2008 National Office Report

Real Estate Investment Research
2008 National Office Report
OFFICE
To our valued clients:
The economy has displayed incredible resilience over the past few years, posting growth through a prolonged
housing market downturn, the subprime residential mortgage meltdown and a major capital markets shake-up.
Expansion, albeit moderate, has remained possible due to the shift from consumer-led growth to businesses and the
trade sector. The weak dollar has resulted in stronger demand for U.S. goods and services, a trend we anticipate will
continue through the better part of this year.
Based on current indicators, a recession may still be avoidable in the near term. Employment is rising at a
modest pace, and wage pressures are easing. There are significant risks to the outlook, however, including further
deterioration in the credit and housing markets and eroding business confidence. In addition, oil prices are near
record-high levels, which could ultimately result in accelerating inflation, limiting the Fed’s flexibility to stimulate
the economy through monetary policy if needed.
Office investors should be prepared for slower growth this year, even if the economy avoids a recession. The
office market is coming out of a strong recovery cycle, with vacancy falling to a seven-year low in 2007 and rents
rising at a double-digit pace. Office space demand has cooled due to weakness in banking-related industries and
slower economic growth, which, combined with rising new supply, will cause a moderate increase in vacancy this
year. Supply-side risks will diminish as the year progresses, with tighter lending requirements pushing many
planned projects out of the pipeline.
Lenders remain swift to respond to incoming economic and credit market indicators, causing dramatic fluctua-
tions in spreads. It is important to note that the shift in capital markets is more of a normalization of underwriting
than a credit crisis, particularly for core transactions priced below $50 million. Perhaps more important than the
financial impact on specific transactions, this shift has caused a re-pricing of risk. As a result, a pricing adjustment
period is occurring, which is driven by office property quality and location. This is a far cry from a major, systemic
price correction across the board, which is unlikely at a time when office fundamentals remain relatively healthy and
plenty of capital is still seeking quality real estate investments. Investors’ flight to quality will become more evident
this year, with price adjustments concentrated primarily among lower-quality assets and secondary/tertiary markets.
To assist you in planning a successful office investment strategy, we are pleased to present our 2008 National
Office Report. Included in this report is our National Office Property Index (NOPI), a forward-looking ranking of 43
markets based on forecast supply and demand conditions. We trust you will find this report helpful in formulating
and executing your investment strategies, and our investment professionals stand ready to assist you in meeting
your goals.
Sincerely,
Harvey E. Green Hessam Nadji

President and Managing Director
Chief Executive Officer Research Services
NATIONAL PERSPECTIVE
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
National Office Property Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
National Office Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MARKET OVERVIEWS
Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Austin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Boston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cincinnati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cleveland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Columbus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Detroit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fort Lauderdale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Indianapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Jacksonville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Las Vegas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Los Angeles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Milwaukee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Minneapolis-St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
New Haven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Statistical Summary Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-33
New York City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Northern New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Oakland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Orange County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Orlando . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Portland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Riverside-San Bernardino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Salt Lake City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
San Diego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
San Francisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
San Jose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Seattle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Tampa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Tucson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
West Palm Beach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
CLIENT SERVICES
Contacts, Sources and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
National Office and Industrial Properties Group (NOIPG) . . . . . . . . . . . . . . . . . . . . . . . . 56
Healthcare Real Estate Group (HREG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Research Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Marcus & Millichap Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Office Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60-61
Written by Erica Linn, Senior Analyst, and edited by Hessam Nadji, Managing Director. The Capital Markets section was co-authored by
William E. Hughes, Managing Director, Marcus & Millichap Capital Corporation. Additional contributions were made by Marcus &
Millichap market analysts and investment brokerage professionals nationwide.
2008 Annual Report
Executive Summary
National Office Property Index
◆ Seattle climbed three places to the top spot in the National Office Property Index (NOPI), pushing last year’s leader New
York City to #2. Both markets feature vacancy rates that are well below the national average and should post hearty
effective rent growth this year.
◆ Coastal markets dominated the top 10 of the index this year. Boston (#3) and San Francisco (#4) are both forecast to record
some of the nation’s strongest effective rent growth and climbed two and 12 places, respectively. Los Angeles secured the
#5 position despite only modest office-using employment growth.
◆ Metro areas that have been hardest hit by the cooling housing market and subprime fallout experienced some of the most
significant drops in the ranking this year. West Palm Beach (#31) fell 12 spots, while Sacramento (#32) and Phoenix (#14)
dropped 10 and seven positions, respectively.
National Economy
◆ Employment is forecast to increase 0.8 percent in 2008, or by 1.1 million jobs, after a 1 percent rise in 2007. Office-using
job growth is expected to decelerate to 0.5 percent, down from 1.2 percent, due to weakness in banking- and housing-
related industries.
◆ GDP is forecast to rise 1.9 percent in 2008, following an estimated 2.4 percent gain in 2007. While the U.S. is expected
to avoid a technical recession, growth is likely to fall sharply in the first half of 2008.
◆ Home prices are expected to bottom in the second half of 2008 as sales activity stabilizes. Subprime mortgage-related
writedowns were nearing $100 billion at the start of 2008, and losses could ultimately exceed $350 billion.
National Office Market Overview

◆ Developers will deliver 68 million square feet of office space in 2008, up from approximately 55 million square feet in
2007. The pipeline is thinning, however, with 45 percent less space in the pre-planning phases today than one year ago.
◆ The vacancy rate is forecast to end 2008 at 13.4 percent, up 80 basis points from 2007. The vacancy improvement that began
in mid-2004 came to an end in the fourth quarter of 2007, when developers delivered more than one-third of last year’s
total new supply.
◆ Despite the increase in vacancy, asking and effective rents are forecast to rise by 5 percent as high-quality new space
is delivered and leases signed earlier in the decade roll over. In 2007, rents grew by more than 10 percent.
Capital Markets
◆ The yield on the 10-year Treasury is down more than 150 basis points since mid-2007, helping to offset the impact of
wider spreads. Investors’ flight to safety is expected to keep the 10-year Treasury yield in the high-3 percent to mid-4
percent range this year.
◆ Spreads are likely to narrow moderately in 2008 as home prices reach their bottom and banks can better assess the
ultimate damage from the subprime meltdown. Spreads are not, however, expected to return to pre-shock levels any
time in the foreseeable future.
◆ Many major lenders, including nearly all life insurance companies, are shying away from tertiary markets.
Commercial banks are more amenable but generally price in an additional 15 to 20 basis points for the added risk.
Investment Outlook
◆ Cap rates for office properties remain favorable compared to apartments and some core retail assets. Office cap rates
currently average from the low-6 percent range for higher-quality assets in primary markets to 9 percent for lower-
quality properties in secondary/tertiary markets.
◆ The financing tides have turned, placing low-leverage and cash buyers at a strong advantage. Sellers are more likely to
negotiate on price in the absence of financing contingencies.
◆ Buyers and lenders are more cautious, driving an overall flight to safety. Consequently, there is a growing distinction
in pricing and cap rates and, necessary adjustments in both, based on property performance, quality and location.
2008 Annual Report page 3

Markets with the Greatest Markets with the Highest
Expected 2008 Employment Growth 8 Expected 2008 Completions
Millions of Square Feet

Salt Lake City
Austin 6
San Antonio
Dallas/Fort Worth 4
Seattle
Houston 2
Orlando
Charlotte 0
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Nonfarm Employment (Y-O-Y Change)
2008 National Office Property Index

Markets with the Greatest
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arcus & Millichap is pleased to present the 2008 edition of the
Expected 2008 Asking Rent Growth National Office Property Index (NOPI), an analysis that ranks 43
Boston office markets based on a series of 12-month forward-looking
New York City supply and demand indicators. Markets are ranked according to their
Austin cumulative weighted-average scores for various indicators, including
Seattle forecast office-using employment growth, construction, absorption, rent
Los Angeles growth and vacancy. Taking into account both the level and degree of
Houston change of multiple variables over the forecast period, the index is
San Francisco designed to indicate our expectations for this year’s supply and demand
San Jose conditions at the market level.
Denver
Washington, D.C. Users of the index must keep several important points in mind.
0% 3% 6% 9% 12% First, downward movement in the index does not necessarily indicate a
Asking Rent Growth (Y-O-Y Change) decline in market fundamentals. For example, if a market is expected to
post modest improvement relative to others, it can fall in the ranking.
Second, the index is not designed to predict the performance of individ-
Markets with the Lowest ual investments. A carefully chosen investment in a bottom-ranked mar-
12% Expected 2008 Vacancy Rates ket could easily outperform a poor choice in a top-ranked market.
Finally, because our index is ordinal, differences in specific rankings are
Vacancy Rate
10% not proportional. For example, the top-ranked market is not necessarily
8%
twice as good as the second-ranked market, nor is it 10 times better than
the 10th-ranked market.
6%
4% Housing Market Driving Normalization in the Office Market

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slows employment growth. After peaking in 2003, national office vacan-

cy declined for 17 consecutive quarters before a modest uptick during
Markets with the Highest the fourth quarter of 2007. In all, vacancy has improved 450 basis points
24% Expected 2008 Vacancy Rates
from its peak, causing developers to step up construction activity; this
Vacancy Rate
21% year, completions are expected to total approximately 68 million square

feet, up from 55 million square feet in 2007. The impacts of increased
18%
construction and slower office-using employment growth will vary
15% across metro areas this year. In some high-growth markets, including
Phoenix, Orange County and South Florida, employment gains have
12% tapered off and vacancy has begun to rise as more sublease space
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Boston and the Bay Area, are expected to post some of the nation’s
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strongest returns this year. Rent growth in these markets, however, is

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forecast to come in below last year’s double-digit gains.
page 4 2008 Annual Report

Markets with the Highest
Expected 2008 Absorption
Percent of Occupied Inventory
8%
Rank Rank 07-08
6% MSA 2008 2007 Change
4% Seattle 1 4 ▲ 3
New York City 2 1 ▼ 1
2%
Boston 3 5 ▲ 2
0% San Francisco 4 16 ▲ 12
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Washington, D.C. 6 2 4
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Oakland 7 9 ▲ 2
Riverside-San Bernardino 8 8 ■ 0
Las Vegas 9 12 ▲ 3
Orange County 10 6 ▼ 4
Seattle Claims the Top Spot, Coastal Markets Dominate the Top 10
Tucson 11 15 ▲ 4
In the 2008 NOPI, Seattle moved up three places to secure the #1 spot. Portland 12 23 ▲ 11
Local technology titans continue to hire actively and lease additional office San Jose 13 24 ▲ 11
space, largely offsetting increased construction. Last year’s pacesetter, New Phoenix 14 7 ▼ 7
York City, slipped one spot to the #2 position but maintains the lowest
vacancy rate in the nation. Healthy office-using employment growth keyed Austin 15 14 ▼ 1
Boston’s two-spot rise in the ranking to #3. San Francisco jumped 12 places San Diego 16 11 ▼ 5
to the #4 position, buoyed by forecasts calling another year of healthy ask- Fort Lauderdale 17 10 ▼ 7
ing and effective rent gains. Los Angeles (#5) slipped two spots this year
due to marginal employment growth but will remain one of the tightest Houston 18 18 ■ 0
markets in the country. Tampa 19 13 ▼ 6
Salt Lake City 20 30 ▲ 10
Washington, D.C., (#6), dropped just outside of the top five this year,
Jacksonville 21 27 ▲ 6
due primarily to elevated construction activity, particularly in the Virginia
suburbs. Oakland rose two spots to #7, driven by one of the country’s San Antonio 22 25 ▲ 3
healthiest vacancy improvements. Riverside-San Bernardino (#8) will once Miami 23 17 ▼ 6
again be home to some of the nation’s strongest job growth, although Denver 24 20 ▼ 4
employers will add far fewer positions than in recent years. Las Vegas
comes in at #9, a three-spot rise, as the weak U.S. dollar is expected to Orlando 25 26 ▲ 1
attract foreign visitors, stimulating economic growth in the metro. Orange Chicago 26 28 ▲ 2
County (#10) will benefit from a significant dropoff in completions this Charlotte 27 34 ▲ 7
year, and office employers are expected to add positions after numerous
Philadelphia 28 32 ▲ 4
mortgage-related layoffs in 2007.
Atlanta 29 29 ■ 0
In South Florida, strain in local housing markets has led to increases in Dallas/Fort Worth 30 21 ▼ 9
sublease space. West Palm Beach (#31) fell 12 spots this year, while Fort
West Palm Beach 31 19 ▼ 12
Lauderdale (#17) and Tampa (#19) dropped seven and six positions, respec-
tively. Miami (#23) faces threats from office condos, and absorption will Sacramento 32 22 ▼ 10
come in well below historical levels, causing its six-spot dip. Dallas/Fort Kansas City 33 35 ▲ 2
Worth fell nine spots to #30 this year, as builders remain active, despite Indianapolis 34 40 ▲ 6
vacancy that ranks among the highest in the nation. Salt Lake City (#20) was
one of the biggest movers up in the index, as a forecast for robust employ- Northern New Jersey 35 31 ▼ 4
ment growth drove the metro’s 10-position rise in the ranking. Minneapolis-St. Paul 36 33 ▼ 3
St. Louis 37 New ■ NA
Slower-growing Midwestern markets make up much of the lower por-
Cleveland 38 42 ▲ 4
tion of the index again this year, but there are metros that are beginning to
gain some positive momentum. Kansas City (#33), Indianapolis (#34) and Cincinnati 39 36 ▼ 3
Cleveland (#38) are forecast to buck the national trend and post vacancy Detroit 40 41 ▲ 1
improvements in 2008. As such, these markets rose two, six and four posi-
Milwaukee 41 38 ▼ 3
tions in the rankings, respectively. Chicago (#26) is the highest-ranked
Midwestern market, while St. Louis makes its debut in the NOPI this year Columbus 42 39 ▼ 3
at #37 due to slowing employment growth. New Haven 43 37 ▼ 6

National Economy
U.S. Economic Resilience Put to Test in First

Half, Moderate Growth Anticipated for Year
H
U.S. Gross Domestic Product ousing woes and the unwinding subprime mortgage market are
standout risks heading into 2008; however, there are positive forces at
9%
work that should prove strong enough to prevent a prolonged
U.S. GDP (Ann. Quarterly Chg.)
downturn. To start, the Fed continues to offer its support. In addition to five
6% rate cuts since last summer, the Fed rolled out its new term auction facility late
last year, which offers greater anonymity to banks borrowing from the Fed.
3% Furthermore, the weak U.S. dollar is driving foreign demand for U.S. goods
and services. Based on current estimates, net exports made a positive impact
0% to annual U.S. GDP growth in 2007 for the first time since the early 1990s and
will remain a net contributor this year. Outside of housing-related industries,
-3% corporate balance sheets are generally sturdy, following several years of
90 92 94 96 98 00 02 04 06 08** double-digit profit growth. As a result, companies are relatively well
positioned to weather a period of slower economic conditions. The main
concern is the potential negative psychology that could emerge, resulting in
Employment Growth Trends larger-than-expected layoffs and/or postponed investment plans.
Total Nonfarm Office-Using
12%
Year-over-Year Change (Quarterly)
Inflation concerns should ease as the economy slows. At the start of 2008,
core inflation remains relatively tame, even with oil prices elevated. Energy
8%
efficiency has improved, with consumption per dollar of U.S. GDP declining
by 2.5 percent annually over the past 10 years; however, global oil demand
4%
continues to rise, and reserves are down. Even after factoring in greater
efficiency, relatively low core inflation figures suggest companies have been
0%
absorbing some of the higher production costs. If energy prices do not decline
as expected, companies will have to pass along higher costs to consumers,
-4%
causing inflation to accelerate and forcing the Fed to remove stimuli from the
90 92 94 96 98 00 02 04 06 08** system rapidly once current concerns ease.
Oil Prices and Core Inflation 2008 National Economic Outlook

Core CPI Oil
◆ Moderate Economic Growth Expected. U.S. GDP is forecast to rise 1.9
16% $100
percent in 2008, with growth in the second half expected to offset
modest contraction earlier in the year. Slower consumer spending
Oil Price per Barrel
12% $75
growth and residential investment will be partially offset by increased
Core CPI
export activity and a still-sturdy corporate sector.

