

Industrial

Office IndustrialThe Twin Cities industrial market has clearly reboundedsince the recession driven slump began in 2001. Absorptionwas at the highest level seen since 1999. For 2005, the Twin Cities had absorption of 3,737,000 SF with officewarehouse buildings absorbing the most space at 2,156,000SF. Bulk warehouse properties followed with 1,334,000 SFand the office showroom category had a slimmer gain ofjust 248,000 SF. The current market-wide vacancy rate is13%, down from 13.6% the previous quarter and 15.9% lastyear. The market-wide office showroom vacancy rate atthe end of 2005 was 11.8%, compared to 12.7% a year ago.The vacancy rate for office warehouse buildings dropped to11.1% from 14.4% last year and it slid from 24.4% to 20.2%over the year in the bulk warehouse category.

In recent years, new construction was non-existent becausevacancy rates were high and demand was low. With thegrowing demand, however, available quality space is disappearing, and companies no longer have the optionsthat were available two years ago. So for the first time infour years, speculative development is underway due to this growing need for new product. Much higher land andconstruction costs are also forcing developers to increaserental rates. As these costs continue to rise and vacancyrates steadily fall, rental rates on existing space will surelyclimb also.

46


1999 21,133,000 0 370,000 7.1 28.402000 22,060,000 927,000 573,000 7.2 28.702001 23,976,000 1,916,000 513,000 12.2 27.602002 24,904,000 928,000 -1,400,000 20.3 23.502003 24,904,000 0 -35,000 20.4 25.102004 24,904,000 0 -326,000 21.2 26.002005 24,904,000 0 737,000 19.6 24.70

Downtown Office


1999 38,014,000 1,154,000 366,000 10.5 26.002000 39,828,000 1,814,000 1,489,000 12.7 27.502001 41,930,000 2,102,000 1,664,000 17.6 27.002002 43,269,000 1,339,000 180,000 20.3 23.502003 43,269,000 0 2,038,000 16.3 27.402004 43,269,000 0 573,000 16.5 26.302005 42,944,000 -325,000 729,000 16.1 23.20

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Nashville is on the move. The economy continues toimprove. The labor market is gaining momentum. High gasprices are mitigating but may become a fact-of-life ratherthan an economic aberration. Inflation is under control andthe Fed will probably continue to raise rates. Companieswill therefore need office space as expansions, relocations,and new arrivals search for space to conduct business.Optimism has become the operative word for the officesector. All indicators point to upside activity. The CentralBusiness District (CBD) will continue to undergo its transition with condominiums and entertainment venuesreaching fruition. However, office utilization will still be aproblem as companies move within the CBD vacatingexisting buildings for new construction. Until this submarket has an infusion of new companies, the newbuildings will become additional leasing opportunitiesrather than occupied facilities.

The suburban submarkets continue to fuel the engine forgrowth. Some areas are in a temporary holding pattern as roadwork reduces their attractiveness. In the nearfuture, sites in the Cool Springs/Brentwood area will seeconstruction activity and speculative building may soon getunderway in Gallatin. Additional construction starts couldbe forthcoming; however, any dramatic increase in demandin the short run will cause a shift from a tenant-driven toan owner-driven market. In the short run, the market canexpect landlord inducements to dissipate as demand risesdue to a fixed supply. Look for more construction in theBrentwood/Cool Springs submarkets and a new corporatecampus for Nissan.

NA

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ILLE,TN

Office IndustrialThis year can be summed up as outstanding, with moregrowth anticipated. In fact, given our banner year, you mightexpect existing big-box space would be in tight supply;however, a number of available Class A bulk facilities remain,and developers are moving forward with speculativeconstruction in the East and Southeast submarkets.Emerging trends are pointing toward facilities over 650,000SF and interest in products in the 600,000 to 1.2 million SFrange is also becoming apparent. Look for dramaticincreases in absorption should this big-box attention turninto leases. Nissan’s selecting Nashville for its corporateheadquarters location will undoubtedly produce a rippleaffect on commercial real estate properties. These effectswill vary from increased demand for office and flex space as suppliers and related firms relocate to maintain proximity to the major auto manufacturer, to the additionalprestige and viability of Nashville as the place to be forcommercial enterprises.

The economy will continue its upward trend and nationaland regional economic indicators point to additional expansionary activity. Corporations are increasing capacityand are in an expansionary mode. Interest continues market-wide for single tenant facilities in the 22,000 to30,000 SF range and build-to-suit facilities will still be needed to meet market-specific needs. We look for sustained growth in 2006 and project absorption in the 4.5 million SF range for 2006.

Ben Mosley, MRICS

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

47


1999 154,861,000 3,705,000 4,918,000 3.2 3.502000 160,308,000 5,447,000 4,963,000 3.4 3.302001 164,953,000 4,646,000 1,604,000 5.1 3.002002 166,879,000 2,164,000 -2,460,000 7.9 3.002003 168,833,000 1,954,000 -260,000 9.1 3.002004 171,440,000 2,607,000 5,356,000 7.3 2.902005 175,111,000 3,671,000 4,570,000 6.7 3.10

Industrial


1999 5,801,000 N/A 32,000 6.6 20.002000 6,483,000 682,000 330,000 12.0 19.802001 6,505,000 22,000 -143,000 14.7 18.502002 6,603,000 98,000 112,000 13.4 18.302003 6,603,000 0 54,000 12.9 18.802004 6,603,000 0 -142,000 15.2 18.802005 6,603,000 0 60,000 15.0 17.50

Downtown Office


1999 15,601,000 1,260,000 1,115,000 8.5 19.002000 16,776,000 1,175,000 731,000 10.5 19.502001 18,216,000 1,440,000 549,000 14.8 18.502002 19,263,000 1,047,000 524,000 16.7 18.502003 19,393,000 130,000 77,000 16.9 18.802004 19,751,000 358,000 1,001,000 13.3 19.002005 19,895,000 144,000 549,000 11.2 18.80

Suburban Office

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The Central New Jersey office market is strictly a suburbanoffice market which includes the counties of Hunterdon,Mercer, Middlesex, Monmouth, Ocean and Somerset.The vacancy rate of available Class A and B space combinedhas been gradually decreasing, going from 15.5% in the firstquarter 2005 to ending at 12.9% for fourth quarter with anoverall decline of 2.6% for the year. Class A vacancy ratesalso decreased throughout the year while Class B vacancyrates remained unchanged, showing a higher interest innewer, more modern office buildings. Although the vacancyrates have dropped, the average asking rental rates forClass A and B space combined stayed flat over the yearshowing a rate of $24.13 per square foot. This is also truefor Class A space alone, which has an average asking rentalrate this quarter of $25.33. This could be a direct result of the construction that is presently underway in severalsubmarkets in the central New Jersey market. Currently,1.4 million SF of office space is under construction andnearly half of it is Class A space. Two Class A speculativeoffice buildings under construction in Princeton are particularly interesting. Another Class A speculative officebuilding was delivered in Princeton this quarter and is still available. The rest of the construction is scatteredthroughout central NJ.

Office IndustrialThis report covers the central New Jersey counties ofHunterdon, Mercer, Middlesex, Monmouth, and Ocean.With over 3.3 million SF currently under construction, it issafe to say that demand for industrial space in this marketis still high. The vacancy rate increased slightly at year-endto 7.3% due to the 1.7 million SF of new construction delivered to the market during the fourth quarter of 2005.Rental rates have remained virtually flat over much of 2005,with the exception of a rise from the first quarter to thesecond quarter. The rental rates have held steady thanks tothe 6.6 million SF of new construction in Middlesex Countydelivered over the course of the year. In order for theneighboring northern New Jersey industrial market to compete with the lower rents of the central part of theGarden State, it must utilize infill and site redevelopment tobring new product to the market.

Jonathan Tesser, SIOR

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

48


1999 253,307,000 3,675,000 3,927,000 7.2 5.202000 256,557,000 3,250,000 3,725,000 5.7 5.502001 263,712,000 7,155,000 1,479,000 7.0 5.002002 268,989,000 5,277,000 -2,031,000 8.3 5.002003 269,848,000 859,000 7,137,000 5.9 4.502004 272,207,000 2,359,000 7,066,000 4.3 4.202005 278,844,000 6,637,000 709,000 6.6 4.70


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 25.502005 100,815,000 1,278,000 2,821,000 12.5 25.30


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The strictly northern New Jersey office market includesthe counties of: Bergen, Essex, Hudson, Morris, Passaic andUnion. The vacancy rate of class A and B space combined in northern NJ has been gradually increasing throughout2005 from 13.0% in the first quarter to 14.1% in the fourthquarter of 2005. A steady increase was also seen in Class Aspace from 14.8% in the first quarter to 15.6% this pastquarter. This is partly due to the 16% decrease in leasingactivity this year when compared to leasing activity in 2004.Rental rates remained flat in Class A and B space combinedand in Class A space alone. Average rental rate for class Aspace is $27.42, while class B space averaged an asking rateof $23.13. With very little undeveloped land in this part of the Garden State, new construction is minimal whencompared to central New Jersey. However, there are a fewnoteworthy buildings in the 458,000 SF of space currentlyunder construction. A speculative Class A office building is underway in Parsippany and is available. Additionally, abuild-to-suit is under construction in Wood Cliff Lake inBergen County, a corporate headquarters for a pharmaceutical company.

Jonathan Tesser, SIOR

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

NEW

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NOffice Industrial

The northern New Jersey counties of Bergen, Essex,Hudson, Morris, Passaic, and Union saw a little movement,but held steady overall. Vacancy rates remained virtually flatthroughout 2005, at approximately 6.0%. Rental rates havebeen increasing at such a slow pace that is almost unnoticeable. Despite the low vacancy rate, the level ofdemand is keeping pace with the available space causingrental rates to stay somewhat stable. The northern NJindustrial market is a mature, built-out market with littleland left to develop. However, currently there is about amillion square feet under construction, including four largewarehouse/distribution facilities, something this market has not seen for some time. Despite the maturity of themarket, the northern NJ industrial market is a prime location, just outside the world’s largest retail market,New York City. The superior location and access to PortNewark/Elizabeth enables northern NJ to compete with the newer, more modern central NJ industrial market.

49


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 6.102005 422,975,000 116,000 -3,773,000 5.7 6.20

Industrial


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 27.102005 157,078,000 312,000 -609,000 12.0 27.40

Suburban Office

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New York, Midtown Manhattan

The Midtown Manhattan office market continued to perform quite well with the Class A vacancy rate falling to 6.9% at the close of the fourth quarter; the first timebelow the 7.0% figure since the 6.7% mark of July 2001.Vacant space has now dropped to just 10.7 million SF downfrom its high of 16.1 million SF in May 2004. Large blocks ofavailable space are scarce. In fact, if a tenant were searchingfor 500,000 SF or more, the current choices would be limited to two buildings under construction (Bank ofAmerica and NY Times – both due for completion in late2007), one building under renovation (1095 Avenue of theAmericas) and one space available in the second half of2006 (522 Fifth Avenue). The Midtown submarket with the lowest vacancy is currently Times Square at 4.5% in the fourth quarter, down from 7.5% in the third quarter.

The Class A average asking rent climbed to $59.64 per SFin December up 3.7% from the $57.53 per SF one yearago. The premier Plaza submarket has the highest averageasking rent in the city at $68.13 per SF, closing in on itsrecord-setting high of $74.87 per SF in April 2001.Significant recovery for both asking and effective rents is expected over the next few quarters as the market continues to tighten with rent spikes possible within the six Midtown submarkets.

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

1999 – – – – –2000 98,217,000 0 787,000 5.5 38.002001 98,217,000 0 -7,256,000 12.9 43.802002 98,217,000 0 -998,000 14.0 34.002003 98,217,000 0 1,460,000 12.5 27.602004 98,217,000 0 1,054,000 11.4 33.702005 98,217,000 0 3,114,000 8.3 36.00

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 57.502005 250,590,000 3,135,000 7,065,000 8.0 59.60

Midtown Manhattan Office Midtown South Manhattan Office

OfficeNew York, Midtown South Manhattan

The overall Midtown South market, made up primarily ofClass B buildings, saw its vacancy rate improve sharply inthe fourth quarter, dropping to 8.3% from 9.4%. The mostimpressive gains were recorded in Chelsea, where theoverall vacancy rate fell to 5.7% from 7.5% in the fourthquarter, and SoHo/NoHo/Village, where the vacancy rateslid to 4.9% from 6.0%. Chelsea also saw one of the largest deals in all of Manhattan at the close of the year as Google leased 310,000 SF at 111 Eighth Avenue.The giant Internet search engine will be relocating fromMidtown and expanding.

