Www.poconnor.com O’Connor & Associates 713-686-9955 Presented By RICHARD ZIGLER Director of Research [email protected] Commercial Real Estate Trends

www.poconnor.com O’Connor & Associates 713-686-9955www.poconnor.com O’Connor & Associates 713-686-9955

Presented By

RICHARD ZIGLER Director of Research

[email protected]

Commercial Real Estate TrendsCommercial Real Estate Trends

www.poconnor.com O’Connor & Associates 713-686-9955 www.poconnor.com O’Connor & Associates 713-686-9955


OUTLINEOUTLINE

Industry Overview Major Events and Developments

Occupancy Changes Across the Markets

Rental Rates Across the Markets

Key Trends Economic Factors

Mobility Improvements

Current Construction and Expansions

Where are the Markets Going?


Industry OverviewIndustry Overview

Retail Market - closing of Kmart, Albertson’s, Service Merchandise

- entrance of Kohl’s; expansions of HEB, Wal-Mart,

the Galleria, Memorial City Mall and drugstores

Office Market - Enron bankruptcy, Dynegy and Reliant turmoil,

Arthur Andersen scandal, Compaq merger, etc.

Multifamily Market – home ownership is an attractive alternative.

Still… high level of new construction

Industrial Market – softer than in previous years, very low demand


Office & Industrial sectors posted the sharpest decline in occupancy rate

Multifamily Market was the most robust sector with a 92.6% occupancy

Retail Market also experienced a decline in occupancy rate from 86.5% to 85.1%

Real Estate was not an exception in the 2002 economic slow-down

Occupancy Changes

75%

80%

85%

90%

95%

100%

Multi-Family Office Retail Industrial*

2001 2002



Office and Retail sectors posted a slight decline in rental rates, less than $0.01

Apartment Market was the only sector to post somewhat higher rents, from $0.74 to $0.76 per square foot

Industrial Market was rather soft and rental rates were flat

2002 rental rates remained relatively flat across all markets

Rental Rates Across Markets

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

Multi-Family Office Retail Industrial*

2001 2002



US economy is still posting slow growth figures

Headlines are screaming about increasing unemployment

Interest Rates are at a record low

The specter of war adding more pressure

Key TrendsKey Trends

Better Times on the Horizon?

Economic Recovery is expected in the second half of 2003

BUT… the War is now the biggest determinant!



Local mobility improvements include

West Loop (610) & I-10 expansions

Westpark Tollway construction

Fort Bend Toll Road & Grand

Parkway planned expansion

$235 mill. local street improvements

Despite the hard times, Houston continues to grow and expand


The suburban markets are developing at a rapid rate


Major markets include:

Silverlake/Pearland

The Woodlands

Fort Bend

Katy



For Retail some submarkets are more promising than others

Powered by new home construction, retail expansion is at its

peak, especially in the suburban markets

Suburbs offer great opportunities for retail

Empty retail boxes in the city! High Construction in the suburbs!

VS

SilverlakeHouston



Due to low mortgage rates, tenants are choosing home ownership!

But why is Apartment construction so aggressive?

11,632 units are under construction! Will they be absorbed? We are building high-rises too!

1200 Post Oak

The Greenbriar



The Office Market is perhaps the weakest one

High level of construction in CBD

Businesses are shrinking, no job growth

These trends result in negative absorption figures

The Industrial Market is in imbalance

Bankruptcies and heavy construction have

added plenty of empty space

Due to business failures, demand is very low

But thankfully… construction has slowed 16516 Air Center Blvd

5 Houston Center


Office Market occupancy will continue to decline by 2 - 2.5 points

Inventory will increase by 1.7 million after the construction of the

Reliant Resource Plaza (844,000 SF) and Calpine Center (689,028 SF)

Where are the Markets Going?Where are the Markets Going?

Retail Market will remain healthy due to residential expansions

In 2003, 4.5 million SF of retail space will be opened, occupied mainly by

discount stores (27%) and supermarkets (19%)

Multifamily construction remains high but demand is flat

Vacancy is expected to rise by 1.5 points. Class A vacancy may rise by 8 points!

Industrial sector will not reach equilibrium until mid 2005


Thank YouThank You

Questions ?

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RICHARD ZIGLER Director of Research

[email protected]

Real Estate Valuation, Research & ConsultingReal Estate Valuation, Research & Consulting

O’Connor & AssociatesO’Connor & Associates www.poconnor.com www.poconnor.com 713-686-9955 713-686-9955

O’Connor & Associates 2000 N Loop W, # 110 Houston, TX 77018

713-686-9955

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Www.poconnor.com O’Connor & Associates 713-686-9955 Presented By RICHARD ZIGLER Director of Research [email protected] Commercial Real Estate Trends