8% $50
◆ Job Creation Slows. Employment is forecast to increase 0.8 percent in

4% $25 2008, or by 1.1 million jobs, following a 1 percent gain in 2007. Office-
using job growth is expected to decelerate to 0.5 percent, down from 1.2
0% $0 percent, due to weakness in banking- and housing-related industries.
70 74 78 82 86 90 94 98 02 06 07
◆ Housing Market to Reach Bottom. Home prices are forecast to bottom
Weak U.S. Dollar Driving Up Exports in the second half of 2008 as sales activity stabilizes. Subprime
mortgage-related writedowns were nearing $100 billion at the start of
U.S. Dollar Exchange Value (Mar 73 = 100)
Net Exports Contribution to GDP (% pts.)
Net Exports of Goods and Services

2% U.S. Dollar - Major Currency Index 120 2008, and losses could ultimately exceed $350 billion.
◆ Financial Markets Volatile. A lack of investor confidence will continue

1% 105
to fuel volatility in the early part of 2008. We expect the Fed to remain
aggressive to limit the degree of the downturn until more economic
0% 90
visibility emerges. The Fed’s 75 basis point and 50 basis point rate cuts
in January calmed markets temporarily but did not erase concerns that
-1% 75
a U.S. recession may be looming.
-2% 60 ◆ Global Influence Rising. The U.S. economy is vulnerable to shifts in inter-
90 92 94 96 98 00 02 04 06 07* national capital flows, with more than half of long-term U.S. Treasury debt
held by foreign sources. A major selloff is unlikely, however, as the global
* Estimate ** Forecast economy is highly dependent on U.S. consumers and businesses.

National Office Overview
Modest Uptick in Vacancy in 2008; Tighter

Lending Reducing Long-Term Supply Risks
Office Construction Trends
T
he dramatic recovery that has characterized the office market over the
past few years will be replaced by more normalized conditions in 2008.
160
Square Feet Completed (millions)

Vacancy has decreased 450 basis points from its peak in late 2003 but is
forecast to tick up modestly this year as new supply reaches its highest level
120
since 2002. While development has increased in recent years, it remains low
from a historical perspective. In 2008, existing office inventory is forecast to
80
rise by less than 2 percent, which is favorable compared to the late 1990s
through 2001, when inventory increased at an annual rate of 3 percent to 4
40
percent. Supply-side risks are relatively low and will decline further as the
year progresses, with tighter lending standards providing a strong barrier
0
against overbuilding. 90 92 94 96 98 00 02 04 06 08*
Office space absorption is expected to decelerate during the first half of

2008, though it should pick up later in the year as businesses begin to regain
confidence in the economy. In the near term, office property owners are Office Absorption and Vacancy
expected to face increased competition from the sublease market, which is Net Absorption Vacancy Rate
200 25%
expanding as banking- and housing-related layoffs continue to mount. Last
Millions of Square Feet

year, the Class B sector recorded the greatest increase in sublease availabili-
100 20%
ty, with much of it concentrated in suburban areas where residential real
Vacancy Rate
estate-related firms have cut back staffing levels and shuttered locations.
0 15%
Fortunately, Class B/C occupancy should post only a modest increase in
vacancy as slower economic growth encourages some businesses to opt for
-100 10%
more affordable space. During 2008, Class A vacancy will remain below the
marketwide average, but the rate will rise moderately in the first half of the
-200 5%
year due to the delivery of new space and weakness in the banking industry. 90 92 94 96 98 00 02 04 06 08*
There are a handful of high-quality high-rise properties slated for delivery in
2008. While pre-leasing activity has been relatively strong, many tenants will
leave behind vacant offices as they transition to new space.
Office Market Rent Trends
Average Effective Rent per Square Foot
Effective Rent
2008 National Office Market Outlook $40 Concessions as a % of Asking Rents 20%
Concessions as a % of Asking Rents

◆ Completions to Peak in 2008. Developers will deliver 68 million square
$30 16%
feet in 2008, up from approximately 55 million square feet in 2007. The
pipeline is thinning, however, with 45 percent less office space in the
$20 12%
pre-planning phase today than one year ago.
◆ Modest Increase in Vacancy. The vacancy rate is forecast to end 2008 at $10 8%
13.4 percent, up 80 basis points from 2007. The downward slide in vacancy
that began in mid-2004 came to an end in the fourth quarter of 2007 when $0 4%
developers delivered more than one-third of last year’s total new supply. 90 92 94 96 98 00 02 04 06 08*
◆ Rent Growth Decelerating. Despite a modest increase in vacancy,

asking and effective rents are expected to rise by 5 percent as high-
quality new supply is delivered and several leases signed earlier in the Sublease Space as a Proportion of
decade roll over. Last year, rents grew by more than 10 percent. Total Vacant Space
20%
Sublease Space as a Share of
◆ Demographics Favor Medical Office. Medical office vacancy will increase

15%
Total Vacant Space
slightly in the near term due to new supply, but long-term prospects
remain highly favorable. Demand for medical office space will rise sub-
10%
stantially over the next 10 to 15 years, with roughly 75 million U.S. baby
boomers making their way toward retirement.
5%
◆ Going Green. The differential in cost for ground-up green construction
has narrowed to 2 percent to 4 percent. Retrofitting office properties can 0%
00 01 02 03 04 05 06 07
be costly, but some expenses can often be offset by subsidies. Owners
who “go green” today may find themselves at an advantage in the near
future as more tenants seek space in green buildings exclusively. * Forecast

Capital Markets
Reversion to the Norm Still Having Dramatic

Impact on Commercial Lending Conditions
U.S. CMBS Issuance
L
enders will remain cautious this year, continuously reassessing risk and
$80
re-pricing debt accordingly. Financing spreads continue to fluctuate as
Quarterly CMBS Issuance (billions)
lenders react swiftly to new economic and credit market indicators.

Commercial mortgage delinquency rates are still near historical lows, despite
$60
having ticked up slightly in recent quarters. The overall CMBS delinquency rate
as of late 2007 was less than 0.5 percent, with office properties at the low end of
$40
the spectrum at less than 0.2 percent. The office market’s strong recovery cycle
that started in 2004 provides some cushion against higher borrowing costs, as
$20 rising occupancy, strong rent growth and concession burn contributed to price
appreciation in recent years. From mid-2006 through the first half of 2007,
$0 however, the bulk of recovery had passed, yet underwriting assumptions
00 01 02 03 04 05 06 07
remained aggressive. Many loans originated during this period were interest-
only, and refinancing will be more difficult based on today’s lower loan-to-values
(LTVs) and higher debt-service coverage ratios (DSCRs). As a result, delinquency
Interest Rate Trends rates for office loans originated since mid-2006 may rise in the near future.
10-Year Treasury Fed Funds Rate
8% As of early 2008, conduits were pricing office loans at 250 to 275 basis
points over the 10-year Treasury, approximately 140 basis points higher than
6% one year earlier. Investors remain wary of CMBS due to concerns that lax
Interest Rates
underwriting in recent years may have compromised some mortgage pools.

4% In addition, the CMBS market is working through a backlog of mortgage
debt that was originated prior to the implementation of tighter lending
standards. Fortunately, portfolio lenders are ramping up activity. Portfolio
2%
lender spreads have increased, but they remain highly competitive
compared to conduits, ranging from 175 basis points over the 10-year
0%
Treasury to 210 basis points over. On average, LTVs have decreased from 70
97 98 99 00 01 02 03 04 05 06 07 08*
to 80 percent one year ago to 60 to 70 percent. In the best case scenario, major
borrowers with strong credit may find financing for up to 75 to 80 percent of
value, given a favorable cap rate and DSCR of 1.2x or greater.
Historical Conduit Lender Spreads
Office Properties 2008 Capital Markets Outlook
Avg. Spread over 10-Year at YE (bps)
300
◆ Long-Term Rates Low. The yield on the 10-year Treasury is down more
250 Portfolio Lenders
than 150 basis points since mid-2007, helping to offset the impact of wider
spreads. Investors’ flight to safety is expected to keep the 10-year Treasury
200
yield in the high-3 percent to mid-4 percent range this year.
150 ◆ International Effort to Restore Liquidity. Recent efforts by the Fed and
foreign central banks to increase liquidity and reduce short-term
100 interbank lending rates have been relatively successful. Following the
01 02 03 04 05 06 07 08*
Fed’s first auction under its term auction facility, the one-month LIBOR
decreased more than 20 basis points.
CMBS Delinquency Still Low ◆ Spreads to Narrow. Spreads are likely to narrow moderately this year as
Office Industrial Retail Multi-Family home prices find their bottom and banks can better assess the ultimate
2.0%
damage from the subprime meltdown. Spreads are not, however,
CMBS Delinquency Rates
expected to return to pre-shock levels any time in the foreseeable future.

1.5%
◆ Interest-Only Loans Decline. Cautious lenders have reduced riskier

1.0% interest-only loan programs. Interest-only mortgages, which accounted
for 85 percent of CMBS loans in the first part of 2007, are still being
0.5% written, but are generally limited to top-tier assets in primary markets.
◆ Lenders Placing Greater Weight on Location and Quality. Most life

0.0%
00 01 02 03 04 05 06 3Q07 insurance companies are shying away from tertiary markets and lower-
tiered assets. Commercial banks are more amenable but generally price
* As of Jan. 08 in an additional 15 to 20 basis points for the added risk.

Investment Outlook
Quality, Location and Operations, Not Capital

Markets, Dictating Values
U.S. Office Property Price Trends
F
ollowing a spectacular performance that lasted through the better part
of last year, the U.S. office market’s return to more normalized Price per Sq. Ft. Cap Rate
conditions was inevitable. The rapid change in the office investment $210 10%
Median Price per Square Foot

climate, however, was accelerated significantly by the capital markets shock
last summer. Greater caution is evident, driving an overall flight to safety $180 9%
Average Cap Rate

among lenders and investors. Consequently, there is a growing distinction in
pricing and cap rates based on property performance, quality and location. $150 8%
For example, the average marketwide cap rate increased only 20 basis points
last year, but the spread between primary and tertiary market cap rates $120 7%
expanded from 110 basis points to 185 basis points.
$90 6%
Activity among private equity funds is expected to decline significantly 97 98 99 00 01 02 03 04 05 06 07*
after dominating the office investment scene over the past few years.
Blackstone led the charge last year with its acquisition of Equity Office
Properties, and the subsequent spinoff of assets brought several high-quality Office Cap Rate Trends by Property Class
properties to market. While fundraising among private equity funds has Primary Secondary Tertiary
10%
declined, there will be a considerable amount of equity circling the market this
year for bargains. Market fundamentals are generally healthy, but some
9%
properties will fall short of overly optimistic pro formas, creating difficulty for
Avg. Cap Rates

Expanding Cap Rate Spread
those who took out short-term debt and need to refinance. These deals will be Primary vs. Tertiary Markets
the exception, however, as average marketwide cap rates are expected to rise 8%
by just 10 to 75 basis points this year, with the highest-quality assets registering
minimal correction. Institutions and REITs are expected to step up activity in 7%
2008 after losing out on some deals over the past few years to highly leveraged
investors. The largest U.S. pension fund CalPERS, for example, raised its 6%
allocation to real estate this year from 8 percent to 10 percent. In addition, 04 05 06 07
foreign investors are expected to increase acquisitions of U.S. office properties,
focusing on assets on both coasts and in a handful of primary inland markets.
Real Estate Outperforms Stock Market
1-year 5-year 10-year
2008 Investment Outlook
Total Returns/NCREIF and S&P (3Q07)
300%
◆ Foreign Investors Active. Foreign investment in U.S. office properties

reached record levels in 2007, with the focus on individual properties in 225%
primary coastal markets. The weak dollar will continue to encourage

foreign investment, limiting cap rate correction among top-tier assets. 150%
◆ Low-Leverage Buyers at an Advantage. The financing tides have 75%

turned, placing low-leverage and cash-heavy exchange buyers at a
strong advantage. Sellers are more likely to negotiate on price in the 0%
absence of financing contingencies. S&P 500 Apartment Office Retail
◆ Rising Demand for Medical Office. High levels of private and institu-
tional equity are earmarked for medical office assets. Heated
Medical Office Sales Trends
competition among low-leverage investors will reduce the impact of
Sales Volume
tighter lending standards on pricing. $8 Number of Transactions 1,600
◆ Office Cap Rates Comparatively Favorable. Cap rates for office

Sales Volume (billions)
Number of Transactions
$6 1,200
properties remain favorable compared to apartments and some core
retail assets. Office cap rates currently average from the low-6 percent
$4 800
range for higher-quality assets in primary markets to 9 percent for
lower-quality properties in secondary/tertiary markets.
$2 400
◆ Office Pricing Adjusting, but Major Systemic Correction Unlikely.
Alternatives to real estate are limited; stocks remain highly volatile, and $0 0
Treasury yields are at a four-year low. Despite the slowing economy and 97 98 99 00 01 02 03 04 05 06 07*
rising vacancy levels, lease rollovers provide a positive force for office
property owners over the next three years. * Estimate