The overall average asking rent closed 2005 at $32.18 perSF, slightly lower than the $32.29 per SF at the end of thethird quarter. This negative growth in the asking rent canbe partially attributed to some higher-end space beingleased over the quarter. The increasingly popular trendtoward residential conversions took hold in 2005 as isexpected to continue in 2006 which will undoubtedly have ripple effects for the office market. This tendency toconvert to residential began in the Downtown market buthas now spread to Midtown South where a number ofsmall and large buildings are either partially or fully undergoing transformation into high-end residential condominiums. This continuing process will cut into theClass B and Class C office inventory over the comingmonths making it even more difficult for a potential tenantto locate space and push rents higher.

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New York, Downtown Manhattan

The Downtown market remains a most pleasant surpriseas it continues to show resilience despite many pessimists.The Class A vacancy rate fell to 9.2% in December downfrom 10.2% in the third quarter and 13.2% one year ago.True that the first quarter of 2006 will see the completionof 7 World Trade Center which will add 1.7 million SF toinventory and almost all to availability, however it will beone of the few large blocks left in Manhattan and wouldonly increase the vacancy rate to 11.8% Downtown.The first deal was signed in the fourth quarter at 7 WorldTrade Center as the New York Academy of Sciences leased40,000 SF (a full floor) near the top of the building in arelocation from the upper east side. Another big developmentin 2005: Goldman Sachs broke ground on its new 2.0 million SF headquarters tower across from the World Trade Center site with completion expected in 2009.Also, construction is moving ahead on the LowerManhattan Transit Center, which will connect the varioussubway lines as well as the PATH train from New Jersey,and eventually an express train to JFK. The Class A averageasking rent closed the year at $33.76 per SF, only minimallyhigher than the $33.56 per SF of one year ago—makingLower Manhattan a relative bargain not only compared toMidtown but to many other major cities around the country.

NEW

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Nicola M. Heryet



1999 101,866,000 0 2,255,000 8.2 37.002000 101,866,000 0 4,021,000 4.5 46.202001 88,466,000 -13,400,000 -19,195,000 11.4 42.502002 88,466,000 0 -2,742,000 14.4 36.402003 88,466,000 0 446,000 14.2 33.902004 88,466,000 0 536,000 13.6 33.602005 88,466,000 0 2,494,000 11.2 33.80

Downtown Office

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New York,Westchester County

For Westchester County as a whole, the Class A vacancyrate jumped to 15.5% in the fourth quarter up from 14.3%in the third and 13.8% in the second quarter. This rise waseven more pronounced in White Plains, where the Class Afigure shot to 19.4% from 15.9% in the third quarter and15.0% in the second quarter. In both cases the reason canbe summed up with the fact that IBM gave up just over470,000 SF at 1133 Westchester Avenue. The Class A average asking rent for Westchester County showed someimprovement in the fourth quarter, climbing to $27.15 per SF from $26.58 per SF in the third quarter. For WhitePlains, the Class A average asking rent closed the year up at $27.64 per SF from $26.71 per SF in the third quarter.Verizon renewed 175,000 SF at 500 Summit Lake Drive,slightly less than the 195,000 SF they had occupied in oneof the largest leasing deals of the fourth quarter.

However, the real action was on the investment side whereReckson Associates won the bid in the much sought after“EastRidge portfolio.” The 14 buildings in four office parksalong the I-287 corridor sold for $255 million or $163 perSF. They are approximately 70% occupied. In another transaction earlier in the quarter, Reckson also purchased711 Westchester Avenue from W & M Properties for$24.75 million or $210 per SF. That building is 95% occupied.

OfficeNew York, Fairfield County

The Fairfield County market has begun to show some positive movement in recent months with its Class Avacancy rate falling to 18.7% in the fourth quarter, downfrom 19.2% in the third and a record high of 22.0% in thefirst. However, the Class A average asking rent essentiallyflattened in 2005, closing the year at $27.98 per SF, up onlyslightly from $27.71 per SF in the third quarter but downfrom the $28.57 per SF of one year ago. In Stamford, thevacancy rate remains above the 20.0% mark, ending theyear at 22.5%, up from 21.4% in the previous quarter.Meanwhile, the Class A average asking rent for the countyseat closed at $29.67 per SF, up from $29.15 per SF in thethird quarter but down from $30.51 per SF of one yearago. The greater Greenwich submarket saw a steep declinein its vacancy rate in 2005, with Class A dropping to 13.6%in December, from 15.9% in September, and 21.5% one year ago. Note: if the much smaller downtown area wereanalyzed, the vacancy rate would be near zero. Two buildingsmake up the majority of availability in Greenwich: 1700 EastPutnam Avenue with 134,000 SF available, and 1 AmericanLane with 117,000 SF available.

The average asking rent shot to $50.88 per SF in the fourthquarter from $44.48 per SF in the third quarter. The bestnews for Fairfield County in the fourth quarter came withthe announcement that Royal Bank of Scotland/RBSGreenwich Capital plans to construct its 500,000 SF USheadquarters building in Stamford. The groups will consolidate their operations currently in Manhattan andGreenwich, though some staff will stay in the city. On thedownside, International Paper plans to close its offices inStamford, and move most of its 150 employees toMemphis. Currently they are located in 132,000 SF at 400 Atlantic Street.

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

1999 – – – – –2000 – – – – –2001 60,241,000 0 -3,797,000 14.1 30.802002 60,241,000 0 -1,810,000 17.3 30.802003 60,241,000 0 29,000 17.3 28.802004 60,241,000 0 -73,000 17.4 28.602005 61,510,000 1,269,000 1,640,000 15.6 28.00

Nicola M. Heryet


Fairfield County, CT Suburban Office


1999 – – – – –2000 – – – – –2001 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 27.602005 43,427,000 788,000 1,231,000 13.9 27.20

Westchester County, NY Suburban Office

Net absorption for 2005 topped 553,214 SF on leasingactivity of 2.1 million SF. It is interesting to note that themajority of that absorption occurred in the two “urban”sub-markets, Berkeley and Downtown Oakland. With thesteady supply of new tenant demand during the past fourquarters, the overall vacancy rate dropped to 15.3% downfrom 17.4% last year. Clearly, certain markets have out performed the metro market, specifically DowntownOakland and Downtown Berkeley, while others have languished. This might explain the modest rent growth(4.1%) across the overall market however we project significant pressure on rental rates over the next twelve to eighteen months. Sublease space as a percentage of allavailable space is under 5% and assuming demand continuesat its current pace, we contend we will begin to see“spikes” in rents especially in downtown Berkeley anddowntown Oakland. The most significant lease transactionfor the year was APL’s renewal of 139,030 SF at 1111Broadway in Downtown Oakland. The OaklandMetropolitan Area’s office market continues to recoversteadily. The area’s flourishing retail and residential marketsare sure to bring more business into the region. All in all,we believe the area is poised for a robust 2006.


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 4.202005 131,406,000 157,000 1,895,000 6.7 4.30

Michael J. Burke

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


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 24.402005 12,876,000 0 212,000 13.0 25.70

OA

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,CA

Downtown Office


1999 9,000,000 1,741,000 1,957,000 5.3 30.002000 9,884,000 884,000 3,204,000 1.7 44.002001 12,797,000 2,913,000 -396,000 12.9 35.302002 14,139,000 1,342,000 -1,129,000 17.8 28.202003 15,143,000 1,004,000 1,431,000 16.3 23.502004 15,143,000 0 -277,000 19.8 24.102005 15,179,000 36,000 836,000 14.3 25.40

Suburban Office

Industrial

Office IndustrialThe Oakland metropolitan area’s industrial market tightenedeven further during 2005. In fact, the overall vacancy ratefinished at 6.7%, the lowest level in nearly four years.Asking rental rates have also steadily increased to $.50NNN per square foot per month within the past year, afterstaying flat for most of 2004. We expect rental rates to continue on their ascent in 2006 as quality space becomesharder to find. The industrial sector had a remarkable year,as combined leasing and sales activity topped 3.3 million SF.In fact, there was an unprecedented 1.06 million SF of positive net absorption over 2004, resulting in a significantchange in occupied square feet. Most of this activity tookplace in the Hayward and Union City submarkets, wherethe vacancy rates fell to 4.9% and 4.3% respectively.The warehouse sector ended the year on a positive note,as vacancy fell to 5.9%. The warehouse sector started theyear poorly, as an influx of sizable vacant space flooded theHayward and Union City submarkets. But by the end of the year, an increase in demand for warehouse space hadreduced vacancy for both submarkets to the 8.0% range,considered much more manageable. Vacancy in San Leandrohad the steepest decrease of all the submarkets, due to several transactions for spaces that were larger than 100,000 SF.

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Overall office vacancy has been on a steady decline for the last two years in Central Florida. It was down againslightly in the fourth quarter from 10.3% to 10.0%.Constant demand for office space and a steady but wellpaced stream of deliveries has helped keep the CentralFlorida office market relatively healthy. The latest new construction total inventory now registers at 49,316,000SF. There was a record 588,220 SF of product delivered tothe market this quarter in the form of seventeen buildings,the most in four years. This amount of incoming spacecould negatively affect vacancies in the first quarter of 2006 even though much of it may have been pre-leased.

Rates were holding strong as the 2006 began. Overall fullservice asking rates were $19.65 per SF and have beenhovering between $19.65 per SF and $19.75 per SF for the last three quarters. Class A rates remain solid as wellmoving up $0.16 from $21.75 per SF to $21.91 per SF.Only 240,000 SF of Class A office product was delivered to the market in the fourth quarter. Such limited additionshelp keep demand up and rates competitive.

Total net absorption in Central Florida this quarter was1,209,000 SF. This number has remained relatively constantconsidering the amount of product that has been deliveredthis year. Taking this into account along with consistentlyfalling vacancies indicates the strength of the CentralFlorida office market. We anticipate plenty more in thepipeline heading into 2006. Two of the more ambitious projects closing 2005 were the 317,647 SF Majesty Buildingand the 200,000 SF Premier Trade Plaza on Orange Ave.Downtown. This space is 65% pre-leased.


1999 102,330,000 813,000 -339,000 7.2 N/A2000 104,176,000 1,846,000 1,658,000 7.3 5.902001 107,756,000 3,580,000 2,425,000 10.4 4.202002 109,362,000 1,606,000 -369,000 11.0 4.302003 110,789,000 1,427,000 -298,000 11.9 4.102004 114,025,000 3,236,000 5,903,000 9.0 4.502005 114,569,000 544,000 1,992,000 8.0 4.75

Matt Sullivan

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


1999 9,168,000 337,000 216,000 6.1 25.202000 9,925,000 757,000 414,000 9.0 25.402001 10,011,000 86,000 -104,000 12.0 25.302002 10,011,000 0 -149,000 11.8 23.602003 10,231,000 220,000 135,000 12.5 22.802004 10,231,000 0 13,000 11.1 21.002005 10,496,000 265,000 81,000 11.8 24.00

Downtown Office


1999 34,166,000 490,000 438,000 7.1 18.002000 36,103,000 1,937,000 2,212,000 8.2 19.802001 38,716,000 2,613,000 672,000 12.0 20.602002 39,549,000 833,000 187,000 12.9 20.302003 40,267,000 718,000 -97,000 14.6 20.202004 40,669,000 402,000 291,000 12.3 19.702005 40,992,000 323,000 1,204,000 9.3 19.00

Suburban Office

Industrial

Office IndustrialCentral Florida’s industrial market had a good year butslipped slightly in the last quarter. Absorption remained well into the positive numbers throughout the first threequarters of 2005 falling to -694,441 SF at the year-end with almost half of that amount sublet space. At this timelast year absorption was at a very strong 1,9534,000 SF.This slip is due in part to a high number of deliveries thisquarter for a total of 694,224 SF, by far the most productdelivered to the market all year. This sudden influx causedabsorption to drop in the forth quarter which is expectedto even out quickly in the first quarter of 2006 sincedemand remains very strong. Over 3.5 million SF of industrial product has been added to the Orlando marketover the last year. RBA totaled 114,648,000 SF at year-end,versus 111,144,000 SF a year earlier. In addition, vacanciesremain lower than they’ve been in five years. This is a good gauge for how strong the industrial market is in central Florida.

Significant deliveries this year include 165,000 SF at 5000Mercantile Lane and 93,000 SF in the South OrangeBusiness Park with building one delivered in the thirdquarter. Cypress Lake Drive, a 340,000 SF space was delivered at year-end and the 325,000 SF Windoor buildingis yet to be completed. Over the past year, industrial rentalrates have gone up across the board. The overall averageleast rate has skyrocketed from $5.30 NNN in 2004 to$5.90 NNN in 2005. Warehouse rents are also up from$4.17 NNN a year ago to $4.74 NNN. Flex rates haveincreased $1.20 from $8.29 NNN in 2004 to $9.49 NNNcurrently, and manufacturing rents are at $5.07 NNN upfrom $4.40 NNN at this time last year.

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The regional office markets improved marginally during2005. Demand increased from 2003 and 2004’s levels, butremained weak. In the Philadelphia Central BusinessDistrict (CBD), the vacancy rate decreased for the firstthree quarters of 2005, but increased during the last quarter as a result of tenants relocating to the newly completed Cira Center as well as renewing leases for lessspace creating more availability. The suburban markets hadan overall drop in vacancy during 2005; however, many ofthe largest lease transactions were renewals that resultedin little or no gain in occupancy. Still, steady demand andlimited new construction over the past two years hasresulted in a growing shortage of larger blocks of quality space.

The regions’ developers appear to be optimistic about agreater recovery in the office market over the next year asseveral speculative projects commenced in markets such asLower Bucks, Southern New Jersey and the Lehigh Valley.CBD Philadelphia and CBD Wilmington have the most newconstruction projects underway. For example, mostnotable are the Comcast Center and 500 Delaware Avenue(Wilmington); these buildings have lead tenants secured.Regionally, asking rental rates have remained flat.However, concessions have become much less prevalent,particularly in the suburban markets and the demand forinvestment properties shows no sign of slowing. In the suburban Philadelphia office market, there were a numberof large portfolio sales with more in the pipeline for 2006.


1999 394,396,000 350,000 1,227,000 13.1 2.502000 396,981,000 2,585,000 3,446,000 8.5 3.902001 403,367,000 6,386,000 -2,422,000 12.7 4.002002 404,771,000 1,404,000 -6,367,000 13.8 4.002003 405,957,000 1,186,000 4,281,000 12.3 4.002004 410,256,000 4,299,000 5,782,000 12.2 4.002005 415,100,000 4,844,000 11,390,000 10.5 4.25

James J. Scott, SIOR

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


1999 37,950,000 215,000 1,517,000 10.7 25.002000 37,950,000 0 727,000 8.8 28.402001 37,950,000 0 -1,349,000 12.3 23.502002 37,950,000 0 -816,000 14.4 23.002003 37,950,000 0 561,000 13.0 23.302004 37,950,000 0 244,000 12.4 23.302005 38,903,000 953,000 68,000 13.9 23.20

PHILA

DELPH

IA,PA

Downtown Office


1999 91,781,000 1,885,000 699,000 7.9 25.002000 93,539,000 1,758,000 -1,741,000 9.4 23.502001 96,320,000 2,781,000 -1,465,000 13.2 24.002002 98,593,000 2,273,000 -1,003,000 13.7 23.002003 100,367,000 1,774,000 -880,000 17.4 24.302004 101,554,000 1,187,000 1,900,000 16.1 23.302005 102,322,000 768,000 1,197,000 15.5 22.90

Suburban Office

Industrial

Office IndustrialThe Philadelphia regional industrial markets gained momentum during 2005. Vacancy rates were down acrossall submarkets, demand increased and rental rates began to trend upward. The larger tenant-user sector was muchmore active than in 2003 and 2004. The largest lease andsale transactions for the year involved mainly retailers:Home Depot, Ikea, David’s Bridal, Raymour & Flanigan, andCVS. The Lehigh Valley, the only true bulk market in theregion, has more tenants looking for space than sites toaccommodate them. Bulk construction has increased insouthern New Jersey as the central and northern portionsof the state have become progressively more built-out.Industrial rents remained flat during much of 2005, butbegan to tick up at the end of the year, and concessionssuch as free rent diminished. Increased demand and anexpected 10% to 20% increase in construction costs willresult in an overall increase in rental rates during 2006.

Although industrial conversions are not a new phenomenon,the trend has become more pronounced. While most active in Philadelphia, residential and retail developers areacquiring well-located sites throughout the region. There isstill a lack of investment grade industrial product on themarket, but there were several “flip sales” as investors tookadvantage of the short supply. Although not reflected in theoverall average, cap rates in the mid 6% range are fairlycommon for investment grade industrial product.

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ENIX

,AZ

Job growth projections for the Phoenix area remainedstrong with 66,500 new jobs expected by the end of 2005.A large percentage of these jobs have been created in theprofessional business services sector, which has positivelyimpacted demand in the commercial real estate market.Fourth quarter office net absorption activity posted 1.65million SF bringing the year-to-date total to a staggering6.65 million SF. This activity has more than doubled the 2.93 million SF of absorption of 2004. Office constructionactivity also rose during the fourth quarter with 2.16 million SF delivered, bringing the year-to-date total to 2.78million SF. Construction activity, while relatively light duringthe first half of 2005, picked up substantially at the end ofthe year, and is expected to remain strong throughout the next several quarters.

Office vacancy rates during the year fluctuated slightly, butdropped from year-end 2004. The year-to-date overallvacancy rate continued to decrease during fourth quarter2005, posting 14.3%, down from 16.1% in 2004. For thefirst time since 1999, asking rental rates increased acrossthe board mainly a result of tightening vacancy rates.Also, while rental rates are rising, lease concessions,including free rent and TI allowances continue to decline.Projections indicate substantial tenant demand and absorption activity will continue well into 2006.


1999 195,149,000 9,447,000 6,918,000 8.2 5.702000 200,858,000 5,709,000 5,069,000 8.3 4.002001 207,035,000 6,177,000 2,491,000 10.1 4.802002 212,285,000 5,250,000 1,338,000 12.1 5.402003 215,185,000 2,900,000 215,000 13.2 5.902004 218,888,000 3,703,000 4,546,000 11.4 5.802005 223,257,000 4,369,000 8,766,000 9.5 6.30

Mike Fitz-Gerald

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


1999 18,847,000 399,000 -128,000 9.2 29.402000 18,861,000 14,000 -185,000 10.5 22.002001 19,987,000 1,126,000 -115,000 17.0 21.802002 19,987,000 0 -449,000 18.6 18.402003 20,112,000 125,000 -109,000 19.0 17.502004 20,280,000 168,000 111,000 18.3 19.402005 20,280,000 0 976,000 15.3 21.20

Downtown Office


1999 62,411,000 5,630,000 2,392,000 11.3 27.902000 65,965,000 3,554,000 3,920,000 10.1 24.002001 71,366,000 5,401,000 1,785,000 16.9 24.002002 74,438,000 3,072,000 1,457,000 17.9 20.902003 76,123,000 1,685,000 2,618,000 16.1 20.102004 79,574,000 3,451,000 2,694,000 15.8 23.002005 82,356,000 2,782,000 5,676,000 14.0 22.70

Suburban Office

Industrial

Office IndustrialThe metro Phoenix industrial market reported substantialmarket activity at the end of 2005. Warehouse/distributionbuildings reported the largest demand with many logisticscompanies relocating from Los Angeles to the Phoenixarea. High-tech manufacturing also appeared to be makinga comeback as semi-conductor manufacturers lifted hiringfreezes and recruited new employees. Net absorption activity in the metro Phoenix industrial market posted 2.65 million SF at year-end, bringing the year-to-date totalto 8.76 million SF. Absorption activity has been nothingshort of staggering during 2005, with tenant demand being driven from both local and out-of-state companies.

New construction deliveries posted 4.36 million SF anotable gain over the 2.75 million SF delivered during 2004. Projects under construction at the end of the yearrecorded 4.58 million SF while proposed projects totaled9.20 million SF. Projections indicate construction activity will remain brisk throughout 2006 as vacancies are reduced and strong tenant demand continues.

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The office market in Pittsburgh is improving, although thepace is slower than the rest of the country. In 2005 wesaw an increase in leasing activity, particularly in the downtownfringe submarket. American Eagle’s decision to relocate theSouthside Works, along with the new Del Monte Centerhas created a sense of growth. Smaller tenants remaininterested as well. In the suburbs demand has been slowbut steadily rising. Most suburban submarkets, especiallythe parkway west, continue to struggle with high vacancyrates. Lease rates in these areas will stay below landlord’sexpectations, although the days of incentives may be numbered. New construction in the suburbs is almost non-existent. Despite its high vacancy numbers, theParkway West, followed by Cranberry, are consistently the most desirable locations for suburban tenants. The highvacancy rates indicate the low tenant flow that has beentypical over the past five years. The Central BusinessDistrict has seen a number of major developmentannouncements over the past year, especially at the end of 2005. PNC recently announced that it will constructPittsburgh's first new high-rise in almost twenty years, athirty story mixed use facility with offices, a hotel and condominiums. Reed Smith, a local law firm has agreed to lease 260,000 SF in the new building. A number of condominium projects have been announced recently as well. Most of these projects are slated for former office buildings.


1999 – – – – –2000 – – – – –2001 – – – – –2002 98,582,000 857,000 699,000 20.5 4.002003 99,073,000 491,000 1,299,000 19.6 3.902004 99,380,000 307,000 1,033,000 18.9 4.402005 99,586,000 206,000 2,372,000 16.7 4.70

Gene Galiardi

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


1999 – – – – –2000 – – – – –2001 – – – – –2002 42,339,000 0 -514,000 13.8 21.102003 42,339,000 0 -179,000 18.0 21.602004 42,439,000 100,000 89,000 18.0 20.802005 42,704,000 265,000 828,000 15.8 22.70

PITT

SBUR

GH

,PA

Downtown Office


1999 – – – – –2000 – – – – –2001 – – – – –2002 54,320,000 200,000 -352,000 22.7 18.202003 54,380,000 60,000 -4,000 21.3 18.202004 54,480,000 100,000 145,000 20.5 17.902005 54,696,000 216,000 379,000 14.8 21.20

Suburban Office

Industrial

Office IndustrialThe Pittsburgh industrial market ended the year with a16.7% vacancy rate, a drop of approximately 2% from thebeginning of 2005. The stabilized market conditions havemotivated tenants and buyers resulting in a rise in prospectactivity. In addition, rental rates seem to have stabilized andare strengthening. Look for this trend to continue and fornew construction to increase in 2006.

The majority of the new construction will take place in the North Pittsburgh/Butler County and the WashingtonCounty submarkets. Construction deliveries proved light in 2005 and at their lowest level since 2002. We saw nobuildings over 100,000 SF delivered, however this shouldchange in 2006. Four buildings greater than 100,000 SF inthe Pittsburgh region are already slated for completion bythe second quarter of 2006.

Local Pittsburgh developers are revitalizing outdated buildings and brownfield properties in Pittsburgh and alongits rivers. Planning is underway for two major brownfieldprojects: the former LTV Steel coke works site inHazelwood, which is being spearheaded by a partnershipincluding four foundations; and the former Edgewater Steelplant site in Oakmont, being developed by the RegionalIndustrial Development Corporation.

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PLEASA

NTO

N/W

ALN

UT

CR

EEK,C

A

The Pleasanton/Walnut Creek office market has seen significant gains over the last 4 quarters. Vacancy has consistently declined and rents are now on the rise.Leasing activity in the fourth quarter proved strong withmost deals inked less than 3,000 SF. The submarkets withthe most leasing activity were the Class A Walnut CreekDowntown and Walnut Creek/Pleasant Hill Bart. The vacancyrate in the Class A Walnut Creek Downtown market fellfrom 15.6% to 13.3%. While Class A vacancy in the WalnutCreek/Pleasant Hill Bart submarket fell from 9.1% to 7.6%.Vacancy also declined slightly in the Pleasanton Class Amarket from 12.6% to11.2%. Average rents for Class A roseslightly from $2.13 to $2.15, a trend that is expected tocontinue in 2006. The Concord Class B market’s vacancyrate dropped from 11.8% to 8.2%, a significant decline overprevious quarters. This trend is likely the result of tenantsinking deals before rents rise and while asking rates are still a bargain. Strong leasing activity combined with lowvacancy rates indicate the Pleasanton Walnut Creek officemarket should remain strong in 2006.


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 31,845,000 66,000 206,000 8.6 4.802005 31,933,000 88,000 39,000 8.6 4.35

Michael J. Burke

5050 Hopyard Road, Suite 180Pleasanton, CA 94588Tel 925-463-2300Fax 925-463-0747

Industrial

Office IndustrialLivermore got the bounce it was looking for in the last half of 2004 and the first half of 2005. Investment andowner/user sales have been very active. Prices haveincreased from 10% to 20% over the previous year forbuildings less than 15,000 SF. The leasing market proved abit slow during the first quarter, however, it picked up significantly in the second quarter and held steady for theremainder of the year. Large owner/user purchases werethe highlights of the Livermore Industrial/R&D market, atrend that continued throughout 2005.