Atlanta No Change 2008 Rank: 29 2007 Rank: 29
Healthy Job Growth Pushing

Vacancy Lower in Atlanta
Employment Trends
F
orecasts for healthy professional job growth support a positive outlook
Nonfarm Office-Using for the Atlanta office market in 2008. Office-using employment growth
4% is expected to eclipse the rate recorded in 2007, and expanding
employers will continue to seek additional space. Builders are responding to
Year-over-Year Change
3% employers’ space demands by bringing new projects to the metro, and the
office planning pipeline includes more than 10 million square feet. Despite
2% relatively high levels of new supply, vacancy is expected to decline further,
allowing rents to push higher. For example, the North Central/I-285/GA 400
1% submarket is forecast to post metro-leading effective rent gains of approxi-
mately 4.5 percent this year, due primarily to the more than 600,000 square
feet of new Class A space expected to come online. In addition, the high-
0%
04 05 06 07 08** growth Buckhead/Lenox submarket remains popular with both builders
and tenants. Late last year, AT&T announced plans to relocate its 1,400-
Office Supply and Demand employee U.S. wireless division headquarters to the 1.1 million-square foot
8 Completions Absorption
Lenox Park in Buckhead. Additionally, the submarket is projected to receive
20%
Vacancy more than 1 million square feet of new office space in 2008, exceeding the
area’s long-term average of 250,000 square feet. Vacancy in the submarket is
Square Feet (millions)
6 18% expected to rise this year but will remain well below the metro average.
Vacancy Rate
4 16% Investors will continue to target office assets in the Atlanta area this
year, although recent price gains could slow transaction velocity. The
2 14% median sales price increased nearly 15 percent in 2007, and cap rates fell into
the mid-7 percent range. This rapid price appreciation will likely be short-
0 12% lived, however, as tighter underwriting standards and more modest revenue
04 05 06 07 08** growth forecasts will force sellers to reign in their expectations, causing cap
rates to edge higher. Office investors may want to investigate opportunities
Rent Trends in the East Atlanta/Decatur submarket, where the lack of construction
Asking Rent Effective Rent should keep vacancy low and sustain above-average effective rent gains.
$22
2008 Market Outlook

Rent per Square Foot
$20
◆ 2008 NOPI Rank: 29, No Change. Completions and absorption should
$18
align this year, keeping Atlanta unchanged in the index.
◆ Employment Forecast: Local employers are forecast to add 32,300 jobs

$16 in 2008, a 1.3 percent gain but a decrease from 56,000 positions last year.
Approximately 10,300 office-using positions will be created in the metro
$14 by year end, up from 9,600 new hires in 2007.
04 05 06 07 08**
◆ Construction Forecast: Builders are expected to deliver 2.5 million

Sales Trends square feet of office space in 2008, down somewhat from 2.9 million
square feet last year.
$160
◆ Vacancy Forecast: Following last year’s 100 basis point decline, vacancy
$140 is forecast to dip 30 basis points to 14.8 percent in 2008 as the growing
number of office jobs drives tenant demand for space.
$120
◆ Rent Forecast: Asking rents are expected to increase 3.1 percent in 2008
$100 to $21.84 per square foot, while effective rents advance 3.6 percent to
$18.42 per square foot.
$80
03 04 05 06 07* ◆ Investment Forecast: Investors may want to target properties north of
downtown in areas such as Marietta, Roswell and Alpharetta, where
* Estimate ** Forecast many companies are relocating and taking on new space.
Market Forecast Employment: 1.3% ▲ Construction: 14% ▼ Vacancy: 30 bps ▼ Asking Rents: 3.1% ▲

Down 1 Place 2008 Rank: 15 2007 Rank: 14 Austin
New Supply Pushing Vacancy Higher;

Austin Office Market Remains Attractive
Employment Trends
A
fter experiencing an extended rebound from the technology bust earlier
in the decade, vacancy in the Austin office market will increase this Nonfarm Office-Using
5%
year for the first time since 2002. Robust rent and occupancy gains over
the past two years have eased concerns about elevated building costs, and
developers are increasing speculative office construction. Expanding local 4%
employers and companies relocating some or all of their operations from
high-rent coastal markets will absorb much of the new space, but vacancy is 3%
expected to rise in the metro’s older and smaller properties. Many companies
leasing new space are contemplating future growth, which may lead to an 2%
active sublease market if the economy cools more than anticipated.
Additionally, the number of businesses choosing to build their own offices is 1%
increasing, a trend that could create further competition for office owners. 04 05 06 07 08**
International RAM Associates, for example, plans to occupy only 50,000
square feet of its new 250,000-square foot facility in the Southwest submarket. Office Supply and Demand
Despite the new development, tenant demand in the area remains healthy 4 Completions Absorption 24%
and the submarket’s vacancy is forecast to edge lower in 2008. Vacancy

Transaction velocity in 2008 will remain elevated as a result of the 3 21%
Vacancy Rate
metro’s bright long-term economic outlook, as well as an active pool of local
buyers. Institutional demand will likely be focused on newer assets in the 2 18%
Northwest and Southwest areas, where many of the metro’s major employers,
such as AMD and Dell, are located. Local buyers may seek smaller infill 1 15%
properties where demand from cost-conscious employers is healthy.
Additionally, over the past few quarters, some office users have signed leases 0 12%
in newly constructed suburban properties, providing value-add opportuni- 04 05 06 07 08**
ties for investors to upgrade recently vacated assets in close-in submarkets.
Cap rates, which averaged in the mid-6 percent range over the past year, are
Rent Trends
expected to edge higher in 2008.
Asking Rent Effective Rent
$28
2008 Market Outlook
$24
◆ 2008 NOPI Rank: 15, Down 1 Place. Austin slipped one spot this year,
as accelerated completions are forecast to push vacancy higher.
$20
◆ Employment Forecast: Employers are expected to generate 18,000
positions in the Austin metro this year, boosting payrolls 2.4 percent. $16
Last year, 21,000 jobs were created. Office-using employment will
expand 2 percent in 2008 with the addition of 3,400 new jobs.
$12
04 05 06 07 08**
◆ Construction Forecast: After completing 1.8 million square feet of office
space last year, developers will bring 3.1 million square feet to the
market in 2008, adding 8.2 percent to local inventory. Sales Trends
◆ Vacancy Forecast: Slower employment growth and elevated construc- $200
tion activity will push the metrowide vacancy rate up 100 basis points to
15.4 percent this year. In 2007, vacancy dropped 30 basis points. $150
◆ Rent Forecast: The delivery of new, high-end office space will spur
$100
average asking rent growth of 7.2 percent to $27.06 per square foot.
Effective rents will also climb 7.2 percent, reaching $23.63 per square
foot by year end. $50
◆ Investment Forecast: Buyers with longer holding periods may want to

$0
seek properties in the recently approved “second downtown” area, 03 04 05 06 07*
located north of U.S. 183. New legislation is paving the way for denser
office and residential construction in the area. * Estimate ** Forecast
Market Forecast Employment: 2.4% ▲ Construction: 72% ▲ Vacancy: 100 bps ▲ Asking Rents: 7.2% ▲

Boston Up 2 Places 2008 Rank: 3 2007 Rank: 5
Rents Continue to Push Higher in Boston

Despite Slower Economic Growth Forecasts
Employment Trends
T
he Boston office market remains strong, underpinned by stable
Nonfarm Office-Using economic growth and an increasingly tight downtown market.
4%
Employers will continue to add to payrolls this year, with some
uncertainty in the financial sector mitigated by steady gains in Boston’s
3% biotech industry. Office space demand has been healthy in the CBD, with
vacancy falling below 10 percent and average asking rents soaring above $50
2% per square foot last year. Steady improvement in metrowide fundamentals
has sparked development activity. Builders are expected to add nearly 1.6
1% million square feet of new office space to the Boston market by year end, the
highest level recorded since 2003. Despite strong office demand, elevated
0%
completions will lead to a minor uptick in vacancy. Modest economic
04 05 06 07 08** expansion and healthy tenant demand, however, will sustain rent growth at
well above the national average this year.
Office Supply and Demand
Investors are expected to maintain an optimistic outlook for the Boston
21%
Vacancy office market in 2008. Large funds should continue to dominate buying
activity throughout the year, driven by prospects for above-average revenue
4 18% growth and the national shift to primary markets. In the suburbs, buyers
Vacancy Rate
may want to consider opportunities in Cambridge, which is experiencing

2 15% strong leasing activity by national tenants, such as Google and Microsoft,
along with companies seeking access to the area’s highly skilled labor pool.
0 12% Lack of new inventory over the next few years should lead to above-average
revenue growth in this submarket, adding value to existing office properties.
-2 9%
04 05 06 07 08**
2008 Market Outlook
Rent Trends
◆ 2008 NOPI Rank: 3, Up 2 Places. Robust rent growth and office-using
$40 employment gains fueled Boston’s two-spot rise in the index this year.
◆ Employment Forecast: Boston employers are expected to increase

$35
payrolls 1 percent in 2008 with the addition of 22,000 positions. Last
$30
year, 20,800 jobs were created. Office-using employment is forecast to
expand 1.3 percent, or by 9,700 new hires, compared with 2 percent
growth in 2007.
$25
◆ Construction Forecast: Approximately 1.6 million square feet will be
$20 delivered in 2008, twice the amount constructed in 2007. The North
04 05 06 07 08** Shore/Route 128 submarket is expected to receive nearly 630,000 square
feet, leading the market in additions to inventory.
Sales Trends
◆ Vacancy Forecast: After a 220 basis point improvement last year,
$180
vacancy will rise 10 basis points to 11.2 percent by year-end 2008.
$160 ◆ Rent Forecast: Although vacancy is expected to increase slightly, still-

healthy tenant demand will encourage owners to raise rents. In 2008,
$140 asking rents are forecast to climb 8.8 percent to $39.66 per square foot,
while effective rents advance 9.6 percent to $34.70 per square foot.
$120
◆ Investment Forecast: As investors continue to transition to primary
markets, major buyers are expected to target assets in the CBD. Private
$100
03 04 05 06 07* buyers, on the other hand, will stay active in submarkets like
Cambridge, targeting smaller deals that benefit from spillover tenant
* Estimate ** Forecast demand from the metro’s tight urban core.
Market Forecast Employment: 1% ▲ Construction: 100% ▲ Vacancy: 10 bps ▲ Asking Rents: 8.8% ▲

Up 7 Places 2008 Rank: 27 2007 Rank: 34 Charlotte
Strong Fundamentals Driving Investor

Interest in Charlotte Office Properties
Employment Trends
T
he Charlotte office market will perform exceptionally well throughout
the year, aided by organic business growth and corporate relocations. Nonfarm Office-Using
4%
Nearly every sector of the economy is expected to add jobs in 2008, led
by the metro’s office-using industries. Continued business expansion has
generated increasingly tight conditions, especially in the Uptown area and 3%
Charlotte’s CBD. Conditions in the Uptown submarket will remain
extremely tight, leading to aggressive rent growth and spillover demand into 2%
neighboring office districts, including the CBD. Developers are responding
to this growing demand and are scheduled to deliver three towers to the 1%
Uptown submarket, totaling 2.5 million square feet in 2009, nearly 60 percent
of which has already been pre-leased. Going forward, continued hiring and 0%
a lack of new space in the CBD should provide sufficient demand to drive 04 05 06 07 08**
rent growth throughout the metro.
Improvement in market fundamentals will continue to attract buyers to 4 Completions Absorption 18%
the Charlotte office market. Large investors, primarily institutions and Vacancy
funds, are dominating buying activity, a trend likely to persist, given the

3 16%
metro’s abundance of Class A stock. Average cap rates are currently in the
Vacancy Rate
low-7 percent range, down nearly 90 basis points over the past year. Looking
forward, investment activity will remain strong, driven by out-of-state 2 14%
investors attracted to Charlotte’s positive long-term outlook and prospects
for revenue growth. Institutional buyers will continue to target premium 1 12%
assets in supply-constrained submarkets, such as Uptown and Midtown.
Opportunities exist in suburban areas including South Park, as spillover 0 10%
demand will underpin strong occupancy growth. 04 05 06 07 08**
Rent Trends
2008 Market Outlook Asking Rent Effective Rent
$22
◆ 2008 NOPI Rank: 27, Up 7 Places. Charlotte moved up seven places in the
index due to forecasts for healthy vacancy improvements this year. $20
◆ Employment Forecast: Employers in Charlotte are expected to increase

$18
payrolls 1.5 percent in 2008 with the addition of 10,200 positions. Office-
using employers will create 3,200 jobs for a gain of 1.6 percent,
compared with a 2.4 percent gain last year. $16
◆ Construction Forecast: Developers are forecast to bring 550,000 square $14

feet of new space to the Charlotte office market this year, down from 04 05 06 07 08**
approximately 1 million square feet in 2007.
Sales Trends
◆ Vacancy Forecast: After a 100 basis point improvement last year,
$180
vacancy is expected to drop 80 basis points to 11.2 percent in 2008.
◆ Rent Forecast: Growing office demand and declining vacancy will $150
supported continued rent growth. Asking rents are forecast to rise 4.2
percent to $21.92 per square foot by year end, while effective rents $120
advance 4.9 percent to $19.10 per square foot.
$90
◆ Investment Forecast: Buyers are expected to remain aggressive in their
pursuit of office properties, especially in the Midtown area and other
$60
submarkets located near residential expansion south of the city. 03 04 05 06 07*
Competition among investors could drive cap rates in the Midtown area
to the mid-6 percent range by year end. * Estimate ** Forecast

Chicago Up 2 Places 2008 Rank: 26 2007 Rank: 28
Positive Momentum in Chicago

Office Market Carries Over to New Year
Employment Trends
T
his year, the vacancy rate for assets located in downtown Chicago is
Nonfarm Office-Using expected to fall 40 basis points to 12.8 percent. Class A tenants will
4%
target the Central and West Loop areas, where space continues to be
absorbed quickly. Accordingly, building owners are expected to raise rents
3% aggressively in 2008; Class A asking rents in both the Central and West Loop
submarkets are forecast to rise approximately 4.5 percent this year, with
2% additional rollbacks of concessions projected. Rents for Class B/C space will
grow at a marginally slower clip, but could accelerate later in the year if
1% tenants become priced out of high-end properties. Some investors may take
advantage of this trend by purchasing lower-tier assets where rents have
0%
languished below market level.
04 05 06 07 08**
In suburban submarkets, vacancy is forecast to rise 50 basis points to
Office Supply and Demand 18.5 percent this year due to a decrease in demand among housing-related
financial services firms. Excess vacancy in older Class B/C space, especially
22%
Vacancy in the O’Hare and Northwest submarkets, will also weigh on the suburban
vacancy rate. Asking rents in the suburbs are expected to increase 2 percent
6 20% in 2008, due to elevated vacancy, while effective rents are projected to rise at
Vacancy Rate
a slower pace. In the investment market, suburban assets will likely trade at
4 18% cap rates at the middle to upper end of the market’s 7 percent to 8 percent
range. Buyers will focus on the quality of cash flows and will look favorably
2 16% upon assets with annual rent increases stipulated in leases.
0 14%
04 05 06 07 08** 2008 Market Outlook
◆ 2008 NOPI Rank: 26, Up 2 Places. Chicago remains the top-ranked