Activity in the R&D/flex market stayed the course throughthe fourth quarter with much of the leasing in the 4,000 to 8,000 SF range. Two buildings were purchased in theValley Business Park and converted into four to six unitcondominiums. Rents have remained steady at $10.00 perSF (est.). Approximately 50% of the available spaces haveleased and others are still asking over $12.00 per SF.

We see 2006 kicking off with more of the same: steadyleasing activity and a handful of building sales. Rental ratesare expected to remain steady and some product typescould even increase slightly. The intrinsic of the Tri-Valley—affordable housing, public transportation, access to skilledlabor, and land available for development--will continue toattract users who are looking for a strategic bay area location, to the Tri-Valley area.

58


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 21,490,000 0 354,000 12.2 26.102005 21,490,000 0 783,000 11.1 25.80

Downtown Office


1999 – – – – –2000 – – – – –2001 – – – – –2002 – – – – –2003 – – – – –2004 18,495,000 0 185,000 13.6 22.902005 18,495,000 0 321,000 10.5 24.40

Suburban Office

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The numbers this year indicate little activity in our marketin terms of construction; the only exception is a small bitof Class B construction in the Suburbs. The PortlandMarket is quickly becoming a Landlord’s Market with theincrease in absorption and decrease in vacant space.Basically, all the good space is taken and tenants are lookingfor anything they can get their hands on before rents go up. Broken up by market, we continue to see a higherabsorption rate in the suburbs despite a higher averagerental rate. This is due to costs associated with CentralBusiness District parking and the Multnomah County tax;both can be avoided by setting up shop in our high qualitybusiness parks on the outskirts of Portland proper. This isthe third straight year that our overall vacancy rate hasdeclined, confirming our belief that the Portland market is a desirable market for tenants of all types and will continue to grow.


1999 127,547,000 2,087,000 1,683,000 8.1 4.102000 128,960,000 1,413,000 2,466,000 4.8 3.502001 130,012,000 1,052,000 -1,219,000 8.5 5.002002 130,948,000 936,000 455,000 16.4 5.002003 133,301,000 2,353,000 2,609,000 16.4 4.802004 134,414,000 1,113,000 5,001,000 13.9 4.602005 135,733,000 1,319,000 4,839,000 10.8 4.55

Thomas Lawwill

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


1999 18,717,000 0 56,000 6.3 27.302000 19,171,000 454,000 758,000 5.4 25.002001 19,241,000 70,000 -814,000 11.3 27.002002 20,009,000 768,000 -214,000 15.1 22.002003 20,197,000 188,000 212,000 12.7 21.002004 20,197,000 0 113,000 12.8 20.102005 20,197,000 0 104,000 12.8 20.50

PORT

LAN

D,O

R

Downtown Office


1999 34,257,000 464,000 243,000 10.0 21.502000 35,074,000 817,000 1,306,000 7.9 23.502001 36,428,000 1,354,000 -18,000 12.0 23.002002 36,568,000 140,000 -794,000 14.0 23.002003 38,114,000 1,546,000 -252,000 17.3 21.002004 38,671,000 557,000 1,536,000 14.3 20.602005 38,915,000 244,000 1,369,000 11.6 21.80

Suburban Office

Industrial

Office IndustrialActivity in the industrial market picked up speed in 2005.In the spring, larger tenants started moving into the area

occupying spaces in the 75,000 SF range and above, andlocal businesses undergoing expansion also entered themarket for larger spaces, thus freeing up smaller spaces inthe 5,000 to10,000 SF range. Fewer subleasing opportunitiesfurther supported the upward direction of the market.Rental rates increased as we moved into the second half of2005, reflecting the increased interest in flex and warehousespace. The industrial market will steam along as we movethrough the coming year. Current market trends point to asteady increase in leasing activity in 2006. New developmentwill play a role through the end of the year as net absorptionincreases through the first half of 2006. Seasoned brokers are optimistic about the first half of the year as more companies look to the Portland metro area for expansion.

Rental rates are predicted to climb into 2006.Newer buildings will command higher rates due to risingconstruction costs, including labor, steel and concrete.Developers are building at a steady pace as they watch thefluctuation in demand. Speculative building remains a minorplayer in development. Rates will begin to reflect increasingoccupancy as early as spring of 2006.

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/DU

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,NC

The Raleigh/Durham/Research Triangle Park area put in astrong performance for 2005 with 1.6 million SF of positiveabsorption, and a repeat is expected in 2006. With lessthan a million SF under construction and a nominal amountof quality sublease space available, we will see a decliningvacancy rate, reduced concessions and higher rents.New building starts will pick up in 2006 as rents escalateand close the gap for new building construction.Downtown areas in Raleigh and Durham continue toevolve with new pre-lease announcements for new development. Job and population growth continue to outpace other areas of the country. This has createdinvestor demand; and along with low interest rates, highconstruction prices and a limited supply of purchaseoptions, yields have been aggressive. New transactions andtenant expansions at year end by Lenovo, RBC Centura,Stock Building Supply, Fidelity Investments,AICPA, Motricityand CS First Boston have created positive momentum anda renewed buzz about the area’s future growth.


1999 30,185,000 442,000 1,988,000 11.9 N/A2000 31,121,000 936,000 868,000 12.3 4.302001 34,061,000 2,940,000 101,000 21.9 4.302002 34,400,000 339,000 -464,000 26.5 4.002003 34,616,000 216,000 -106,000 27.3 3.502004 34,796,000 180,000 661,000 26.0 3.502005 34,951,000 155,000 1,924,000 21.5 3.75

John R. Kelly

3110 Edwards Mill Road, Suite 210Raleigh, NC 27612-5419Tel 919-789-4255Fax 919-789-0268


1999 2,835,000 95,000 178,000 6.8 N/A2000 2,926,000 91,000 156,000 5.1 19.002001 3,113,000 187,000 46,000 9.8 18.002002 3,172,000 59,000 30,000 8.7 18.002003 3,219,000 47,000 -3,000 10.3 18.002004 3,506,000 287,000 250,000 10.5 18.002005 3,641,000 135,000 198,000 8.4 19.00

Downtown Office


1999 25,082,000 3,586,000 2,551,000 6.9 N/A2000 28,164,000 3,082,000 2,186,000 7.7 19.502001 31,320,000 3,156,000 -2,473,000 20.0 18.502002 32,485,000 1,165,000 -148,000 21.4 18.002003 32,882,000 397,000 179,000 21.7 18.002004 34,504,000 1,622,000 1,761,000 19.7 18.002005 35,462,000 958,000 1,625,000 17.2 19.00

Suburban Office

Industrial

Office IndustrialThe Raleigh-Durham industrial market continued its slowrecovery during 2005 with approximately 600,000 SF ofabsorption during the last quarter. This resulted in a reduction in the vacancy rate (inclusive of sublease space)to 21.5% in the fourth quarter down from 23.3% in theprevious quarter. Flex space and warehouse space vacancyrates were almost identical at year-end. Approximately 1.9million SF was absorbed, or 5.4% of the total market supply. We expect market conditions for both flex andwarehouse to improve steadily and anticipate an increase in leasing velocity as the overall economy in the Raleigh-Durham area continues to thrive. Sublease space nowaccounts for only 1% of vacant space and there has beenalmost no new construction, aside from build-to-suit transactions that are underway. This bodes well for continued lease up of second-generation space.

As 2005 closed, the triangle flex market rebounded nicelywith 181,000 SF of positive absorption; this after a poorthird quarter that experienced over 200,000 SF of negativeabsorption. We have now seen positive absorption in fiveof the last six quarters and we expect this upward trend tocontinue. Quality, institutional grade properties enjoy mostof the activity in this market.

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The Reno office market finished the year a little softer than we had expected. The vacancy rate in buildings over10,000 SF rose due to a couple of large tenants vacatingtheir suites in the fourth quarter. Reno has seen anincrease in tenants renewing as they attempt to avoid the high costs of improvements in new buildings.Tenant improvement costs are up nearly 60% over the last two years, as sub-contractors are taking jobs withhomebuilders. Rents have risen in second-generation buildings at about the rate of inflation. New building ratesare up significantly reflecting higher building costs, landcosts, and operating costs.

We expect to see fewer spec buildings until either construction costs come down or rental rates increase.We also project rates are unlikely to rise until the vacanciesstart to fall. The professional garden office market had asuperb year with year-end absorption rate of 316,332 SF.Contrast that to buildings over 10,000 SF, which had a netabsorption of 194,203 SF, and broke a record for our market. Reno expects to see four larger buildings constructed this year, adding 184,000 SF. We also anticipate282,000 SF of professional garden office added to the market in 2006. Unless we have a banner year though,vacancy rates will rise once again as the market continuesto out build demand.


1999 – – – – –2000 – – – – –2001 54,961,000 2,543,000 1,526,000 8.8 3.702002 56,220,000 1,259,000 717,000 9.8 3.502003 57,106,000 886,000 269,000 10.5 3.502004 58,742,000 1,636,000 2,483,000 8.7 3.502005 60,332,000 1,590,000 1,986,000 7.0 3.50

Barry Brown

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


1999 – – – – –2000 – – – – –2001 1,306,000 0 -28,000 13.8 –2002 1,306,000 0 19,000 12.6 20.002003 1,306,000 0 22,000 11.3 20.502004 1,306,000 0 -21,000 12.4 20.202005 1,306,000 0 -75,000 20.1 21.00

REN

O,N

V

Downtown Office


1999 – – – – –2000 – – – – –2001 4,132,300 70,000 98,000 12.4 –2002 4,358,300 226,000 317,000 10.3 20.602003 4,592,300 234,000 238,000 9.4 20.502004 4,836,300 244,000 81,000 13.4 21.102005 5,056,000 219,700 74,000 13.9 22.80

Suburban Office

Industrial

Office IndustrialLast year continued to show strong absorption with more than 2.4 million SF and nearly 1.8 million SF of newconstruction. All this activity gave way to the realizationthat Reno/Sparks areas have exhausted their supply ofindustrial land for continued development. This has driventhe price of industrial land to $10 per square foot or moreif a site is found. However, developers must consider alternative uses because industrial rents cannot justify construction of industrial buildings. This coupled with thehigh cost of construction and the high price of fuel totransport materials caused our NNN rents for big box distribution buildings to reach $.35 or more resulting in alull in speculative development. Consequently developersand users must look outside the Reno/Sparks areas to new developments in surrounding communities where land prices are in the $2.50 to $4.00 range.

Another emerging concern is the shift in worldwide manufacturing to Asia, which may move the flow of productsthrough the western seaports to the far east instead andreduce the flow from east to west. Fuel costs will impactthis decision for most distribution companies. The smallindustrial condominium market continued to grow, addingto the absorption of industrial land. These units soldbetween $80 and $140 per SF. In 2006 the Reno/Sparkscommunities will see steady growth in population and business due to their competitive advantages. With the outward movement and the completion of the 395 Freewaybetween Reno and Carson City in a few years, we will seethe beginning of a regional industrial market incorporatingthe new industrial developments within a thirty-minutedrive of the intersection of highways 395 and 80.This should provide an outlet for growth and also stabilize rents and purchase prices.

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SAC

RA

MEN

TO,C

A

The Sacramento office market ended 2005 with a vacancyrate of 12.9%, down over the third quarter, with netabsorption totaling a positive 781,797 SF in the fourthquarter. Vacant sublease space decreased and ended theyear at 590,759 SF. Rental rates closed at $22.43, a slightincrease over the previous quarter. Fifty-one buildings, ormore than half of the total, were delivered to the market in the final quarter totaling 1,061,000 SF, with 1,305,500 SFstill under construction at the end of the year.

Net absorption for the overall Sacramento office market is strong and should continue this trend in 2006. One ofthe largest transactions that occurred within the last year in Sacramento is the sale of 1325 J Street in June.This 326,306 SF office building sold for $66 million, or$202.26 per SF. Sacramento continues to hold a positiveoutlook in the office market with many analysts citingnumerous reasons the region will attract new business,such as ample transportation, the Capitol, and the presenceof colleges, which appeal to research companies.

Dennis F. Shorrock, SIOR

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


1999 12,124,000 398,000 316,000 9.5 27.502000 12,124,000 0 129,000 7.5 27.952001 12,124,000 0 51,000 7.0 27.952002 12,274,000 150,000 -110,000 9.1 29.252003 12,502,000 228,000 -303,000 13.1 29.802004 12,502,000 0 -71,000 13.7 28.902005 13,052,000 550,000 809,000 11.1 28.40

Downtown Office


1999 49,750,000 1,348,000 1,973,000 9.1 21.602000 50,723,000 973,000 1,143,000 10.4 23.202001 52,542,000 1,819,000 876,000 11.8 19.602002 54,130,000 1,588,000 420,000 14.2 21.002003 55,881,000 1,751,000 1,402,000 14.0 22.502004 57,109,000 1,228,000 815,000 14.8 22.802005 58,824,000 1,715,000 2,191,000 13.2 23.50

Suburban Office

Office IndustrialThe Sacramento industrial market ended 2005 with avacancy rate of 12.1%. Though up over the third quarter,the net absorption reflected a negative 265,302 SF directlydue to a new industrial building hitting the market. Vacantsublease space decreased overall, ending at 296,751 SF.Rental rates closed at $5.76, also an increase over the previous quarter. A total of 40 buildings were delivered to the market late in the year totaling 861,438 SF, with1,311,448 SF still under construction at year-end.

Sacramento demonstrated its strength in 2005, with largelease signings in Woodland and Roseville for a combinedtotal of over 700,000 SF. This filled out a superb year oflocal lease signings for warehouses. Thus far demand isremains high, and this market still experiences a shortage of land for building industrial space. The region is anticipatinga 21 million SF business park in North Natomas to beginopening its first buildings in 2006. The Sacramento areashould enjoy another healthy year of industrial sales andleasing despite the slowing housing market.

62


1999 138,744,000 3,050,000 3,702,000 7.3 3.602000 141,151,000 2,407,000 3,794,000 6.2 4.002001 151,469,000 10,318,000 1,318,000 12.6 4.202002 153,752,000 2,283,000 -44,000 13.8 4.202003 155,162,000 1,410,000 5,865,000 10.3 3.902004 157,103,000 1,941,000 2,166,000 13.8 6.002005 159,490,000 2,387,000 4,331,000 12.1 4.85

Industrial

CO

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IE

RS

IN

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RN

AT

IO

NA

L

The San Diego ended 2005 on a strong note. The year-endvacancy of 9.3% is the lowest it’s been in five years.Vacancy in direct space and sublease space is 8.2% and1.2%, respectively. San Diego has been experiencing strongdemand since 2002, when the vacancy level reached an all-time high of 12.2%. Countywide net absorption of 2.59million SF is the second highest activity level in the pastdecade. Most of this positive net absorption was due to1.95 million SF of construction. In fact, 57.4%, or 1.12 million SF of net absorption was attributed to new spaceadded to the market in 2005. Strong net absorption andthe trend toward lower vacancy rates should continuethroughout 2006.

The downtown San Diego Central Business District (CBD)is even experiencing new development as a new 380,506 SFoffice tower was completed in the third quarter of 2005and another 307,050 SF tower is expected in early 2007.The last Class A office project in downtown was completedin 1991. Asking rental rates have grown gradually over2005 to a countywide average of $24.36 per SF plus utilities compared to $23.28 per SF plus utilities at the endof 2004. Rents are expected to steadily rise during 2006.The San Diego County office market is comprised of nearly67 million SF, with over 9.5 million SF located within thedowntown San Diego Central Business District.


1999 167,656,000 11,380,000 7,102,000 7.9 7.202000 171,210,000 3,554,000 4,565,000 5.6 7.802001 174,647,000 3,437,000 2,363,000 8.2 7.502002 176,264,000 1,617,000 213,000 9.1 6.502003 178,280,000 2,016,000 684,000 9.8 7.602004 181,100,000 2,820,000 2,493,000 7.8 8.002005 183,722,000 2,622,000 3,505,000 6.8 8.50

James J. Zimsky

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

SAN

DIEG

O,C

A

Industrial

OfficeThe combined San Diego County industrial and R&D market is comprised of over 183.7 million SF. Broken down, 130.1 million SF is industrial space and 53.6 million isdevoted to R&D. San Diego has been experiencing strongdemand since 2003, when the vacancy level reached an all-time high of 9.8%. The current year-end vacancy of 6.8% is lowest in four years. Vacancy in direct space andsublease space is 5.8% and 1.0%, respectively.

Countywide net absorption skyrocketed to 3.50 million SFand marks the highest level of activity in the past five years.Most of this positive net absorption comes from 2.62 million SF of construction activity. In fact, 55.8%, or 1.96million SF of net absorption was attributed to new spaceadded to the market in 2005. Strong net absorption andthe continued trend in lower vacancy should continuethroughout 2006. Construction activity also continues to be robust. We have 3.24 million SF currently under construction, over half of which is being developed in theNorth County. The lack of developable land in most partsof the county is driving current and future development toNorth County. The cities of Carlsbad and Oceanside havethe most space under construction with 898,544 SF and 641,715 SF respectively. Asking rental rates have consistently increased over 2005 to a countywide averageof $12.96 per SF NNN compared to $11.52 per SF NNNat the end of 2004. Rents are expected to steadily riseduring 2006.

63


1999 9,239,000 120,404 51,524 10.2 25.802000 9,239,000 0 140,000 8.4 26.402001 9,151,000 0 178,000 7.6 28.402002 9,151,000 0 -171,000 10.1 27.202003 9,151,000 0 -6,000 10.2 29.102004 9,151,000 0 43,000 9.4 31.102005 9,532,000 381,000 179,000 11.2 30.40

Downtown Office


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 53,713,000 1,539,000 -385,000 10.1 23.602002 55,040,000 1,327,000 -1,900,000 12.8 22.502003 55,594,000 554,000 757,000 11.3 29.402004 55,849,000 255,000 102,000 11.6 32.902005 57,423,000 1,574,000 2,409,000 9.0 33.60

Suburban Office

CO

LL

IE

RS

IN

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NA

L

SAN

FRA

NC

ISCO

,CA

Strengthening office fundamentals confirm that the San Francisco office market is evolving. Tenants still havethe upper hand in some submarkets, but the balance is tippingback toward landlords, particularly for Class A properties in the Financial District. Although the recovery that we areexperiencing is gradual, we are seeing a solid pace ofabsorption, rent appreciation, and vacancy decline.Absorption levels are expected to dip to more sustainablelevels, and simultaneously new construction is expected tocreep higher as 2007 and 2008 unfold. The office marketrecovery will remain on track, but the large net absorptionmade in 2005 is unlikely to be replicated in 2006.

Occupancy gains are continuing, and therefore we alsoexpect to see the pattern of declining vacancy maintained,and believe it could dip below ten percent in 2007.The falling vacancy levels will affect the rental rates, and we anticipate an overall rent increase approaching fifteenpercent during 2006. Also positive, the investment marketstayed white hot throughout the year, despite rising interestrates. Continued increases in interest rates, combined withhigher pricing expectations for commercial real estate andrenewed optimism for the prospects of the equity markets,may somewhat taper transaction activity in 2006, but onlyrelative to the record-breaking activity of 2004 and 2005.

Office

Scott Harper

50 California Street, Suite 1900San Francisco, CA 94111Tel 415-788-3100Fax 415-433-7844

64


1999 71,947,000 525,000 2,634,000 2.6 45.102000 74,881,000 2,934,000 3,093,000 3.6 78.102001 77,054,000 2,173,000 -5,011,000 13.5 40.902002 79,397,000 2,343,000 -1,137,000 16.9 32.002003 79,622,000 225,000 138,000 16.9 29.102004 79,622,000 0 1,237,000 15.4 31.302005 79,372,000 -250,000 1,700,000 13.2 35.40

Downtown Office

CO

LL

IE

RS

IN

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NA

L

The Peninsula experienced an unusually large number ofoffice building sales during 2005 primarily due to anticipationof future growth. Increases in larger and longer-term dealsand many tenants expanding and extending their currentleases, all indicate the office market has been very attractiveto investors. This is very likely to continue into 2006,with the Peninsula postured for a promising year as thismomentum translates into subsequent rising absorptionlevels. Over the past year, the county has experiencedmore growth in the number of start-up companies compared to the recent past, as well as an increase in venture capital investment in both the life science and technology sectors.

The unprecedented large number of major office buildingsales in 2005, as well as the growth in leasing activity, fuelmuch optimism in this local economy. Job growth is heavilytied to the life and science technology sectors and has hada positive impact on absorption, a situation that will beclosely watched heading into 2006. Momentum in theindustry has propelled projects catered to redevelopingexisting generic office space into biotech lab space to support anticipated future demand. For example, SloughEstates’ recent acquisition of the 623,000 SF SeaportCentre is planned for conversion from office to life scienceuse. Oracle’s acquisition of San Mateo-based SiebelSystems, which is to be completed by early 2006, raises ahigh degree of speculation about how much space will beplaced on the market. At this point, there is no clear indication of the outcome.


1999 42,825,000 100,000 297,000 1.8 9.602000 42,806,000 -19,000 682,000 2.5 31.202001 42,806,000 0 -3,333,000 9.8 10.102002 42,846,000 40,000 -1,877,000 11.6 10.002003 42,846,000 0 436,000 10.6 8.602004 42,846,000 0 1,179,000 8.3 7.902005 42,846,000 0 1,051,000 6.2 9.25

Jeff S. Fredericks, SIOR

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


1999 26,444,171 2,118,015 2,084,154 0.7 56.042000 29,022,171 2,578,000 3,215,324 2.6 70.922001 30,153,264 1,131,093 -4,362,767 22.4 36.962002 30,643,264 490,000 -1,103,595 28.3 28.442003 30,810,369 167,105 189,000 29.3 25.082004 30,810,369 0 644,413 25.4 24.722005 30,810,369 0 1,548,110 20.4 25.68

SAN

FRA

NC

ISCO

/SAN

MAT

EOPEN

INSU

LA,C

A


Office IndustrialThis year proved solid for industrial and R&D markets inSan Mateo County. The industrial market has been theleast volatile in the past five years and continues to marginally decline in vacancy, while the R&D market hasbeen in an upturn due to the growth in the life science sector. San Francisco becoming the headquarters locationfor the California Institute for Regenerative Medicine hasfilled the area with plenty of optimism and anticipation forfuture growth. Also, with avian influenza becoming a globalissue, the vaccine industry has bounced back to contributeto the success of the life science sector in San MateoCounty. Notable deals in the market include VaxGen, Inc.leasing 65,000 SF in South San Francisco for five years.Louis Raphael signed a five-year deal for 119,056 SF at 530-550 Forbes Blvd. in South San Francisco. WilcoImports renewed their 125,000 SF lease at 100 Utah Ave.for five more years.

The peninsula is postured for a promising 2006 with continued momentum in absorption levels. The county has experienced more growth in the number of start-upcompanies than in the recent past, as well as an increase in venture capital investment in both the life science andtechnology sectors. The large number of building sales in2005, as well as the increasing amount of leasing activity,serve as indicators for optimism in this local economy withabsorption impacted by job growth, and job growth heavilytied to the life science and technology sectors. Both will be closely watched as we head into 2006.

In addition, momentum in the industry has propelled projects catered toward redeveloping existing generic office and industrial space into biotech lab space to support anticipated future demand. Slough Estates’ recent acquisition of the 623,000 SF Seaport Centre isplanned for conversion from office to life science use.

65

CO

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IN

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NA

L

SAN

JOSE/SILIC

ON

VALLEY,C

A

At the close of the fourth quarter for 2005, the downtownSan Jose Central Business District (CBD) availability ratestood at 27.45%, a gain of 0.98% from the previous quarter.This marked the 5th consecutive quarter the availabilityrate increased over the previous quarter. Landlords reactedto the increase by lowering the “asking rent” for availablespaces in two of the top office buildings in the CBD duringthe quarter.

The downtown San Jose (CBD) office market competeswith three other major office markets in the Silicon Valley:The San Jose Airport area; the Santa Clara Marriott area;and the city of Palo Alto. The San Jose Airport office marketarea (which offers free parking) is its closet competitor andhad a Q4 availability rate of 16.40% up 1.31% from the previous quarter. The Santa Clara Marriott area (which alsooffers free parking) had an availability rate of 21.71 % down4.08% from the third quarter; and the city of Palo Alto hadan availability rate of 17.99% up 1.08% from the previousquarter. This quarter’s reduction was due in part to“Yahoo!” leasing two 149,982 SF buildings. While the SanJose Airport office market had an increase in availabilityrate of 1.31% from the previous quarter, the good news is,“Pixelworks” leased 37,346 SF during the quarter.


1999 237,973,000 253,000 4,680,000 4.2 10.502000 242,961,000 4,988,000 11,230,000 1.3 8.402001 251,532,000 8,571,000 -7,312,000 7.6 8.402002 253,862,000 2,330,000 -8,607,000 11.7 4.302003 253,884,000 22,000 -12,987,000 16.8 5.502004 253,965,000 81,000 951,000 16.4 5.202005 254,471,000 506,000 4,311,000 14.5 4.90

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 33.002005 7,172,000 0 -286,000 24.6 30.30

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 24.802005 49,816,000 14,000 1,875,000 11.5 27.20

Suburban Office

Industrial

Office IndustrialSometime in the first half of 2006, Silicon Valley’s R&D availability rate should drop below 20% for the first timesince early 2002. It has been a tough comeback for theR&D sector. Many of these facilities, particularly the olderones, do not meet the needs of today’s users, which oftenrequire fully improved office space for engineers, softwaredesigners, and others. At the same time, there has beencompetition for millions of square feet of office space thatwas developed during the dot.com years when businessesoutfitted their facilities to a higher condition than everbefore. The flight-to-quality has effectively delayed therecovery of the R&D market.