Rent Trends
Midwest market this year despite elevated completions.
$30
◆ Employment Forecast: After 40,000 positions were created in 2007,
employment growth will slow to 30,000 jobs this year, a 0.7 percent
$27
increase. Office-using employers are forecast to add 13,000 new jobs in
2008, down from 18,500 positions last year, due to a reduced pace of
$24
hiring in the financial activities sector.
$21 ◆ Construction Forecast: Developers completed 1.4 million square feet of

new space in 2007, all of which was in the suburbs. Builders are expected
$18 to deliver 3.6 million square feet this year, including 1.6 million square
04 05 06 07 08** feet downtown.
Sales Trends ◆ Vacancy Forecast: The combination of slower absorption and an

increase in new supply will lead to a 10 basis point rise in the vacancy
$160
rate to 15.5 percent in 2008. Net absorption of 2.8 million square feet is
forecast for the year, compared with 3.3 million square feet in 2007.
$140
◆ Rent Forecast: Marketwide asking rents are forecast to rise 3.2 percent
$120 to $27.43 per square foot this year, while a 3.5 percent gain in effective
rents to $22.75 per square foot is expected.
$100
◆ Investment Forecast: REITs and institutions will take a dominant role in
the pursuit of top-grade assets in downtown submarkets this year, as
$80
03 04 05 06 07* changing financing terms limit activity by leveraged buyers. In the
suburbs, steady performing assets in the East-West Corridor will attract
* Estimate ** Forecast interest from exchange buyers seeking to protect capital.

Down 3 Places 2008 Rank: 39 2007 Rank: 36 Cincinnati
Government Incentives Luring Corporate

Relocations, New Development to Cincinnati
Employment Trends
R
ising rents and a solid long-term economic outlook have encouraged
builders to step up development efforts in the Cincinnati metro, partic- Nonfarm Office-Using
4%
ularly along the Ohio River and in the I-71 North submarket. This year,
Corporex is set to break ground on the $1 billion Ovation mixed-use project
in Newport, Ky. The project is expected to bring more than 1 million square 3%
feet of new office space to the metro over the next several years but is
currently encountering some resistance that could slow development. 2%
Additionally, preliminary site work will begin in early 2008 on the $900
million Banks riverfront project. The local government has been instrumen- 1%
tal in assisting builders, offering incentives and approving zoning changes
when necessary to ensure a project’s success. Most of the new developments 0%
contain substantial residential components that will attract well-educated 04 05 06 07 08**
workers to the urban core. As such, the expanding pool of skilled employees
near the riverfront will drive office-using companies into the CBD and Office Supply and Demand
Northern Kentucky. This year, deliveries should push vacancy somewhat 3 Completions Absorption
22%
higher, but occupancy is forecast to improve beginning in 2009. Vacancy

Transaction velocity held fairly steady last year, and investors will 2 20%
Vacancy Rate
continue to be drawn to the area’s newer properties and ongoing efforts by
local governments to attract new businesses. Over the past year, local office 1 18%
properties have traded at cap rates in the mid-8 percent to low-9 percent
range, high enough to bring in buyers primarily focused on immediate 0 16%
income. The infusion of public and private funds for several projects along
the Ohio River will enhance the CBD, Midtown and Newport’s profiles and -1 14%
could provide these areas with some upside potential and attractive redevel- 04 05 06 07 08**
opment opportunities.
Rent Trends
2008 Market Outlook $20
◆ 2008 NOPI Rank: 39, Down 3 Places. Cincinnati fell three spots in the
2008 ranking due to heightened construction activity and rising vacancy. $18
◆ Employment Forecast: Employers are forecast to add 2,000 workers this

$16
year, down from 5,100 new jobs in 2007. Office-using employment is
expected to contribute 500 positions by year end, a 0.2 percent increase.
$14
◆ Construction Forecast: New deliveries are forecast to total 1 million
square feet in 2008; 500,000 square feet came online last year. $12
Approximately half of this year’s completions are expected in the I-71 04 05 06 07 08**
North submarket.
◆ Vacancy Forecast: Tenant demand for office space is forecast to Sales Trends
moderate this year, while completions will total nearly twice the metro’s $100
five-year average. As a result, vacancy is expected to increase 30 basis
points to 18.7 percent. $90
◆ Rent Forecast: Despite a vacancy uptick, owners will be able to implement

steady rent gains and keep concessions near current ranges. Asking rents $80
are forecast to advance 2.1 percent to $18.85 per square foot by year end,
while effective rents increase 2 percent to $15.50 per square foot. $70
◆ Investment Forecast: Investors may want to consider assets in the CBD

$60
and Midtown submarkets. Local vacancy rates remain below the market 03 04 05 06 07*
average, and much of the metro’s future growth will occur in these
areas, presenting upside potential going forward. * Estimate ** Forecast

Cleveland Up 4 Places 2008 Rank: 38 2007 Rank: 42
Downtown Class A Office Sector

Remains Tight, Attracting Buyers
Employment Trends
T
he Cleveland office market will improve subtly in 2008. Over the past
Nonfarm Office-Using two years, absorption has picked up while construction has remained
3%
modest, and vacancy has fallen 200 basis points. Development efforts
downtown, including a new convention center and a county administration
2% building, have renewed tenant interest in the area. Much of this year’s
projected vacancy improvement is the result of business expansion within
1% Class A properties. The vacancy rate in top-tier assets downtown, for
example, is forecast to fall to nearly 10 percent, sparking market speculation
0% about plans for a new high-rise. Development activity will pick up in 2008,
but completions will increase inventory by just 1 percent. While modest
-1%
economic growth will restrict rent gains this year, there will be some
04 05 06 07 08** concession burn in the market.
Although market fundamentals are relatively healthy, investors are

Office Supply and Demand expected to remain cautious in the Cleveland office market. The regional
22%
Vacancy economic forecast is tepid at best, causing most buyers to take a more conser-
vative approach when valuing the market’s assets. As such, transaction
2 20% velocity is forecast to hover near or just below current levels throughout 2008.
Vacancy Rate
In addition, tighter underwriting standards might provide some upward

1 18% pressure on cap rates, which are in the low-8 percent range. Buyers will likely
target Class A assets, given much stronger fundamentals in the metro’s
0 16% premium office buildings, while investor interest in lower-tiered properties
will soften. As options for premium space remain increasingly limited for
-1 14%
tenants in 2008, value-add opportunities could arise from Class B assets in
04 05 06 07 08** desirable locations that may benefit from capital improvements.
Rent Trends 2008 Market Outlook

$20 ◆ 2008 NOPI Rank: 38, Up 4 Places. A forecast for modest vacancy
improvement supported Cleveland’s four-spot rise in this year’s index.
$18
◆ Employment Forecast: Employers in Cleveland are forecast to add 1,100
positions this year for a 0.1 percent increase. In 2007, growth was
$16
similar, as 1,200 jobs were created. Office-using employment is expected
to decline 0.4 percent in 2008, or by 1,200 positions, compared with a loss
$14 of 0.2 percent last year.
$12 ◆ Construction Forecast: Approximately 350,000 square feet of new office

04 05 06 07 08** space will be delivered in 2008, including a metro-leading 150,000
square feet in the Cleveland West submarket.
Sales Trends ◆ Vacancy Forecast: After an 80 basis point improvement last year,
$100 vacancy is expected to decline 20 basis points to 17.4 percent in 2008.
◆ Rent Forecast: Competition from additional stock will keep rent growth
$90
to a minimum this year. Asking rents are forecast to rise 0.5 percent to
$18.43 per square foot while effective rents increase 0.9 percent to $15.53
$80 per square foot.
$70
◆ Investment Forecast: Investors will continue to target Class A
properties downtown, although economic uncertainty will keep velocity
in check and values near current ranges. Value-add opportunities exist
$60
03 04 05 06 07*
for Class B assets in high-demand downtown locations, as capital
improvements may attract stronger credit tenants and could justify
* Estimate ** Forecast higher rents.
Market Forecast Employment: 0.1% ▲ Construction: 67% ▲ Vacancy: 20 bps ▼ Asking Rents: 0.5% ▲

Down 3 Places 2008 Rank: 42 2007 Rank: 39 Columbus
Large Lease Signings Supporting

the Columbus Office Market
Employment Trends
T
enant demand in the Columbus office market will be steady in 2008,
though the delivery of 1.1 million square feet of space will put Nonfarm Office-Using
4%
additional upward pressure on vacancy. Fortunately, deliveries of new
office space are expected to decline next year, following three years of above-
average activity. In the Upper Arlington submarket, the Daimler Group 3%
recently finished Time Warner’s 150,000-square foot regional headquarters
and has also commenced construction on a 140,000-square foot speculative 2%
office building. Developers in the Lower Downtown submarket are expected
to finish the renovation of the 750,000-square foot Lazarus project in the first 1%
half of the year; several state agencies have secured large blocks of office
space in the building already. Employment growth will be modest this year, 0%
and additional mortgage-related layoffs could occur in the first half. Space 04 05 06 07 08**
demand, however, will be driven by the information and professional and
business services sectors, including companies like Sogeti USA, which plans Office Supply and Demand
to add 200 employees this year to help fuel domestic growth. 4 Completions Absorption
24%
Vacancy
With average cap rates expected to hover in the mid-8 percent range,

3 22%
local and regional investors will remain active in the Columbus office
Vacancy Rate
market. Suburban Class A assets will stay in high demand, as these
properties offer low vacancy rates and solid rent growth potential. The 2 20%
Dublin-Hilliard submarket will benefit from its proximity to Interstate 270
and affluent residential communities that allow employers to choose from a 1 18%
pool of highly skilled workers, while the Westerville submarket is poised to
record some of the metro’s strongest revenue growth this year as occupancy 0 16%
improves. Downtown revitalization efforts are drawing more residents and 04 05 06 07 08**
capital investment from private companies, creating opportunities for

aggressive buyers to target Class B/C buildings in the Lower and Upper Rent Trends
Downtown submarkets. Asking Rent Effective Rent
$20
2008 Market Outlook

$18
◆ 2008 NOPI Rank: 42, Down 3 Places. Slowing employment growth and $16
rising vacancy caused Columbus to fall three spots in this year’s index.
◆ Employment Forecast: After creating 4,700 positions in 2007, employers $14

are expected to expand payrolls 0.4 percent this year with the addition
of 4,200 jobs. Office-using employment is forecast to increase 0.2 percent, $12
or by 500 new hires. 04 05 06 07 08**
◆ Construction Forecast: Completions are expected to total 1.1 million Sales Trends
square feet in 2008, up from 800,000 square feet last year.
$120
◆ Vacancy Forecast: Vacancy is forecast to increase 50 basis points to 18.4

percent in 2008. Last year, vacancy declined 60 basis points. $105
◆ Rent Forecast: Elevated vacancy will hamper rent growth this year. $90
Asking rents are expected to gain 2 percent to $17.82 per square foot,
while effective rents rise 2.2 percent to $14.68 per square foot. $75
◆ Investment Forecast: Investment activity could pick up in 2008,

$60
especially in the Northeast submarket. Regional buyers in particular are 03 04 05 06 07*
expected to remain attracted to the area, as initial yields average in the
low- to mid-9 percent range. * Estimate ** Forecast
Market Forecast Employment: 0.4% ▲ Construction: 38% ▲ Vacancy: 50 bps ▲ Asking Rents: 2% ▲

Dallas/Fort Worth Down 9 Places 2008 Rank: 30 2007 Rank: 21
Speculative Office Construction Rising in

Metroplex, Buyers Targeting Top-Tier Assets
Employment Trends
A
fter four consecutive years of improvement, vacancy in the Dallas/Fort
Nonfarm Office-Using Worth office market will rise in 2008 due to a significant increase in
4%
new supply. Office inventory in the Metroplex is forecast to swell by
2.4 percent in 2008, pushing vacancy to nearly 20 percent. Vacancy, while
3% much higher than the national average, has declined approximately 600 basis
points since 2004, prompting some developers to begin to expand multi-
2% phase business parks. For example, the next three planned phases of Granite
Park in Plano could add as much as 500,000 square feet of space to the
1% Plano/Allen submarket over the next few years. The delivery of speculative
Class A space could give the Metroplex an edge over other comparable
0%
markets, though, as cost-conscious companies seeking to relocate can find
04 05 06 07 08** ample leasing opportunities in the area.
Office Supply and Demand The office investment climate in Dallas/Fort Worth will vary by asset
segment and location this year. Top-tier properties in traditionally high
26%
Vacancy demand submarkets, such as Uptown, the Dallas North Tollway, and
Plano/Allen, will garner the most attention from institutional buyers. Some
4 24% suburban Class A assets, however, may experience longer marketing times
Vacancy Rate
as major private investors adjust to slower economic growth and recent

2 22% changes in the credit markets. In the lower tiers, cap rates for Class B assets
are generally in the low- to mid-8 percent range, approximately 70 basis
0 20% points above the metro average, which have been high enough to attract
private buyers. This trend could lose some steam as development of new
-2 18% properties advances at a steady clip and vacancy increases, unless cap rates
04 05 06 07 08** push higher. It is likely that most of the lower-tiered assets that change hands
this year will be properties with long-term leases in place. Additionally,
Rent Trends Class C assets in infill locations where land is limited, could attract buyers
Asking Rent Effective Rent looking to raze and redevelop properties.
$22
2008 Market Outlook

$20
◆ 2008 NOPI Rank: 30, Down 9 Places. Completions will pick up in the
$18 Metroplex as job growth cools, causing an nine-spot drop in the NOPI.
◆ Employment Forecast: Job growth in the Metroplex is expected to

$16
remain well above the national average, as 44,400 positions will be
added in 2008, an increase of 1.7 percent. Office-using employers will
$14 account for 6,100 of the new jobs, or a 0.8 percent expansion.
04 05 06 07 08**
◆ Construction Forecast: Several speculative projects are forecast to come
Sales Trends online in 2008 as builders deliver 4.1 million square feet of office space.
$120 ◆ Vacancy Forecast: Slower job growth and heightened deliveries will
push vacancy up 70 basis points this year to 19.9 percent. Vacancy
$100 improved 80 basis points in 2007.
◆ Rent Forecast: Marketwide asking rents are expected to reach $20.14 per
$80 square foot by year-end 2008, while effective rents will advance to $17.06
per square foot, both gains of 3.6 percent.
$60
◆ Investment Forecast: In the coming months, investors may want to
consider opportunities in Northeast Tarrant County. The large
$40
03 04 05 06 07* population increase in nearby Denton County and proximity to
Dallas/Fort Worth International Airport make the area along state
* Estimate ** Forecast Highway 114 a prime location for corporate relocations.