In recent years, forecasting the industrial market simplytook a glance back a year or two, a rinse, wash, and repeat.At this point, it seems an effective approach for 2006.The industrial market has become too consistent to forecast anything other than subtle changes from year toyear. The types of users in the marketplace are similar,the percentage of total absorption that comes from theindustrial market is steady, and it’s an increasingly tight market, which also makes forecasting a bit morepredictable. Of course, precisely when you think you have figured it out, you’re most likely to get it wrong.

Now that the warehouse market is back to some degree of normalcy, we should see if the consistency of the last ten quarters can be stretched out another year. We canbear witness to the fact that in a bad market, almost nowarehouse absorption occurs at all. There is also a tendency for warehouse activity to slow as space optionsslip or as rents increase appreciably. But we expect to have another year of strong warehouse leasing and will continue to see space leased by a variety of traditional and non-traditional users in Silicon Valley.

66

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Vacancy fell 300 basis points in the Puget Sound office market in 2005, ending the year at 12.35%. Net absorptionfor 2005 was 2.7 million SF, a number more than threetimes greater than 2004’s. All markets are improving andexpected to continue to grow in 2006. It was a banner yearfor the Downtown Seattle office market. The vacancy ratefell 245 basis points ending the year at 12.80%. Seattle’s netabsorption was positive 763,188 SF, which is the highest infive years and notably higher than the historical average of500,000 square feet.

Throughout 2005, the Bellevue office market also continuedits upturn. This real estate cycle is unlike what was experienced in 2001, where the market relied heavily onthe tech sector. Today’s market is driven by growth in multiple sectors including finance, high-tech, retail, and services. Rental rates are up in Seattle and Bellevue in all classes. Seattle’s rates are not climbing quite as fast as Bellevue’s, where vacancy is lower. Rents are expectedto increase by 10-15% in 2006.

Tacoma's office market faired well also, ending the yearwith a vacancy rate of 7.32%.Tacoma's CBD showed themost perceptible change as vacancies in this marketdropped from a low 11% in the first quarter to 7.72% inthe fourth. Fourth quarter's absorption was 47,000 squarefeet bringing the year-end absorption to 349,000 squarefeet.We project that 2006 will be another good year forthe stable Tacoma market.

Investment activity in the Puget Sound continues to bestrong. Institutional investors are picking up properties forunprecedented prices per square foot. In 2005, forty-oneoffice properties sold for more than $300 per square footcompared with eighteen properties in 2004. As vacancyfalls, plans are coming together for new construction.Bellevue might see as many as three or four buildings break ground this year and Seattle might see one or two.

Rob Aigner

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


1999 31,311,000 428,000 741,000 2.5 32.002000 33,242,000 1,931,000 1,819,000 3.5 37.002001 35,229,000 1,987,000 -1,405,000 12.6 35.002002 36,082,000 853,000 -45,000 14.6 29.502003 36,927,000 845,000 311,000 15.3 26.302004 37,015,000 88,000 -167,000 15.2 25.802005 37,015,000 0 763,000 12.8 25.20

SEATT

LE/PUG

ETSO

UN

D,W

A

Downtown Office


1999 43,046,000 3,943,000 1,670,000 6.7 22.502000 45,628,000 2,582,000 3,769,000 5.3 24.002001 49,166,000 3,538,000 -1,222,000 15.6 25.002002 50,259,000 1,093,000 166,000 17.5 23.002003 50,469,000 210,000 -90,000 17.6 22.902004 50,540,000 71,000 965,000 15.4 23.602005 50,936,000 396,000 2,031,000 12.0 21.80

Suburban Office

Office IndustrialThe Puget Sound market had a great year with the vacancyrate dropping 185 basis points ending 2005 at 7.43%.All markets reported a drop in vacancy in the fourth quarter. Absorption closed positive at 1.6 million SF,bringing the year-end total to a remarkable 8.1 million SF.The Kent Valley market has performed especially well withthe vacancy rate dropping 213 basis points in 2005, endingat 6.38%, the lowest in five years. Absorption for the yearlogged 3.4 million SF, the highest in over ten years for thatmarket. Pierce County is also doing quite well. The vacancyrate ended the year at 5.11% and year-end absorption was3.2 million SF. The Puget Sound market added 5.2 million SFof new product to its inventory this year. Of that, PierceCounty added 2.9 million SF and the Kent Valley added 1.9 million SF. Construction of single-tenant distributioncenters in excess of 300,000 SF is becoming more popular.Until recently, developers thought this type of constructionwas too risky, but ten of the 31 buildings constructed in2005 were over 300,000 SF. Currently 3.9 million SF ofnew construction is scheduled for completion in 2006.Over half of that will be in Pierce County as land in Seattleand Kent becomes increasingly scarce.

67


1999 196,165,000 5,292,000 607,000 4.7 4.402000 196,881,000 716,000 643,000 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 5.002005 215,141,000 10,029,000 8,102,000 7.4 4.60

Industrial

CO

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IE

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IN

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NA

L

ST.LOU

IS,MO

Office occupancy in the St. Louis metropolitan area is onthe upswing. For the first time since 2000, it increased by over one million SF by year-end. After two years of negative absorption earlier in the decade, this year’s total of 1,274,000 SF more than tripled the 2004 figure, inchingever closer to the peak years of 1999 and 2000 when wesaw annual absorption rates of nearly 1.6 million SF eachyear. Recent growth in financial services, health services,and professional and business services have fueled thedemand for office space.

New buildings added to the office space inventory stayedwell below absorption, providing the office market theopportunity to recover a bit from the high vacancy ratesrecorded during and since the 2000-2001 recession.The year ended with an office vacancy rate of 15%, downfrom 16.4% at the end of 2004. As of year-end, just over ahalf million SF with 2006 completion schedules was underconstruction. Only 25% of that space is available for lease.

As the recovery gained steam, lease rates were assisted bythe reduction of sublease space. Availability of subleasespace fell by nearly 30% during 2005, ending the year with560,000 SF available. With fewer sublease space options,tenants redirect their searches to direct leases, typically atlease rates above what they would have paid for subleasespace. As a result, effective lease rates increased during the latter half of the year after falling earlier in the year.Asking rates remained steady overall. Asking rates weresteady overall, the one exception being Clayton Class Aspace, which recorded a 1.6% increase in the last quarterof the year.

Office IndustrialThe St. Louis industrial real estate market recorded3,856,000 SF of absorption in 2005, following a record yearin 2004 with 4.6 million SF. The vacancy rate dropped by1.5% to 5.4% at year-end. Modern bulk space accountedfor nearly half of the year’s absorption, ending the year witha meager 0.9% vacancy rate. National trends support anoptimistic view for 2006 as well.

Fifteen industrial buildings completed in 2005 added1,268,000 SF to the inventory. By the end of the year less than ten percent of the new space remained on themarket. Missouri side construction totaled 725,000 SF.There are twenty-six buildings scheduled for 2006 completion totaling 2.9 million SF. Approximately 1.5 million SF of the total remained available.

Due to demolitions and conversions, 2005 absorptionexceeded construction by well over ten-to-one.The spread caused the vacancy rate to drop by 1.5% to5.4%, following a 1.2% drop in vacancy in 2004. The city ofSt. Louis’ vacancy fell by 1.4% to 3.5%; Mid County by 1.9%to 7.5%; North County by 1.6% to 4.7%; and West Countyby 2.8% to 5.4%. Vacancy rates in South County and St. Charles County increased slightly.

As a result of strong absorption and decreasing vacancyrates, landlords have been able to increase lease rates.Spaces over 50,000 SF began increasing in late 2004,after landlords lowered rates in competition for tenants.When the market’s tightness became apparent, rates beganclimbing again. The tide began turning for smaller spaces asearly as 2003 when rates started rising again.

Rick Messey, CCIM

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

68


1999 220,244,000 4,569,000 3,926,000 3.4 4.252000 224,063,000 3,819,000 2,122,000 4.1 5.002001 229,169,000 5,106,000 -1,947,000 7.1 4.002002 232,640,000 3,398,000 1,856,000 7.6 3.302003 234,104,000 1,596,000 573,000 8.0 3.502004 235,534,000 1,430,000 3,961,000 6.9 3.502005 235,806,000 1,268,000 3,853,000 5.4 3.75


1999 11,848,000 165,000 153,000 15.9 18.502000 11,893,000 45,000 236,000 14.2 20.002001 11,893,000 0 -241,000 16.2 19.502002 11,893,000 0 -504,000 20.5 18.802003 11,893,000 0 -349,000 23.4 18.802004 11,667,000 0 -13,000 22.0 18.502005 11,617,000 0 69,000 21.1 19.30

Downtown Office


1999 29,272,000 2,012,000 1,416,000 6.6 26.302000 30,972,000 1,699,000 1,349,000 7.4 25.502001 33,668,000 2,697,000 828,000 12.3 24.502002 34,628,000 977,000 285,000 13.9 24.502003 35,455,000 1,052,000 324,000 15.0 23.502004 35,675,000 147,000 356,000 14.8 23.002005 36,416,000 444,000 1,204,000 13.0 23.00

Suburban Office

Industrial

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L

The office market remained quite healthy over 2005 in the Tampa Bay area, much like the rest of the country.We expect this momentum to continue for the foreseeablefuture since our vacancy factor is already low. The vacancyrate at year-end was 10.2%. The total absorption for 2005 was 2,547,000 SF, dramatically higher than the pastfive years.

Significant transactions this year include the following.TIAA-CREF purchased the 533,022 SF Urban Centre One& Two at 4830-4890 Kennedy Blvd. W. for $105.5 million or$197.28 per SF in the Westshore submarket. This price wasa record high for the Tampa Bay area; Humana Medical Plansigned three leases totaling 127,321 SF at International @Netp@rk, 5701 Hillsborough Avenue in the I-75 Corridorsubmarket. These leases completed the occupancy in a conversion building that had been a retail mall. The FifthThird Bank leased 50,000 SF at 201 Kennedy Blvd. E.,formerly known as Southtrust Bank Plaza. The building willnow be renamed Fifth Third Bank Plaza in the Tampa CBD.Syniverse Technologies leased 198,750 SF at HighwoodsPreserve I located at 8125 Highwoods Palm Way, also inthe I-75 submarket. This lease took place in the first quarter prior to the following transaction. MetLife Inc.purchased the two adjacent buildings known as HighwoodsII & IV, 18206-18210 Crane Nest Dr., totaling 240,000 SFfor $24.5 million. After this purchase, MetLife also leased60,000 SF in another adjacent building. Those transactionscompleted the occupancy of the former MCI World Com five building campus, which had been vacant for the past 2 years.

TAM

PAB

AY,FLOffice Industrial

Russ Sampson

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

69

The Tampa industrial market registered another robustyear, although the vacancy rate at year-end was 6.5%,relatively unchanged from 6.6% at the end of 2004.Total absorption for 2005 was 3,381,807 SF, dramaticallyhigher than the year-end totals recorded for the last fiveyears. Annual absorption in the industrial market has been over 1,000,000 SF feet every year since 2002.Steady growth in the job market continues to be the most significant force driving the local real estate economy.Florida still leads the nation in number of new jobs created.More than one third of all jobs created in the United Statesin the last five years are in Florida.

One of the more interesting transactions taking place in2005 was the sale of two adjacent ProLogis speculativebuildings totaling 231,210 SF. Countrywide Financial purchased both buildings in shell condition and plan to fullyoccupy them by April, 2006. Although classified as flexbuildings they will have nearly 100% office build out.Average direct lease rates have increased in 2005 acrossevery building category. The flex/service center buildingdirect lease rate average ended 2005 at $9.26 per SF.The 2004 year-end rate was $8.45. Manufacturing buildingshad an average direct rate of $4.38 per SF. The 2004 year-end rate was $4.22. Warehouse and distribution buildings ended 2005 with a direct lease rate average of$4.73. The 2004 year-end rate was $4.40 per SF.


1999 7,826,727 0 -221,548 14.0 19.002000 7,826,727 0 60,526 13.3 19.772001 7,826,727 0 -117,087 14.8 19.632002 7,826,727 0 -73,649 15.7 19.462003 7,840,097 0 -26,372 16.2 19.442004 7,840,097 0 23,842 15.9 19.802005 7,840,097 0 63,567 15.1 19.51

Downtown Office


1999 54,049,029 1,242,821 1,168,157 7.7 20.562000 55,067,476 1,018,447 -738,408 10.7 21.532001 56,778,696 1,754,078 514,024 12.5 20.642002 57,254,316 492,120 641,775 12.1 19.912003 58,026,861 772,545 464,938 12.5 20.652004 59,384,661 1,357,800 1,526,024 11.9 20.712005 60,629,668 865,822 2,482,990 9.6 20.68

Suburban Office


1999 152,122,000 917,000 873,000 4.6 4.602000 154,001,000 1,812,000 69,000 5.7 5.002001 157,428,000 3,427,000 112,000 7.7 4.502002 158,390,000 981,000 1,637,000 7.2 4.252003 159,843,000 1,453,000 1,765,000 7.0 4.452004 160,731,000 888,000 1,465,000 6.6 4.402005 164,259,000 2,550,000 3,382,000 6.5 4.75

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The Washington D.C. market saw its class A vacancy rateremain somewhat flat over the past twelve months as newproduct came on-line, closing 2005 with a figure of 9.1%, upfrom 9.0% in the third quarter though down from 9.3% oneyear ago. For the entire 110 million SF market, the vacancyrate finished the year at 7.3%, down from 7.4% both for thethird quarter and one year earlier. Class A net absorption,however, was a relatively strong 1.7 million SF with theoverall number coming in at 1.45 million SF for the fullyear. There continue to be a number of cranes on viewthroughout the Washington skyline with some 7.4 millionSF of new product under construction within the districtwith much of that pre-leased. The average asking rentshowed no signs of slowing its climb in 2005 as it jumped5.2% during the year to finish at $47.30 per SF.

There were a number of significant transactions toward the end of the year, the largest of which was a 113,000 SFprelease to law firm LeBoeuf Lamb Greene & MacRae at1101 New York Avenue, a 400,000 SF building due for completion in early 2007. In addition, Bingham McCutchenleased 68,000 SF at 2020 K Street while the National Cableand Telecommunications Association closed on 53,000 SF at 25 Massachusetts Avenue (relocating from 1724Massachusetts Avenue). On the investment side,Vornadohas purchased a 95% interest in 1299 Pennsylvania Avenue(The Warner Building) from Deutsche Immobilienfonds for$335.8 million or $600 per SF, one of the more expensivetransactions of the year.

The overall metropolitan Washington D.C. economyremains quite resilient owing to the number of government-related fields including law and consulting.The unemployment rate for the metro area plummeted to3.0% in December from 3.7% one year earlier while totalnonfarm employment climbed to 2,405,000 up 3.0% for the year.

Rick Kimball


Office IndustrialThe Washington industrial market, primarily located insouthern Maryland and northern Virginia, contains some192.5 million SF of inventory. The vacancy rate closed 2005at 9.1%, down from 9.4% in the third quarter and 10.6%one year ago. There was almost 4.0 million SF of newinventory added in 2005 while another 4.0 million SFremains under construction. Net absorption clocked in at a positive 3.0 million SF for all of 2005 down onlyslightly from the 3.4 million SF absorbed in 2004.

Asking rents were generally higher aside fromwarehouse/distribution space, which fell slightly from $8.80per SF at year-end 2004 to $7.78 per SF at year-end 2005.Bulk space climbed from $6.00 per SF to $6.26 per SF,flex/service space increased from $12.90 per SF to $13.03per SF and tech/R&D space shot from $14.80 per SF to$15.90 per SF.

One of the largest sales transactions over the past yearwas 6300 Sheriff Road in Landover, MD, a 7-building, 1.4million SF flex property which sold for $45 million or $32per SF to Preferred Real Estate from Dutch food companyRoyal Ahold NV. The building is currently 100% occupiedby Giant Food Stores though much of the space is due tobe renovated and re-leased or re-sold. In Hanover, MD, theformer Michelin warehouse facility at 7468 CandlewoodRoad was sold to Corporate Office Properties for $18.78million or $40 per SF with office redevelopment plannedfor the site. On the leasing side, Dodge Color has relocated its headquarters to 17,000 SF in a flex building at 11941 Bournefield Way in Silver Spring, MD.

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1999 – – – – –2000 178,157,000 2,700,000 1,400,000 6.1 –2001 181,504,000 3,347,000 21,000 8.5 6.702002 183,268,000 1,764,000 -2,999,000 10.2 7.502003 185,709,000 2,441,000 656,000 11.2 7.202004 188,468,000 2,759,000 3,438,000 10.6 8.802005 192,463,000 3,995,000 3,027,000 9.2 7.80


1999 92,973,000 1,401,000 1,393,000 4.8 42.002000 94,388,000 1,415,000 3,151,000 2.9 48.002001 98,344,000 3,956,000 2,536,000 5.2 49.002002 101,259,000 2,915,000 505,000 7.3 46.002003 104,480,000 3,221,000 1,915,000 7.8 41.902004 107,259,000 2,779,000 2,126,000 7.4 45.002005 109,591,000 2,332,000 1,450,000 7.3 47.30

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The Northern Virginia submarket continues to expand withinventory growing by 2.6 million SF in 2005 and another6.1 million SF under construction. This new supply held the overall vacancy rate of the 152.4 million SF market to11.6%, actually up 10 basis points from the third quarterthough down from the 13.1% recorded one year ago. TheClass A vacancy rate closed 2005 at 10.5%, up from 10.2%in the third quarter but again down from 12.8% inDecember 2004. Even with the new supply, net absorptionwas positive at almost 2.9 million SF for Class A space and2.5 million SF for overall inventory. The Class A averageasking rent closed the year at $29.10 per SF up an impressive 6.2% from the $27.40 per SF in the fourth quarter of 2004.

One of the largest deals in the Northern Virginia marketrecently was a renewal by Science ApplicationsInternational Corporation (SAIC), a defense contractor,as it decided to remain in 102,000 SF at Reston ExecutiveCenter 1. In Herndon, K12 Inc leased just over 63,000 SFat 2300 Corporate Park Drive while in Alexandria, theMotley Fool doubled its size as it took 41,000 SF at 2000Duke Street. On the investment side, the Fairfax submarket saw a significant amount of activity including3877 Fairfax Ridge Road selling for $48.4 million or $222per SF and the three-building Willow Oaks complex changing hands for $98.4 million or $173 per SF. In Vienna,the two-building Tysons International Plaza sold in thefourth quarter for just over $123 million or $284 per SFwith Carr Realty picking up the property from TIAA.


1999 57,459,000 1,432,000 2,099,000 8.3 0.002000 59,570,000 2,111,000 3,008,000 6.0 32.002001 62,300,000 2,730,000 -242,000 11.7 31.002002 64,705,000 2,405,000 313,000 15.7 28.502003 66,000,000 1,295,000 -27,000 17.3 26.502004 67,351,000 1,351,000 2,743,000 14.6 26.102005 67,814,000 463,000 415,000 13.2 26.60

Rick Kimball


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OfficeWashington, DC – Suburban Maryland

The Suburban Maryland market showed healthy gains in2005 with its overall vacancy rate falling to 13.2% from13.9% in the third quarter and 14.6% one year ago. The26.1 million SF of Class A space ended the year in even better shape with its vacancy rate dropping to 9.8% from10.8% in the third quarter and 11.1% in December 2004.Inventory is climbing as the market tightens with almost 1.4 million SF now under construction. The Class A averageasking rent essentially showed no movement in the fourthquarter, actually dropping one penny to $26.60 per SF but itis almost 2.0% higher than the $26.10 per SF recorded inDecember 2004.

There were a number of deals less than 50,000 SF at theend of 2005. One of the largest of these was EnterpriseRent-A-Car relocating its regional headquarters to 43,000SF at 2273 Research Road in Rockville. In addition,Aggregate Industries took some 32,000 SF of class A spaceat 7529 Standish Road, also in Rockville while the EpilepsyFoundation leased almost 33,000 SF at 8301 ProfessionalPlace in Landover. In one of the more expensive salestransactions of 2005,TA Associates purchased TwoWashingtonian in Gaithersburg for $117 million or $408per SF. One of the major tenants in the 287,000 SF buildingis Marriott International. Also, in the fourth quarter,TwoRockledge Center sold for $84 million or $340 per SF.GE Asset Group picked up the 247,000 SF property, whichis anchored by the National Institute of Health.

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1999 122,255,000 10,036,000 8,642,000 4.9 30.502000 130,533,000 8,278,000 10,212,000 3.1 35.002001 139,355,000 8,822,000 -5,479,000 14.2 34.002002 145,390,000 6,035,000 -34,000 18.2 28.002003 147,740,000 2,350,000 4,862,000 16.1 26.002004 149,815,000 2,075,000 6,295,000 13.1 27.402005 152,380,000 2,565,000 2,527,000 11.6 29.10

Suburban Northern VA Office

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Palm Beach County is performing well as the area’s economy continues to be on the upswing. The vacancy ratefor Palm Beach County is at an overall healthy 8%, downabout 1.4% from a year ago, and down 4% points from2003. Of the major submarkets for office space, NorthPalm Beach with 1.2 million SF has a robust low of 5%,while Boynton Beach, with 1.3 million SF of product, is at ahigh of 12.6%. There are 19 properties under constructionat this time, totaling 1.1 million SF. The largest projectsbeing built are in West Palm Beach with 202,000 SF, 193k in Palm Beach Gardens, and 140,000 SF in Wellington.The construction is disbursed evenly over the county, withno submarket dominating. Land is becoming increasinglyscarce in this county, like all of South Florida, and developersare building new projects wherever they are lucky to procure acreage.

There are a few significant new projects proposed. In WestPalm Beach, the Class A 289,370 SF City Place Tower willbegin construction early 2006, and is already 63% leased.In Boca Raton, two 100,000+ square foot Class A Buildingsare slated to start this year. Also in West Palm Beach, thefirst speculative “Green Building” in South Florida isplanned to begin construction. At 100,000 SF, the CentrePark West is expected to get a silver rating from the GreenBuilding Council for its water and energy conserving features. Properties here continue to attract investors.For example ING Clarion purchased the 249,000 SF ClassA Esperante in West Palm Beach. This deal, at approximately$418 per square foot, showed a demographic strength thatcontinues to appeal to investors. More evidence ofinvestor confidence surfaced further south in Boca Raton,where a 92,000+/- SF Class B building, which is 94% leased,sold for an impressive $285 per square foot.

Steven Wasserman, SIOR

6600 North Andrews Avenue, Suite 240Ft. Lauderdale, FL 33309-3082Tel 954-233-6000Fax 954-233-6010

Office IndustrialThe vacancy rate for Palm Beach County is now at aremarkable 3.4%, down from 6.0 % just a year ago.With close to 2.0 million SF being absorbed this year,2005 has been an outstanding year for the industrial market, due to a combination of the rise in population,record unemployment rates, new residential construction,and proximity of airports and ports – all contributing to the positive effects of supply and demand. The future arrivalof Scripps Research Institute to Palm Beach County isexpected to cause a surge of research and biomedical firmslooking for space. Though environmentalists have caused astir over the original site, once a location is decided,developers are anxious to accommodate the rush of bioscience companies moving to the area; we definitelyexpect boon in industrial development for this county.

There are several submarkets currently offering alternativesights for development, the latest is Boca Raton where officials are offering 100 acres, thirty to be donated, and therest at bargain prices. As the availability of land dwindles,and costs skyrocket, developers who purchased land well inadvance of these trends are seeing the most profit. There is currently approximately 400,000 SF under construction, themajority in West Palm Beach, and some in Jupiter to thenorth. Sales were minimal this quarter as owners hold off.However, two significant sales took place in Boca Raton inthe Arvida Park of Commerce. A 152,000 SF three buildingproject sold for $134 per SF, and a single 140,000 SF warehouse sold for $98 per SF. As this market tightens, newdevelopment is starting to head north into Martin and St.Lucie counties, where land is still abundant, and affordable.