Down 4 Places 2008 Rank: 24 2007 Rank: 20 Denver
Demand for Class A Space Driving

Office Construction in Denver
Employment Trends
O
ffice deliveries are expected to pick up in Denver this year, causing a
short-term pause in the metro’s recovery cycle. Absorption has Nonfarm Office-Using
4%
outpaced new construction in each of the past four years, resulting in
a nearly 600 basis point reduction since 2004. New construction will have the
greatest impact in the Midtown and CBD submarkets, which are projected to 3%
receive more than half of the metro area’s completions in 2008, after less than
100,000 square feet combined came online last year. This year, softness in 2%
traditional office-using employment sectors, such as professional and
business services, and financial activities will slow space demand, just as an 1%
increase in new space hits the market. This trend is expected to be short-
lived, however, and early indications suggest that vacancy should begin to 0%
edge lower again in 2009. Top-tier assets will continue to attract tenants, but 04 05 06 07 08**
some local Class B/C properties that benefitted tremendously in recent years
from spillover demand may underperform in 2008. Office Supply and Demand
22%
A strong long-term economic outlook and healthy tenant demand will Vacancy
continue to lure investors to the Denver office market in 2008. Intensified

scrutiny from lenders, however, could push up Class A cap rates from the mid- 3 20%
Vacancy Rate
5 percent range, while Class B/C cap rates are expected to exceed 7.5 percent.
Investors will continue to pay high premiums for newer assets in the 2 18%
Northwest submarket, where population growth will support greater office-
using demand in both the near- and long-term. While Class A properties will 1 16%
remain in high demand among cash-heavy institutional buyers, leveraged
investors will focus on Class B/C assets, positioning their portfolios for an 0 14%
eventual upswing. 04 05 06 07 08**
2008 Market Outlook Rent Trends

◆ 2008 NOPI Rank: 24, Down 4 Places. Slower absorption and a forecast $24
vacancy increase caused Denver to fall four positions in the index.
$21
◆ Employment Forecast: Local employers are expected to increase
payrolls 1.1 percent in 2008 with the addition of 13,200 positions. Last
$18
year, 20,700 jobs were created. Office-using employment is projected to
expand by 4,400 workers, down from 9,800 new hires in 2007.
$15
◆ Construction Forecast: Approximately 1 million square feet of new

office space will be delivered in 2008 after 350,000 square feet came $12
online last year. 04 05 06 07 08**
◆ Vacancy Forecast: After a 90 basis point improvement in 2007, vacancy Sales Trends
is expected to increase 20 basis points to 15.5 percent this year.
$130
◆ Rent Forecast: Asking rents are forecast to gain 5.2 percent to $22.47 per
square foot in 2008 largely due to the delivery of new space, while effective $120
rents advance 4.9 percent to $18.60 per square foot. In 2008, asking and
effective rents spiked 11.1 percent and 11.4 percent, respectively. $110
◆ Investment Forecast: Buyers seeking long-term investments may want $100

to target assets south of the metro where employment growth is partic-
ularly strong. The Southeast Suburban submarket offers easy access to
$90
transportation, and will continue to improve with the light-rail 03 04 05 06 07*
extension. In addition, the anticipated relocation of the St. Anthony
Hospital will drive demand for medical office space in Lakewood. * Estimate ** Forecast

Detroit Up 1 Place 2008 Rank: 40 2007 Rank: 41
Detroit Office Market Stabilizing; Limited

New Supply Setting the Stage for Recovery
Employment Trends
T
he transitioning Detroit office market will continue to slowly recover
Nonfarm Office-Using from the exodus of several major employers and the loss of thousands
4%
of jobs over the past few years. Employers are expected to add to
payrolls in 2008, and supply will remain in check as stock is removed from
2% inventory due to obsolescence and conversion. Metrowide office absorption

turned positive in 2007, and forecasts call for similar performance again this
0% year. Vacancy is declining toward the 20 percent threshold, while rents are
forecast to post a modest uptick by year end. The city center will record
-2% much of the fundamental improvement this year. Several companies, such as
Quicken Loans, Marketing Associates and Health Plan of Michigan, are
-4%
migrating to the CBD from suburban locations. As a result, some cities may
04 05 06 07 08** have to offer greater tax incentives to keep employers in existing facilities.
Office Supply and Demand In 2008, Detroit’s investment climate will be dominated by local buyers
with an in-depth knowledge of the market. A few yield-seeking out-of-state
24%
Vacancy investors, however, will target local assets due to their short timeline for cash
flow potential. Metrowide cap rates are currently in the mid-8 percent range,
1 22% higher than the national average and an indication that the risks associated
Vacancy Rate
with the local economy are being accounted for in pricing. In the metro’s top
0 20% tier, average cap rates are in the mid-7 percent range, and deals for assets
with tenants under long-term leases are generating the most competitive
-1 18% bids. Class B/C properties are trading at average cap rates in the low-9
percent range, a significant premium over Class A assets and a trend that
-2 16% could attract more out-of-state capital to the metro going forward.
04 05 06 07 08**

$22 ◆ 2008 NOPI Rank: 40, Up 1 Place. While forecasts call for modest
improvement, Detroit’s vacancy will remain the highest in the country.
$20
◆ Employment Forecast: Employers are expected to add 1,600 positions in
Detroit this year, a 0.1 percent increase. Office users will create 850 jobs
$18
by year end, expanding payrolls 0.2 percent.
$16 ◆ Construction Forecast: Builders are anticipated to deliver 400,000

square feet of new office space this year, a 0.5 percent addition to
$14 inventory. In 2007, only 130,000 square feet came online.
04 05 06 07 08**
◆ Vacancy Forecast: After posting a 30 basis point improvement last year
Sales Trends due to a reduction in office inventory, vacancy is expected to inch down
another 20 basis points to 20.8 percent in 2008.
$140
◆ Rent Forecast: Rent growth will be limited as owners increase revenues

$120 by raising occupancy. Asking rents are forecast to reach $19.80 per
square foot by year end while effective rents tick up to $16.27 per square
$100 foot, gains of 0.3 percent and 0.2 percent, respectively.
$80 ◆ Investment Forecast: The medical office sector will receive a boost this
year from strong hiring in the educational and health services sector, the
fastest-growing segment in the local employment market. This
$60
03 04 05 06 07* expansion could result in attractive investment opportunities for buyers
of medical office assets, which tend to offer more stability than
* Estimate ** Forecast traditional office properties.

Down 7 Places 2008 Rank: 17 2007 Rank: 10 Fort Lauderdale
Extended Outlook Favorable Despite

Short-Term Vacancy Rise
Employment Trends
T
he Broward County office market is in the midst of a transition. In
2008, construction is picking up at the same time as leasing activity is Nonfarm Office-Using
12%
slowing, placing upward pressure on vacancy and restraining rent
growth. Additionally, conversions to office condos have reduced supply and
driven vacancy lower in recent years, a trend that is unlikely to persist as job 8%
growth tapers off and the number of office condo sales slows. Besides the
supply issues related to office condos, Broward County’s soft housing 4%
market will continue to affect office properties. At the height of the recent
housing boom, office assets in growing residential areas, such as Coral 0%
Springs, Pembroke Pines, Sunrise and Plantation, recorded significant rent
and vacancy improvements. Not coincidentally, as the housing market -4%
weakened in the second half of last year, vacancy in these areas inched up, a 04 05 06 07 08**
trend that is expected to continue into 2008. Concessions in these areas also
began to rise last year. Office Supply and Demand
16%
The local office market’s near-term outlook and ongoing adjustments in Vacancy
the debt markets are expected to slow sales velocity in the months ahead.

2 14%
Despite the dropoff in activity, prices for office assets are expected to remain
Vacancy Rate
at or near current levels for most of the year. Currently, Class A assets trade
0 12%
at cap rates from 6.5 percent to 7.1 percent, while Class B/C properties price
from 7 percent up to more than 8 percent. Stable prices, though, could be
viewed as a sell signal by some long-term owners, who have witnessed a 75 -2 10%
percent increase in the marketwide median price since 2004. Investors with
long-term horizons, meanwhile, could view current pricing conditions as an -4 8%
opportunity to acquire local assets ahead of an eventual turnaround. 04 05 06 07 08**

$32
◆ 2008 NOPI Rank: 17, Down 7 Places. Weakness in the housing market
will hamper job growth, causing Fort Lauderdale to drop seven spots in
this year’s ranking. $28
◆ Employment Forecast: Employers will create 8,500 jobs this year, a 1.1 $24
percent increase, compared with 7,900 new positions in 2007.
Approximately 1,400 office-using positions were cut last year, and only
$20
modest growth is expected in 2008. Led by hiring in the financial
activities sector, office-using employers will add 1,000 workers this year.
$16
04 05 06 07 08**
◆ Construction Forecast: In 2008, developers will complete 1.1 million
square feet of competitive space, up from 800,000 square feet last year.
Sales Trends
◆ Vacancy Forecast: Soft job growth will underpin a 140 basis point rise in
$250
vacancy this year to 12.4 percent. Slow pre-leasing at new properties will
exert pressure on the Class A vacancy rate.

$200
◆ Rent Forecast: Asking rents are forecast to rise 3 percent this year to
$26.96 per square foot, compared with a 7.3 percent increase in 2007. $150
Monthly effective rents grew 6.8 percent last year but are projected to
climb 2.2 percent to $22.86 per square foot in 2008. $100
◆ Investment Forecast: Medical office properties will sustain investors’

$50
interest, given the anticipated effects of positive long-term population 03 04 05 06 07*
trends on medical space demand. Assets in fast-growing communities in
western Broward County will generate the greatest interest. * Estimate ** Forecast

Houston No Change 2008 Rank: 18 2007 Rank: 18
Vacancy to Rise Moderately; Expected to

Remain Low by Historical Standards
Employment Trends
B
uilders are expected to ease the tight conditions in the Houston office
Nonfarm Office-Using market this year with the delivery of more than 3 million square feet of
8%
new space. Most of the new construction is speculative and concentrat-
ed in traditionally strong office-using districts, such as the Energy Corridor,
6% Galleria and Westchase. Additionally, much of the new supply is in high-

rises, enabling companies to consolidate operations that are currently
4% scattered around the market into contiguous blocks. As such, several smaller
spaces will become available, pushing the metrowide vacancy rate higher in
2% 2008, following a decline of more than 500 basis points since 2004. Despite
higher vacancy, demand for large office spaces in the metro persists, fueling
0%
rent growth and some concession burnoff. Most of this demand will be
04 05 06 07 08** exhausted during the first two quarters of the year, however, resulting in
slower rent growth and rising vacancy rates as 2008 progresses.
The investment outlook for Houston remains bright, supported by
6 Completions Absorption 18%
Vacancy prospects for long-term economic growth and initial yields in the mid- to high-
7 percent range. Cash-heavy investors and institutions are likely to find oppor-
4 16% tunities in major office-using districts, such as Westchase and the Galleria.
Vacancy Rate
Many Class A buildings in these areas underwent renovation in the late 1990s
2 14% to attract tenants, and leases signed during that time are coming due. Tight
conditions in the market’s top-tier assets will give owners considerable
0 12% leverage when negotiating leases. Some buyers may choose to alleviate risk
associated with new construction by focusing on substantially leased Class B
-2 10% office parks, which are less effected by the loss of a single tenant. In addition,
04 05 06 07 08** the delivery of several build-to-suit projects in recent years may offer some
sale-leaseback opportunities in the near term.
Rent Trends
$24
Asking Rent Effective Rent 2008 Market Outlook
◆ 2008 NOPI Rank: 18, No Change. Despite elevated completions and

$21 slowing job growth, Houston to held its spot in this year’s index.
$18 ◆ Employment Forecast: Employment growth in Houston will remain

well above the national rate, as 41,000 positions are forecast to be added
$15
this year, an increase of 1.6 percent. Office users will expand payrolls 0.6
percent with the creation of 3,300 jobs.
$12 ◆ Construction Forecast: The return of speculative construction will

04 05 06 07 08**
accelerate deliveries to 3.3 million square feet in 2008, boosting office
stock 2.1 percent. Last year, 1.9 million square feet of space came online.
Sales Trends
◆ Vacancy Forecast: After a 300 basis point improvement in vacancy in
$140
2007, slower employment growth and the addition of new space will
push vacancy up 70 basis points to 12.1 percent by year end.

$120
◆ Rent Forecast: Higher rents for Class A space and relatively tight
$100 conditions will facilitate a 6.3 percent increase in marketwide asking
rents to $23.60 per square foot in 2008. Meanwhile, effective rents are
$80 forecast to advance 6.7 percent to $20.68 per square foot.
◆ Investment Forecast: Investors may want to focus on office assets in

$60
03 04 05 06 07*
Sugar Land, The Woodlands and Katy, where infrastructure improve-
ments are making space more attractive and tighter zoning restrictions
* Estimate ** Forecast are easing the threat of new supply.

Up 6 Places 2008 Rank: 34 2007 Rank: 40 Indianapolis
Growing Back-Office Operations in

Indianapolis Driving Class B/C Demand
Employment Trends
A
relatively healthy local economy will boost the Indianapolis office
market this year, lowering vacancy and sustaining modest rent appre- Nonfarm Office-Using
4%
ciation. Office-using employment growth is accelerating, led by the
expansion of major insurers Hartford Fire Insurance and Selective Insurance.
Additionally, companies such as AT&T and Affiliated Computer Services 3%
are choosing to locate some of their customer support positions in
Indianapolis. The metro’s favorable business costs, central location and low 2%
cost of living will continue to attract companies seeking to relocate back-
office positions. As such, leasing activity in Class B/C properties should gain 1%
momentum this year. In top-tier assets, some pent-up demand by major
employers for large blocks of space will drive vacancy lower, though some 0%
medium-sized spaces will become available. On the supply side, construc- 04 05 06 07 08**
tion will decline again this year, with a modest amount of speculative space
coming online. The metro’s major project, located in the North/Carmel Office Supply and Demand
submarket and accounting for more than half of the metro’s forecast new 2.0 Completions Absorption 20%
space, will deliver only 120,000 square feet of speculative space by year end. Vacancy

Investors will remain interested in the Indianapolis office market this 1.5 18%
Vacancy Rate
year due to favorable cap rates and a positive economic outlook. Initial yields
are hovering in the high-7 percent to low-8 percent range, which represents 1.0 16%
a significant premium in a market with improving fundamentals and a
growing economy. Cash-heavy buyers targeting Class A assets are expected 0.5 14%
to be more conservative, focusing on properties in Carmel and downtown.
Large blocks of available top-tier space space in these areas are limited, and 0.0 12%
as such, owners should be able to implement healthy rent gains while 04 05 06 07 08**
limiting concessions. Investors may also find opportunities in Class B assets
near major thoroughfares, such as Interstate 69, which will be attractive for Rent Trends
companies relocating or expanding in the market. Asking Rent Effective Rent
$20
2008 Market Outlook

$18
◆ 2008 NOPI Rank: 34, Up 6 Places. Office-using hiring will pick up this
year while construction slows, causing Indianapolis to jump six spots in $16
the NOPI.
$14
◆ Employment Forecast: Employers are expected to expand payrolls 1.1
percent in 2008 with the addition of 10,000 positions. Office-using
employment will increase by 0.9 percent, or 1,800 jobs. $12
04 05 06 07 08**
◆ Construction Forecast: Developers will deliver 200,000 square feet of
office space in the metro this year, representing a 0.7 percent increase to Sales Trends
inventory. In 2007, 350,000 square feet of space came online.
$100
◆ Vacancy Forecast: After a 150 basis point decline in vacancy last year,
metrowide vacancy is expected to shed another 20 basis points to reach $95

14.4 percent in 2008.
◆ Rent Forecast: Asking rents are forecast to end 2008 at $18.10 per square $90
foot, while effective rents reach $15.18 per square foot, gains of 2.1
percent and 2.5 percent, respectively. $85
◆ Investment Forecast: Investors with a penchant for repositioning assets

$80
may want to target Class B properties in the North/Carmel submarket, 03 04 05 06 07*
where Class A vacancy is particularly tight and construction costs limit
new development, generating spillover demand. * Estimate ** Forecast

Jacksonville Up 6 Places 2008 Rank: 21 2007 Rank: 27
Foreign and Out-of-State Buyers

Remain Active in Jacksonville
Employment Trends
A
lack of new construction, coupled with economic expansion, will lead
Nonfarm Office-Using to another year of improvement in the Jacksonville office market. Job
8%
growth, led by additions in the trade, transportation and utilities
sector, should drive local economic expansion. Additionally, expectations for
6%
long-term employment gains remain positive due to the completion of the
Mitsui O.S.K. Lines terminal at Jacksonville’s seaport. The terminal is a
4% catalyst for international trade, supporting business expansion and potential
office demand going forward. While tenant demand and absorption are
2% anticipated to build in the near term, additions to office stock remain
subdued, with the development of new office space expected to decline this
0% year. As a result, occupancy will continue to improve throughout the year,
04 05 06 07 08** with rent growth projected to post modest improvements.
Office Supply and Demand The Jacksonville investment market will remain active throughout 2008,
2.0 Completions Absorption
as buying activity is driven by investors seeking to place capital within an
20%
Vacancy improving metro. Over the past year, buyers in approximately 40 percent of
large deals were foreign investors, a trend that is expected to continue as the
1.5 18% local economy further develops its ties with global trade. In addition, a
Vacancy Rate
greater number of buyers from northern U.S. markets are expected to enter
1.0 16% the metro this year, attracted to Jacksonville’s initial yields. Cap rates have
averaged in the high-8 percent to low-9 percent range over the past year,
0.5 14% with forecasts pointing to a stabilization of current values due to the more
conservative underwriting climate. Potential buyers should note that there is
0.0 12% very little new construction occurring downtown over the next several years,
04 05 06 07 08** allowing for potentially tighter conditions and accelerating revenue growth.

$20
◆ 2008 NOPI Rank: 21, Up 6 Places. Forecasts for above-average job
growth and improving vacancy led to Jacksonville’s six-spot rise in this
$18
year’s index.
$16 ◆ Employment Forecast: Local employers are expected to increase

payrolls 1.2 percent in 2008 with the addition of 7,800 positions. Last
$14
year, 14,600 jobs were created. Office-using employment will rise by 0.7
percent, or 1,200 positions, compared with 1 percent growth last year.
$12 ◆ Construction Forecast: Nearly 330,000 square feet of space is expected
04 05 06 07 08**
to come online in 2008, down from 400,000 square feet in 2007.
Approximately 275,000 square feet will be delivered in the Southside/
Sales Trends West of Highway 1 submarket.
$200
◆ Vacancy Forecast: After an 80 basis point improvement last year,
vacancy will decline 70 basis points to 14.1 percent by year-end 2008.

$160
◆ Rent Forecast: Healthy absorption levels will enable owners to continue
$120 increasing asking rents, which are forecast to rise 4 percent to $18.94 per
square foot this year. Effective rents, meanwhile, are anticipated to
$80 climb 4.1 percent to $15.72 per square foot.
◆ Investment Forecast: Investment activity should remain most active in

$40
03 04 05 06 07* the southern part of the metro as buyers focus on acquiring assets near
residential expansion in St. John and Clay counties. Despite increased
* Estimate ** Forecast competition, tighter lending will cause cap rates to edge higher.
Market Forecast Employment: 1.2% ▲ Construction: 18% ▼ Vacancy: 70 bps ▼ Asking Rents: 4% ▲

Up 2 Places 2008 Rank: 33 2007 Rank: 35 Kansas City
Tenant Demand Beginning to Build for

Downtown Office Properties
Employment Trends
T
he Kansas City office market will continue to improve throughout
2008, led by ongoing tenant interest in the suburban markets and Nonfarm Office-Using
4%
building momentum downtown. The local economy is expected to
post another year of steady job growth, with in-migration spurred by the
metro’s developing transportation infrastructure. FedEx and Kimberly-Clark 3%
have both established operations in Kansas City, while Newport TV
announced late last year that it plans to move its corporate headquarters to 2%
the Plaza. While suburban submarkets have continually improved over the
past few years, downtown is showing signs of a turnaround. The opening of 1%
the Sprint Center late last year and the delivery of the Power & Light District
in spring of 2008 are two of the headline projects that are increasing the desir- 0%
ability of downtown and should spur some additional leasing activity in the 04 05 06 07 08**
quarters ahead.
Investors are expected to maintain a positive long-term investment
outlook for the Kansas City office market. Limited competition will give way Vacancy
to tightening occupancies and modest rent growth, providing for traditional

asset appreciation through increases to operating incomes. Investors should 2 18%
Vacancy Rate
anticipate current velocity to hold steady, as buyers remain attracted to Kansas
City’s above-average initial yields. Cap rates, which currently average in the 1 16%
high-7 percent to low-8 percent range, may rise due to more cautious under-
writing practices. Buyers may want to investigate opportunities within the 0 14%
Class B market, where conservative corporate strategies to cut leasing costs
continue to drive tenant demand for mid-tier assets. While properties located -1 12%
in the downtown area have suffered from occupancy issues in recent years, 04 05 06 07 08**
redevelopment efforts should renew tenants’ and investors’ interest, providing
opportunities for revenue growth and potential capital appreciation. Rent Trends
$20
2008 Market Outlook
2008 NOPI Rank: 33, Up 2 Places. Conditions are tightening in Kansas
◆ $18
City, driving a two-spot improvement in the ranking this year.
◆ Employment Forecast: Employers in Kansas City will add 11,000 $16

positions for a 1.1 percent increase this year. In 2007, growth was
somewhat slower, as 12,600 jobs were created. Office-using employment $14
is forecast to rise 0.7 percent, or by 1,800 positions, compared with a 1.1
percent gain last year. $12
04 05 06 07 08**
◆ Construction Forecast: Developers will add approximately 550,000
square feet of space to the market this year, down from 775,000 square
feet in 2007.
Sales Trends
$120
◆ Vacancy Forecast: After a 220 basis point improvement in 2007, vacancy
is expected to fall an additional 80 basis points to 14.3 percent.

$100
◆ Rent Forecast: Stable leasing activity and healthy economic conditions

will allow owners to raise rents modestly. Asking rents will increase 2.2 $80
percent to $18.80 per square foot by year end, while effective rents
advance 2.7 percent to $15.60 per square foot. $60
◆ Investment Forecast: Investors may want to consider buying opportuni-

$40
ties downtown. The submarket has struggled in recent years, providing 03 04 05 06 07*
buyers the opportunity to acquire underperforming assets within an
area positioned for improvement. * Estimate ** Forecast

Las Vegas Up 3 Places 2008 Rank: 9 2007 Rank: 12
Investors Continue to Bet on Las Vegas Office

Market, Despite Supply/Demand Imbalance
Employment Trends
F
ueled by strong economic expansion and a solid rate of employment
Nonfarm Office-Using growth, the Las Vegas market will register significant office
12%
development in 2008. The weak U.S. dollar will support active foreign
tourism, providing a significant source of growth and sustaining demand for
8% back-office jobs related to the gaming industry. Job creation is expected to

pick up in 2008, with the office-using sector projected to recover after
4% contracting in 2007 due to layoffs among housing-related firms. Builders will
increase activity, however, and supply is expected to outpace absorption,
0% pushing vacancy higher. New supply will have the greatest impact on the
rapidly expanding Southwest submarket, where 900,000 square feet is
-4%
forecast to come online, causing area vacancy to spike to nearly 19 percent.
04 05 06 07 08** In the rapidly growing Northwest submarket, owners will record healthy
revenue gains by trimming concessions for the second consecutive year.
Private out-of-state investors will maintain an active role in Las Vegas
18%
Vacancy this year due to attractive growth prospects. In 2007, cap rates rose to the
low- to mid-7 percent range, a trend that will likely continue through 2008 as
3 16% buyers require higher yields to cover inflated financing costs. Since the
Vacancy Rate
second half of 2007, lenders have become more concerned with property fun-
2 14% damentals, preferring top-tier assets in historically tight areas. With the
current level of development posing a threat to near-term occupancy, cash
1 12% buyers targeting Class A properties will be well-positioned to make offers, as
stringent lending requirements will continue to dampen competition from
0 10% leveraged buyers. With lenders requiring lower loan-to-values, buyers
04 05 06 07 08** reliant upon financing for purchases may pursue properties in the Airport
submarket, which have traditionally traded at relatively affordable prices.
Rent Trends
$30 Asking Rent Effective Rent 2008 Market Outlook
◆ 2008 NOPI Rank: 9, Up 3 Places. Las Vegas moved into the top 10 in the
$26
index due to forecasts for a rebound in office-using hiring.
$22 ◆ Employment Forecast: Employers are expected to increase payrolls 1.3

percent this year with the addition of 11,400 jobs. Office-using
$18 employment is forecast to expand 1.1 percent, or by 1,900 positions. In
2007, overall employment inched up just 0.4 percent, while the number
$14 of office-using jobs contracted by 1.2 percent.
04 05 06 07 08**
◆ Construction Forecast: Builders will bring 1.8 million square feet of office
space to the market in 2008, up from 1.4 million square feet last year.
Sales Trends
$300 ◆ Vacancy Forecast: Competition from new space will cause vacancy to
push higher again this year. Metrowide vacancy is forecast to rise 80

$250 basis points to 14.2 percent, following a 220 basis point spike in 2007.
$200
◆ Rent Forecast: Asking rents are expected to increase 4.9 percent to
$27.01 per square foot in 2008, while effective rents gain 4.1 percent to
$150
◆ Investment Forecast: Investors looking for small properties with stable

$100 tenancies may want to target the Northwest submarket. Several small
03 04 05 06 07*
firms, such as attorneys and insurance companies, have recently taken
* Estimate ** Forecast
on additional office space in the area to serve the growing population.

Down 2 Places 2008 Rank: 5 2007 Rank: 3 Los Angeles
Downtown Rebirth Creating Upside Potential;

Vacancy in Coastal Areas to Remain Tight
Employment Trends
M
odest economic expansion in 2008 will continue to support tenant
demand for office space in Los Angeles County. Employers are Nonfarm Office-Using
4%
expected to add jobs at a fairly steady pace, and the metro will record
another year of positive absorption, albeit more modest than in recent years.
Construction activity will pick up in 2008 after a lull last year, and deliveries 3%
will be concentrated in the San Fernando Valley. While the area will receive
more than 1 million square feet this year, it will remain one of the tightest 2%
regions in Los Angeles County. Elevated deliveries will push metrowide
vacancy slightly higher in 2008 after five consecutive years of occupancy 1%
improvements, although supply constrained areas such as the Westside
Cities and Long Beach/South Bay will receive minimal new construction, 0%
and conditions in these regions should remain tight. 04 05 06 07 08**
Office investors will continue to target assets in Los Angeles County this Office Supply and Demand
year, however, velocity may slow due to tighter underwriting standards. 4 Completions Absorption
16%
Cap rates have averaged in the high-5 percent to mid-6 percent range over Vacancy
the past year and should edge higher this year. Investors willing to pay a

3 14%
premium for insulation against overbuilding will likely target properties in
Vacancy Rate
the Westside Cities, where revenue gains have been robust in recent years
and the area’s high barriers to entry restrict new construction. Investors may 2 12%
find some value-add opportunities downtown, where rents are beginning to
grow at a healthier clip and completions will be modest again this year. The 1 10%
$2 billion Grand Avenue mixed-use development and the L.A. Live enter-
tainment complex are headlining the area’s growing popularity with tenants. 0 8%
04 05 06 07 08**