1999 – – – – –2000 42,282,000 773,000 -45,000 6.1 6.502001 43,002,000 720,000 229,000 6.1 6.802002 43,361,000 359,000 154,000 6.3 6.402003 44,375,000 1,014,000 -103,000 8.6 6.702004 45,098,000 723,000 643,000 6.4 6.702005 45,844,000 746,000 1,868,000 3.4 7.00


1999 – – – – –2000 8,975,600 65,000 -176,000 10.4 29.902001 9,483,600 508,000 415,000 14.6 28.402002 9,483,600 0 -26,000 13.3 30.302003 9,523,600 40,000 -37,000 13.8 30.002004 9,541,600 18,000 311,000 10.8 27.802005 9,576,000 34,400 281,000 9.1 30.20

Downtown Office


1999 – – – – –2000 27,988,900 835,000 831,000 8.7 27.202001 28,601,900 613,000 -226,000 14.0 28.602002 28,741,900 140,000 -286,000 13.0 27.602003 29,180,900 439,000 421,000 12.7 27.602004 29,433,900 253,000 932,000 10.5 25.802005 29,660,000 226,100 377,000 7.6 24.80

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Class A Net Class A Gross Top Class A Net Top Class A GrossRent Dec. 2005 Rent Dec. 2005 Rent Dec. 2005 Rent Dec. 2005

Market (PSF/USD/Year) (PSF/USD/Year) (PSF/USD/Year) (PSF/USD/Year)

Europe/Middle East/AfricaAbu Dhabi, UAE 18.98 21.38 23.40 25.30Amsterdam,The Netherlands 17.06 19.81 33.01 36.86Antwerp, Belgium 13.20 18.71 15.96 22.01Basel, Switzerland 19.80 22.13 37.47 39.17Belgrade, Serbia and Montenegro 25.75 35.06 31.69 42.07Berlin, Germany 13.42 17.83 31.03 35.65Bratislava, Slovakia 18.49 22.45 23.77 29.05Brussels, Belgium 22.01 28.06 31.36 39.06Bucharest, Romania 23.77 28.39 27.73 32.35Budapest, Hungary 17.17 21.79 26.41 31.03Cape Town, South Africa 8.45 11.27 9.86 12.67Copenhagen, Denmark 21.90 24.76 24.87 27.73Dubai, UAE 40.84 43.01 59.89 63.16Dublin, Ireland 41.37 53.26 59.20 73.94Durban, South Africa 7.22 10.91 7.74 11.44Düsseldorf, Germany 16.37 20.33 27.73 31.69Frankfurt, Germany 27.73 31.69 41.59 45.56Geneva, Switzerland 38.18 39.81 57.27 58.90Hamburg, Germany 27.60 31.56 33.67 37.63Helsinki, Finland 29.05 33.01 33.01 36.97Istanbul,Turkey 20.07 27.88 26.77 42.38Johannesburg, South Africa 3.52 5.98 7.22 9.68Kiev, Ukraine 36.58 41.49 44.61 51.30Lisbon, Portugal 23.77 27.07 29.05 33.01London City, UK 68.08 109.45 81.87 131.85London Docklands UK 43.95 52.57 64.63 69.80London West End, UK 99.10 129.27 137.88 169.77Madrid, Spain 34.33 38.95 39.61 44.34Milan, Italy 41.26 53.37 52.27 68.22Moscow, Russia 65.06 76.21 102.23 113.38Munich, Germany 18.83 22.13 36.97 40.27Oslo, Norway 29.52 33.30 34.33 38.79Paris, France 61.62 72.62 70.42 81.43Prague, Czech Republic 22.78 30.77 23.77 34.99Pretoria, South Africa 4.40 6.69 4.75 7.04Riga, Latvia 21.79 24.43 26.41 29.05Rome, Italy 31.91 41.26 46.22 60.52Sandton, South Africa 9.15 13.20 11.79 15.84Sofia, Bulgaria 19.01 22.98 27.73 31.69Stockholm, Sweden 33.92 38.59 44.44 50.29Stuttgart, Germany 15.85 19.81 22.45 26.41Tallinn, Estonia 16.11 19.81 23.24 30.90Vienna,Austria 19.81 23.77 26.41 30.37Vilnius, Lithuania 26.47 29.58 – –Warsaw, Poland 22.45 29.05 31.69 36.97Zagreb, Croatia 21.79 25.09 23.77 27.73Zurich, Switzerland 33.94 36.27 55.86 57.48

Latin AmericaBogotá, Colombia 16.73 19.41 22.08 24.98Buenos Aires,Argentina 24.09 28.88 26.54 29.22Lima, Peru 12.66 15.22 15.61 18.18Mexico City, Mexico 25.65 28.44 33.46 37.64Rio de Janeiro, Brazil 30.82 36.99 34.62 40.78São Paulo, Brazil 15.79 39.03 45.05 52.64

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North AmericaAtlanta, USA 12.60 22.40 19.70 29.50Boston, USA 24.90 41.40 39.50 56.00Calgary, Canada 21.48 32.64 34.36 45.53Chicago, USA 15.50 34.00 25.50 44.00Cleveland, USA 12.30 20.90 22.40 31.00Dallas, USA 9.10 19.10 18.60 28.60Denver, USA 8.50 18.50 16.80 26.80Detroit, USA 11.00 22.50 15.50 27.00Houston, USA 11.70 21.20 17.50 27.00Los Angeles, USA 13.30 27.70 45.60 60.00Miami, USA 17.75 30.40 24.85 37.50Minneapolis, USA 14.20 24.70 27.00 37.50Montreal, Canada 17.44 31.18 29.04 41.66New York - Downtown, USA 17.80 33.80 44.00 60.00New York - Midtown, USA 43.60 59.60 119.00 135.00Ottawa, Canada 21.91 37.02 24.83 39.95Philadelphia, USA 15.90 23.20 30.20 37.50Phoenix, USA 8.70 21.20 14.50 27.00Pittsburgh, USA 12.30 22.70 19.60 30.00San Francisco, USA 21.20 32.80 45.40 57.00San Jose - Silicon Valley, USA 17.40 30.30 20.40 33.00Seattle, USA 15.90 25.20 25.70 35.00St. Louis, USA 11.30 19.30 14.00 22.00Toronto, Canada 21.82 42.95 32.04 53.95Vancouver, Canada 17.18 30.93 29.21 42.95Washington, USA 29.30 47.30 49.00 67.00

Asia PacificAdelaide,Australia 19.75 24.86 23.84 28.95Auckland, New Zealand 19.99 26.34 29.20 35.86Bangalore, India 12.21 13.28 13.01 14.60Beijing, China 27.35 31.25 35.25 39.15Brisbane,Australia 28.61 35.42 29.97 36.78Chennai, India 7.97 9.29 11.95 13.28Delhi, India 35.84 39.83 46.47 50.45Guangzhou, China 16.28 19.80 20.63 24.09Hong Kong, China 98.04 117.85 168.07 195.62Jakarta, Indonesia 9.02 14.04 20.43 26.88Manila, Philippines 13.62 17.36 15.70 19.71Melbourne,Australia 19.07 25.20 31.33 38.83Mumbai (Bombay), India 34.52 39.83 42.48 47.79Perth,Australia 16.69 23.50 26.57 34.74Seoul, South Korea 28.86 37.71 36.07 47.55Shanghai, China 32.57 36.80 39.65 43.88Singapore 27.04 37.28 38.94 50.47Sydney,Australia 32.70 40.87 81.74 102.17Taipei,Taiwan 23.31 25.64 30.67 33.18Tokyo Central Wards, Japan 86.00 107.56 137.60 172.04Wellington, New Zealand 17.14 23.48 19.68 26.02

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Europe/Middle East/AfricaAbu Dhabi, UAE – – – –Amsterdam,The Netherlands 17.06 19.81 25.31 27.51Antwerp, Belgium 13.20 18.71 15.41 20.91Basel, Switzerland 16.62 18.24 19.80 21.49Belgrade, Serbia and Montenegro 13.20 19.48 15.85 23.37Berlin, Germany 4.62 7.26 13.86 16.51Bratislava, Slovakia 13.86 17.83 15.85 19.81Brussels, Belgium 13.20 17.06 18.16 22.01Bucharest, Romania 15.85 18.16 18.49 20.80Budapest, Hungary 14.52 18.49 15.85 19.81Cape Town, South Africa 10.56 13.03 15.14 17.60Copenhagen, Denmark 14.41 17.28 17.50 20.36Dubai, UAE 26.54 – 32.67 –Dublin, Ireland 17.61 27.07 30.37 39.06Durban, South Africa 9.51 11.44 13.03 14.96Düsseldorf, Germany – – – –Frankfurt, Germany – – – –Geneva, Switzerland 31.82 33.44 36.77 38.39Hamburg, Germany – – – –Helsinki, Finland – – – –Istanbul,Turkey 11.15 15.61 14.50 22.30Johannesburg, South Africa 9.15 11.97 13.91 16.72Kiev, Ukraine – – – –Lisbon, Portugal 17.17 19.81 23.77 27.07London City, UK – – – –London Docklands UK – – – –London West End, UK – – – –Madrid, Spain 22.45 25.09 27.73 30.70Milan, Italy 19.81 24.76 28.61 35.76Moscow, Russia 46.47 54.83 55.76 65.06Munich, Germany 12.86 16.16 18.49 21.79Oslo, Norway 23.34 26.43 27.46 30.89Paris, France 33.01 44.01 48.42 59.42Prague, Czech Republic 18.88 25.48 20.00 29.45Pretoria, South Africa 7.92 9.68 10.56 12.32Riga, Latvia – – – –Rome, Italy 18.71 23.66 22.01 27.51Sandton, South Africa 9.15 11.97 13.91 16.72Sofia, Bulgaria 15.32 19.28 23.77 26.41Stockholm, Sweden 18.71 21.05 26.90 29.24Stuttgart, Germany 14.52 17.17 16.51 20.47Tallinn, Estonia 15.32 21.52 16.90 23.37Vienna,Austria 14.52 17.83 18.49 21.79Vilnius, Lithuania 21.79 24.96 – –Warsaw, Poland 17.17 22.45 19.81 25.09Zagreb, Croatia 19.81 22.45 21.13 22.45Zurich, Switzerland 23.33 24.96 35.35 36.98

Latin AmericaBogotá, Colombia – – – –Buenos Aires,Argentina 9.26 11.49 13.38 15.61Lima, Peru 10.04 12.60 11.15 13.72Mexico City, Mexico – – – –Rio de Janeiro, Brazil 18.97 25.13 21.34 27.51São Paulo, Brazil 18.97 26.56 26.08 33.67

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North AmericaAtlanta, USA 12.20 21.30 23.20 32.30Boston, USA 8.60 20.10 24.50 36.00Calgary, Canada 15.46 24.05 21.48 30.07Chicago, USA 13.10 23.60 25.00 35.50Cleveland, USA 15.80 21.00 19.80 25.00Dallas, USA 11.40 22.00 23.40 34.00Denver, USA 7.30 17.30 17.90 27.90Detroit, USA 13.50 23.50 17.00 27.00Houston, USA 11.50 20.00 22.00 30.50Los Angeles, USA 17.40 30.10 47.30 60.00Miami, USA 19.85 30.00 27.85 38.00Minneapolis, USA 13.50 23.20 21.50 31.20Montreal, Canada 10.57 21.48 13.14 24.05New York - Downtown, USA – – – –New York - Midtown, USA – – – –Ottawa, Canada 9.19 20.62 17.78 29.21Philadelphia, USA 15.90 22.90 29.50 36.50Phoenix, USA 12.20 22.70 24.50 35.00Pittsburgh, USA 13.80 21.20 16.10 23.50San Francisco, USA – – – –San Jose - Silicon Valley, USA 16.70 27.20 30.30 43.80Seattle, USA 14.50 21.80 21.20 28.50St. Louis, USA 15.00 23.00 23.00 31.00Toronto, Canada 12.03 24.05 22.08 34.10Vancouver, Canada 15.46 24.91 18.90 28.35Washington, USA 21.10 29.10 34.00 43.00

Asia PacificAdelaide,Australia – – – –Auckland, New Zealand – – – –Bangalore, India 9.29 11.15 11.15 13.28Beijing, China 21.75 25.65 30.21 34.11Brisbane,Australia 19.07 23.84 21.80 26.57Chennai, India 7.97 9.29 14.60 15.93Delhi, India 26.55 30.53 33.19 37.17Guangzhou, China – – – –Hong Kong, China 37.36 49.72 47.34 60.73Jakarta, Indonesia 6.23 10.75 15.06 18.47Manila, Philippines 8.08 9.69 10.39 12.18Melbourne,Australia 14.99 20.43 19.07 24.52Mumbai (Bombay), India – – – –Perth,Australia 17.37 24.18 18.73 25.54Seoul, South Korea 18.04 24.92 23.61 31.15Shanghai, China 12.27 15.61 13.38 16.73Singapore 19.97 29.42 25.96 36.05Sydney,Australia 21.12 25.88 29.97 34.74Taipei,Taiwan – – – –Tokyo Central Wards, Japan – – – –Wellington, New Zealand 14.28 19.99 24.44 32.69

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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 occupied 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 2006Contributor – Robert Sammons,[email protected], Editer – Cara Birrittieri

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