◆ 2008 NOPI Rank: 5, Down 2 Places. A Strong rent growth forecast kept $40
Los Angeles in the top five, despite a modest uptick in vacancy.
$35
◆ Employment Forecast: Employers are forecast to create 23,000 positions
in 2008, up slightly from 22,400 jobs last year. Office-using employment $30
growth is forecast at 0.4 percent, or 4,200 new hires.
$25
◆ Construction Forecast: Deliveries are expected to total 2.1 million
square feet this year, up from 700,000 square feet in 2007. Construction
activity is forecast to increase in the coming years, as there is 7.5 million $20
04 05 06 07 08**
square feet currently in the planning stages.
◆ Vacancy Forecast: Supply growth will lead to a 40 basis point rise in Sales Trends
vacancy to 9.6 percent this year. In 2007, the vacancy rate dropped 60
$300
basis points.
◆ Rent Forecast: Asking rents are forecast to reach $34.74 per square foot $250
by year-end 2008, a gain of 6.8 percent. Owners will reduce concessions
slightly, with effective rents projected to rise 7.1 percent to $30.31 per $200
square foot.
$150
◆ Investment Forecast: Properties in the San Fernando Valley will remain
popular with investors again this year. Despite the impact of new con-
$100
struction, vacancy rates are expected to stay in the mid-6 percent range, 03 04 05 06 07*
and much of the metro’s future absorption will be concentrated in this
expanding region. * Estimate ** Forecast

Miami Down 6 Places 2008 Rank: 23 2007 Rank: 17
Space Demand Ebbs in Miami, Investors

Positioning for Long-Term Recovery
Employment Trends
S
ofter demand will result in a higher vacancy rate and a more moderate
Nonfarm Office-Using pace of rent growth in Miami-Dade County this year, although
8%
conditions remain relatively healthy. The Class A sector, which is con-
centrated in areas such as the Brickell submarket, Coral Gables and
6% Downtown, may not weaken as much as the market’s lower tiers due to a
more stable tenant base. Still, the recent accumulation of Class A sublease
4% space, which currently represents 10 percent of all vacant high-end space,
could temper rent growth. In the Class B/C sector, slower local economic
2% growth will delay expansion plans of young firms and discourage the
formation of new companies, resulting in reduced space demand.
0%
Metrowide, an increase in completions will place additional strain on
04 05 06 07 08** occupancy and rent growth. Only a few quarters ago, demand generated by
a robust local economy would have absorbed the more than 1.6 million
Office Supply and Demand square feet of for-lease space and office condos scheduled for delivery in
2008. Vacancy will rise this year, but the long-term outlook is positive, as
15%
Vacancy demand is expected to rebound in 2009.
2 12% Investors have maintained confidence in the long-term potential of local

Vacancy Rate
properties, although transaction velocity slowed modestly at the end of last

1 9% year due to corrections in the debt markets. Cap rates fell to a range from 5.9
percent to 7.2 percent in 2007 as a result of aggressive rent growth
0 6% assumptions and a strong, sustained bid from converters and owner-users.
In the months ahead, however, cap rates will rise gradually as underwriting
-1 3% for current cash flows takes precedence and deals that rely on occupancy
04 05 06 07 08** improvements wane in response to slower job growth. Top Class A
properties, though, will price aggressively, and foreign sources of capital
Rent Trends could take a more active role due to favorable currency valuations.
$32
2008 Market Outlook
$28 ◆ 2008 NOPI Rank: 23, Down 6 Places. Competition from new space will
cause vacancy to rise in Miami, resulting in a six-spot drop in the NOPI.
$24
◆ Employment Forecast: Local employers are projected to add 10,300
workers in 2008, a 1 percent increase; last year, 13,000 jobs were created.
$20
In office-using sectors, 2,100 positions are forecast in 2008, compared
with 3,800 new hires last year.
$16
04 05 06 07 08**
◆ Construction Forecast: This year, builders are expected to complete
600,000 square feet of for-lease space, compared with 500,000 square feet
Sales Trends in 2007. In addition, approximately 1 million square feet of office condos
$300
is slated to come online in 2008.
◆ Vacancy Forecast: Slackening demand and an increase in supply will

$250 support a 100 basis point rise in the vacancy rate this year to 9.7 percent.
$200 ◆ Rent Forecast: In 2008, asking rents are forecast to advance 4.6 percent to
$30.32 per square foot, while effective rents will add 4.1 percent to $26.01
◆ Investment Forecast: Properties located in infill areas in North Miami-

$100
03 04 05 06 07* Dade County, Hialeah and Kendall will become attractive defensive
investments due to the areas’ histories of steady tenant demand and
* Estimate ** Forecast difficulty adding new supply.

Down 3 Places 2008 Rank: 41 2007 Rank: 38 Milwaukee
Tenants and Investors Targeting

Properties in Downtown Milwaukee
Employment Trends
T
he Milwaukee office market is expected to face a year of mixed
performance in 2008 as employers trim payrolls and developers Nonfarm Office-Using
3%
accelerate deliveries of new space. The employment outlook is mixed;
office-using jobs associated with the local manufacturing industries will
decline this year, though losses will be largely offset by solid gains in the 2%
educational and health services sector, stimulating demand for medical
office space. Much of the demand for office space will be centered in the 1%
Downtown Milwaukee submarket, as a growing number of companies are
moving their headquarters into the city center. Manpower and Infinity, for 0%
example, both recently signed large leases for space downtown, signaling
that Milwaukee’s office rebirth will begin in the city’s core. As such, owners -1%
in some submarkets, including Brookfield and North Suburban, will increase 04 05 06 07 08**
concessions to attract and maintain their current tenant base. In West
Waukesha County, however, conditions will remain tight, providing area Office Supply and Demand
owners significant leverage when negotiating new leases. 2.0 Completions Absorption 20%
Vacancy
After slowing considerably in 2007, investment activity for local office

1.5 18%
assets has reached a sustainable pace. Much of the market’s appeal comes
Vacancy Rate
from initial yields in the high-7 percent range, a healthy premium over the
national average. Additionally, tenancies in the market have remained 1.0 16%
somewhat steady over the past several years due to builders’ general
reluctance to bring speculative office space to the metro. Institutional 0.5 14%
investors will maintain their focus on higher-quality assets that are priced
below replacement costs, particularly those with long-term leases in place. 0.0 12%
Given the metro’s relatively low prices and significant supply of Class B 04 05 06 07 08**
office product, large buyers can expand their portfolios quickly. Local buyers
will compete for Class B listings with institutions and syndicators in the Rent Trends
coming year, which should support some gains in valuations. Asking Rent Effective Rent
$20
2008 Market Outlook

$18
◆ 2008 NOPI Rank: 41, Down 3 Places. Forecasts for net job losses kept
Milwaukee near the bottom of this year’s ranking. $16
◆ Employment Forecast: Employers will trim 600 positions from payrolls $14
in 2008, a 0.1 percent decrease. Office users are expected to eliminate 200
jobs by year end, also a decline of 0.1 percent.
$12
04 05 06 07 08**
◆ Construction Forecast: Office construction will accelerate to 900,000
square feet in 2008, boosting stock by 3.1 percent. Last year, only 136,000
square feet of competitive office space came online. Sales Trends
$110
◆ Vacancy Forecast: The combination of job losses and accelerated con-
struction activity will push vacancy up 70 basis points to 14.3 percent

this year. In 2007, vacancy improved 60 basis points. $105
◆ Rent Forecast: Asking rents will reach $19.52 per square foot by year- $100
end 2008, while effective rents advance to $16.02 per square foot, both
gains of 2.8 percent. $95
◆ Investment Forecast: Investors may want to consider infill properties in

$90
Downtown Milwaukee, where the metro’s revitalization will be 03 04 05 06 07*
centered and the redevelopment of brownfields makes new construction
costly to developers. * Estimate ** Forecast
Market Forecast Employment: 0.1% ▼ Construction: 562% ▲ Vacancy: 70 bps ▲ Asking Rents: 2.8% ▲

Minneapolis-St. Paul Down 3 Places 2008 Rank: 36 2007 Rank: 33
New Construction in Twin Cities

Hindering Short-Term Fundamentals
Employment Trends
O
ffice supply growth will outpace tenant demand for space in
Nonfarm Office-Using Minneapolis-St. Paul this year, leading to slightly weaker fundamen-
3%
tals. Despite overall economic growth, office users are expected to
shed jobs in 2008, mostly in the professional and business services sector. The
2% fastest-growing segment of the job market, however, will be the educational

and health services sector, which is projected to increase demand for medical
1% office space. Developers have already moved more medical office space into
the pipeline, including a 150,000-square foot property in Edina and the
0% Haraeus headquarters in White Bear. Construction of traditional office space
will be centered around office park expansion. Additions to the Normandale
-1%
Lake and MarketPointe office parks in Bloomington will add 525,000 square
04 05 06 07 08** feet to inventory, increasing the submarket’s stock by 3 percent. Both of the
projects were put on hold during the last economic downturn, though the
Office Supply and Demand land was already purchased.
22%
Vacancy The long-term economic outlook in Minneapolis-St. Paul remains
healthy, especially when compared to other Midwest metros, which is
2 20% attracting investors to the area. Affordable prices and initial yields in the
Vacancy Rate
mid-7 percent range provide buyers with a reasonable entry point to the
1 18% local office market. In downtown Minneapolis, there are few parcels
available for development, insulating owners against competition from new
0 16% space. This year, Class A assets are expected to attract REITs and institutions,
though foreign investment in the metro will heighten due to favorable
-1 14%
currency exchange rates. Buyers seeking top-tier properties may want to
04 05 06 07 08** target the Minneapolis CBD to take advantage of pent-up tenant demand for
large, contiguous blocks of space. More opportunities can be found along the
Rent Trends recently approved commuter rail line that will run from downtown
Minneapolis to Big Lake. Additionally, a proposed light-rail line between the
$24 Minneapolis and St. Paul CBDs will help to improve the downtown St. Paul
office market, though the project is not anticipated to come online until 2014.
$21
2008 Market Outlook

$18
◆ 2008 NOPI Rank: 36, Down 3 Places. Completions will pick up while
$15
employment slows, causing the Twin Cities to fall three spots in the index.
◆ Employment Forecast: Employers are expected to expand payrolls 0.7

$12 percent this year with the addition of 13,400 jobs. Office-using
04 05 06 07 08** employers will trim 1,400 positions, a 0.3 percent decrease.
Sales Trends ◆ Construction Forecast: Construction will accelerate to 1.5 million square
feet in 2008, raising office stock by 2.1 percent. Last year, developers
$140 brought 1.2 million square feet online.
$120
◆ Vacancy Forecast: Office-using job losses and elevated completions will
push vacancy up 40 basis points this year to 15.5 percent. In 2007,
metrowide vacancy improved 200 basis points.
$100
◆ Rent Forecast: Asking rents are expected to reach $22.34 per square foot
$80 by year end, while effective rents climb to $18.55 per square foot, gains
of 2.7 percent and 3.3 percent, respectively.
$60
03 04 05 06 07*
◆ Investment Forecast: Investors seeking upside may want to explore
opportunities in the Washington County submarket, which is expected
* Estimate ** Forecast to record the greatest improvements in vacancy and revenue this year.

Down 6 Places 2008 Rank: 43 2007 Rank: 37 New Haven
Soft Employment Growth Forecast Weighs on

Fairfield and New Haven Counties
Employment Trends
T
he New Haven office market, which consists of Fairfield and New
Haven counties, has successfully drawn tenants from nearby New York Nonfarm Office-Using
3%
City, but office properties in the region will operate in a less hospitable
climate in 2008. Vacancy in Fairfield County is expected to rise 50 basis points
this year to 14.3 percent due to easing office-using employment growth. 2%
Additional upward pressure on vacancy could arise if a significant downsizing
in the county’s large financial activities sector occurs. On the supply side, 1%
completions will expand for-lease inventory by less than 1 percent, but the
return of 485,000 square feet to multi-tenant status in three buildings formerly 0%
occupied by Xerox and General Electric in Stamford will elevate supply-side
pressure. In New Haven County, flat office-using employment and 3 percent -1%
supply growth will result in a 90 basis point rise in the vacancy rate to 16.4 04 05 06 07 08**
percent this year. Indeed, projects in the county that are slated for completion
during 2008 were only 25 percent pre-leased at the start of this year. Office Supply and Demand
17%
Near-term challenges aside, local properties have remained popular Vacancy
with investors, although some price adjustments may occur in the months

ahead. As 2008 began, cap rates in the market ranged from 5.7 percent to 7.0 2 16%
Vacancy Rate
percent, reflecting trades of many top-tier properties in areas such as
Stamford and Greenwich. Recent offerings, however, are pricing in the low- 1 15%
7 percent range to take into account lowered expectations for near-term rent
growth and occupancy improvements. Owners of Class A and top Class B 0 14%
assets will likely continue to adjust expectations in the early part of the year.
Meanwhile, the marketwide median price of Class C properties has already -1 13%
begun to decline slightly in response to a diminished pool of owner-user 04 05 06 07 08**
purchasers. Still, Class C properties in New Haven County have held their
value well recently, and assets with either substantial occupancy or Rent Trends
mandated annual rent increases will draw considerable interest. Asking Rent Effective Rent
$32
2008 Market Outlook

$28
◆ 2008 NOPI Rank: 43, Down 6 Places. Reduced spillover demand from
surrounding metros drove New Haven down six places in the NOPI. $24
◆ Employment Forecast: Total employment in New Haven and Fairfield

counties is expected to rise 0.6 percent this year, or by 5,300 workers, $20
compared with 4,900 new hires in 2007. Office-using employment will
lag the overall trend, however, with a forecast gain of 1,000 positions, $16
down from 2,300 jobs in 2007. 04 05 06 07 08**
◆ Construction Forecast: In 2008, 650,000 square feet of new for-lease Sales Trends
space is scheduled for delivery, up from only 80,000 square feet last year
and an amount equal to a 1.3 percent addition to existing stock. $250
◆ Vacancy Forecast: Vacancy is forecast to rise 70 basis points this year to $200
14.9 percent, following a 60 basis point drop in 2007.
◆ Rent Forecast: Asking and effective rents each climbed approximately 6 $150
percent last year, but rent growth will taper off in 2008. During the year,
asking rents are expected to rise 2.6 percent to $31.03 per square foot, $100
and effective rents will gain 2.3 percent to $27.17 per square foot.
$50
◆ Investment Forecast: Investors put off by relatively higher property 03 04 05 06 07*
prices in Fairfield County may find solid value in Class B/C properties
along the Interstate 91 corridor in New Haven County. * Estimate ** Forecast

Statistical
Vacancy Effective Rent Completions
(Year-End, %)1 ($/Sq. Ft.)1 (000s of Sq. Ft.)
MSA Name 05 06 07 08** 05 06 07 08** 05 06 07 08**
Atlanta 17.7 16.1 15.1 14.8 16.35 17.03 17.78 18.42 930 2,500 2,900 2,500
Austin 16.5 14.7 14.4 15.4 16.86 19.02 22.04 23.63 70 155 1,800 3,100
Boston 16.7 13.3 11.1 11.2 24.35 27.08 31.65 34.70 230 100 800 1,600
Charlotte 16.1 13.0 12.0 11.2 16.15 17.05 18.20 19.10 721 1,300 1,000 550
Chicago 18.7 17.5 15.4 15.5 20.00 20.76 21.98 22.75 2,300 1,400 1,400 3,600
Cincinnati 17.1 18.3 18.4 18.7 14.42 14.81 15.20 15.50 660 900 500 1,000
Cleveland 19.8 18.4 17.6 17.4 15.27 15.41 15.39 15.53 180 170 210 350
Columbus 19.2 18.5 17.9 18.4 13.59 13.78 14.37 14.68 400 900 800 1,100
Dallas/Fort Worth 22.8 20.0 19.2 19.9 14.74 15.67 16.47 17.06 603 2,186 2,800 4,100
Denver 19.6 16.2 15.3 15.5 14.18 15.92 17.73 18.60 330 354 350 1,000
Detroit 19.6 21.3 21.0 20.8 16.72 16.49 16.24 16.27 510 913 130 400
Fort Lauderdale 11.9 10.0 11.0 12.4 18.86 20.94 22.36 22.86 250 250 800 1,100
Houston 16.5 14.4 11.4 12.1 15.17 16.83 19.38 20.68 370 1,347 1,900 3,300
Indianapolis 16.4 16.1 14.6 14.4 14.31 14.53 14.81 15.18 80 671 350 200
Jacksonville 18.4 15.6 14.8 14.1 13.53 14.38 15.10 15.72 268 10 400 330
Kansas City 17.4 17.3 15.1 14.3 14.52 14.85 15.19 15.60 490 360 750 550
Las Vegas 10.9 11.2 13.4 14.2 18.41 20.03 21.36 22.24 1,570 1,000 1,420 1,820
Los Angeles 11.2 9.8 9.2 9.6 22.28 25.09 28.30 30.31 813 1,800 700 2,100
Miami 11.4 7.9 8.7 9.7 20.28 22.86 24.99 26.01 50 260 500 600
Milwaukee 15.4 14.2 13.6 14.3 14.56 15.09 15.58 16.02 500 347 136 900
Minneapolis-St. Paul 19.0 17.1 15.1 15.5 16.57 17.04 17.96 18.55 228 1,076 1,200 1,500
New Haven 16.0 14.8 14.2 14.9 23.52 24.99 26.55 27.17 737 30 80 650
New York City 6.8 6.2 5.4 5.7 33.69 39.80 47.29 51.24 1,120 3,500 3,420 3,000
Northern New Jersey 14.7 14.1 14.0 14.4 22.21 22.55 22.97 23.35 260 570 650 750
Oakland 13.6 13.1 12.2 11.4 20.93 22.04 23.18 24.33 340 173 270 200
Orange County 8.4 7.7 10.7 11.3 21.95 25.16 26.52 27.45 234 1,200 2,800 622
Orlando 12.1 9.4 10.9 11.5 16.55 17.74 18.52 19.18 490 650 1,000 680
Philadelphia 13.1 12.7 11.3 11.1 18.42 18.91 19.97 20.77 1,680 1,040 1,800 1,700
Phoenix 14.5 12.1 13.8 14.7 17.58 19.69 20.96 21.88 1,510 2,120 3,500 2,800
Portland 13.5 11.9 11.2 10.5 16.19 17.38 18.05 18.96 350 194 437 250
Riverside-San Bernardino 9.4 9.8 13.5 15.1 16.78 18.47 19.55 20.12 1,000 690 1,600 1,500
Sacramento 13.1 13.0 14.0 14.3 19.07 19.87 20.78 21.33 1,320 1,000 1,500 1,100
Salt Lake City 14.6 11.6 12.1 12.5 13.34 14.02 15.00 15.72 587 551 1,400 750
San Antonio 18.3 14.8 14.0 13.7 14.17 15.14 15.83 16.48 490 37 900 970
San Diego 10.9 11.9 12.8 13.3 23.45 24.89 26.11 26.92 1,170 1,400 2,100 1,000
San Francisco 15.6 11.7 9.4 9.6 25.24 28.89 34.49 36.52 250 373 335 1,400
San Jose 18.5 15.4 13.6 13.5 21.00 23.43 27.45 29.02 80 36 315 1,300
Seattle 13.1 9.3 9.0 9.2 20.25 22.80 26.34 28.29 490 418 1,800 3,200
St. Louis 16.5 15.3 14.7 14.9 16.00 16.18 16.47 16.82 574 193 500 640
Tampa 11.8 11.8 12.0 12.7 16.02 17.45 18.90 19.65 230 370 1,000 800
Tucson 10.2 10.6 10.6 9.9 16.95 17.59 18.39 19.20 20 100 130 75
Washington, D.C. 9.4 8.9 9.1 9.9 27.15 29.19 31.22 32.73 3,960 6,430 7,400 6,800
West Palm Beach 9.3 10.0 11.4 12.6 20.95 23.35 24.61 25.38 98 120 300 1,000
page 32 * Estimate ** Forecast 2008 Annual Report

Summary
Absorption Median Sales Price Office Employment
(000s of Sq. Ft.)1 ($/Sq. Ft.)1 Growth (%)1
05 06 07 08** 04 05 06 07* 05 06 07 08**
1,349 3,497 3,700 2,500 111 123 134 155 3.4 1.6 1.5 1.6 Atlanta
1,006 781 1,958 1,863 123 145 155 188 4.2 2.9 2.3 2.0 Austin
1,754 3,319 2,200 1,200 140 156 158 176 2.5 1.7 2.0 1.3 Boston
307 1,877 800 800 113 141 162 152 3.5 1.3 2.4 1.6 Charlotte
1,160 2,560 3,300 2,780 111 120 140 137 2.7 1.7 1.6 1.1 Chicago
604 -253 273 800 85 99 89 79 2.6 2.1 0.3 0.2 Cincinnati
-584 99 550 560 88 88 94 69 0.3 0.1 -0.2 -0.4 Cleveland
307 639 774 732 78 96 89 113 0.5 0.2 1.0 0.2 Columbus
3,887 4,369 4,190 1,903 89 99 102 119 4.0 3.1 2.5 0.8 Dallas/Fort Worth
1,294 2,914 1,240 720 106 127 128 126 1.9 1.2 2.8 0.6 Denver
-408 -1,500 440 460 107 109 131 124 0.2 -3.3 -0.7 0.1 Detroit
953 9 -2,200 200 125 163 200 221 2.2 0.3 -0.3 0.4 Fort Lauderdale
1,465 3,870 4,890 1,786 75 103 101 122 4.6 3.6 2.8 0.6 Houston
439 467 627 263 84 90 95 97 0.7 1.3 0.6 0.9 Indianapolis
201 352 500 600 99 132 135 171 3.7 2.4 1.0 0.7 Jacksonville
-75 169 1,100 720 100 90 108 112 2.6 0.6 1.1 0.7 Kansas City
1,519 344 1,070 1,410 188 218 224 231 6.4 8.2 -1.2 1.1 Las Vegas
2,400 3,217 1,200 1,100 177 221 250 285 0.6 1.1 0.1 0.4 Los Angeles
716 305 -200 100 158 186 266 241 3.6 2.0 1.5 0.8 Miami
246 561 410 574 97 99 108 104 -0.3 0.7 1.2 -0.1 Milwaukee
42 1,616 2,676 985 100 114 133 131 2.8 0.9 0.9 -0.3 Minneapolis-St. Paul
150 20 90 -40 195 192 174 172 1.7 1.4 1.1 0.5 New Haven
12,000 6,700 6,600 1,100 270 335 407 461 2.2 2.7 1.3 0.2 New York City
1,330 34 140 220 148 160 173 166 0.0 0.1 0.7 0.4 Northern New Jersey
577 467 450 640 200 240 280 296 2.3 1.8 0.8 0.4 Oakland
3,054 1,177 1,390 230 173 183 254 265 3.4 0.8 -1.0 0.2 Orange County
1,076 1,340 478 402 123 144 183 199 7.1 5.0 4.7 1.2 Orlando
1,500 1,050 2,620 1,730 117 131 137 131 1.2 1.0 1.1 0.6 Philadelphia
3,310 3,826 2,200 2,000 128 148 178 195 7.7 5.5 1.5 0.8 Phoenix
718 637 493 504 133 139 155 165 3.0 2.5 0.9 1.1 Portland
804 804 850 750 138 159 197 210 5.6 4.4 4.2 0.8 Riverside-San Bernardino
1,092 524 1,050 814 154 190 200 215 3.8 1.5 0.5 -0.3 Sacramento
1,033 1,203 900 700 94 98 143 144 7.1 6.1 4.5 1.6 Salt Lake City
528 691 938 1,050 102 114 118 113 5.0 3.1 2.9 2.0 San Antonio
1,406 -86 840 630 197 240 244 254 1.6 1.2 0.4 -1.0 San Diego
3,552 3,426 1,800 1,400 227 270 314 333 1.4 1.8 2.3 1.2 San Francisco
923 1,305 1,500 1,400 250 255 262 343 0.9 2.3 1.5 0.8 San Jose
1,864 2,118 1,711 2,754 158 186 203 219 4.9 4.3 3.3 1.9 Seattle
435 295 789 456 116 111 132 131 2.8 2.4 0.3 0.6 St. Louis
1,250 -10 510 410 115 142 173 178 2.8 3.3 1.5 0.5 Tampa
188 -97 130 108 121 127 142 170 4.5 7.1 -1.7 0.8 Tucson
6,300 5,300 3,900 4,400 217 246 265 269 2.3 2.1 2.2 1.1 Washington, D.C.
377 -461 -200 620 172 198 205 226 3.1 0.0 2.3 0.8 West Palm Beach
2008 Annual Report 1 See Statistical Summary Note on page 55 page 33

New York City Down 1 Place 2008 Rank: 2 2007 Rank: 1
Despite Modest Vacancy Uptick, Investor

Demand Remains Strong in New York City
Employment Trends
V
acancy is expected to remain low, and rents are projected to grow at a
Nonfarm Office-Using healthy pace this year in Manhattan, although evidence will continue
4%
to mount that demand-side momentum is not as robust as it was a few
quarters ago. Leasing volume in 2007 was approximately 25 percent less than
3% one year before, thereby weakening the prospects for further reductions in
the vacancy rate. Firms in the financial activities sector specifically were
2% trimming space needs or postponing searches at the end of last year, a trend
that will continue as staffing requirements are re-evaluated due to ongoing
1% troubles in the capital markets. Despite near-term issues surrounding space
demand, Manhattan has recorded some of the nation’s strongest revenue
0%
growth over the past three years, and investors’ interest in local properties
04 05 06 07 08** had hardly diminished as 2008 began. Cap rates for top assets are in the high-
4 percent to high-5 percent range.
Office Supply and Demand In the outer boroughs, vacancy typically runs somewhat higher than in
16 Completions Absorption 10% Manhattan, and 2008 will continue this long-term trend. Slower citywide job
Vacancy
growth will cause a rise in vacancy in Brooklyn and a 20 basis point upward
12 8% bump in Queens to 6.7 percent. Building owners will monitor events in the
Vacancy Rate
financial activities sector, as potential staff reductions will likely affect

8 6% requirements for back-office space in the boroughs. Additionally, a slowing
local economy may compel city agencies, which are large users of space in
4 4%
the boroughs, to reassess space requirements. On the investment front, rising
values in Manhattan have also lifted prices in the boroughs, and owners may
0
increasingly seek to monetize the built-up value in their properties in the
2%
04 05 06 07 08** quarters ahead. Assets in prime areas, such as downtown Brooklyn and Long
Island City, will continue to intrigue investors looking to establish portfolios
in the greater metro area.
Rent Trends
$60 2008 Market Outlook
◆ 2008 NOPI Rank: 2, Down 1 Place. New York City remains the tightest
$50
market in the country, securing the second spot in this year’s ranking.
$40 ◆ Employment Forecast: Citywide, employers are forecast to create 16,000
jobs in 2008, a 0.4 percent gain but a decrease from 34,300 new hires last
$30 year. In office-using sectors, 3,000 new positions are expected, down
from 13,600 jobs in 2007.
$20 ◆ Construction Forecast: More than 3.4 million square feet of office space
04 05 06 07 08**
was added in the entire city last year, but production will fall to 3
million square feet in 2008. Most of the space is attributable to the 2.1
Sales Trends million-square foot One Bryant Park in Manhattan.
$500 ◆ Vacancy Forecast: A reduction in office-using job growth will lead to a
30 basis point rise in the citywide vacancy rate to 5.7 percent in 2008. A
$400 30 basis point uptick to 5.4 percent will also be posted in Manhattan,
while vacancy in Brooklyn will increase 20 basis points to 8.6 percent.
$300 ◆ Rent Forecast: In 2008, citywide asking rents are forecast to advance 8
percent to $57.51 per square foot; last year, asking rents climbed 16.5
$200 percent. Effective rents will gain 8.4 percent to $51.24 per square foot.
◆ Investment Forecast: Foreign buyers and cash-laden institutions will
$100
03 04 05 06 07* continue to make headlines with big purchases this year. Sales velocity
in lower-tiered assets, though, will slow due to stringent underwriting
* Estimate ** Forecast standards and prospects for slightly softer near-term fundamentals.
Market Forecast Employment: 0.4% ▼ Construction: 12% ▲ Vacancy: 30 bps ▲ Asking Rents: 8% ▲

Down 4 Places 2008 Rank: 35 2007 Rank: 31 Northern New Jersey
Stability Offers Strength for

Northern New Jersey Office Owners
Employment Trends
O
perating conditions are expected to remain fairly stable in the
Northern New Jersey office market this year, unlike conditions in Nonfarm Office-Using
1%
many of the nation’s more volatile markets. Vacancy is forecast to rise
modestly, but some pockets of strength still exist in the market. Newark, for
one, has staged a decent turnaround in the past several quarters and is 0%
carrying steady demand-side momentum heading into 2008. North Bergen
County is also expected to remain reasonably tight, despite the delivery of -1%
some speculative space this year. Submarkets such as the Meadowlands and
Rutherford, on the other hand, are forecast to maintain vacancy rates in the -2%
mid-20 percent range, as demand is not anticipated to be strong enough to
fill recently vacated spaces. Marketwide, rent growth will be modest and -3%
may not pick up appreciably until vacancy improves more significantly at 04 05 06 07 08**
high-end properties in Essex and Morris counties.
In the investment market, average cap rates run from 7 percent to 8 Office Supply and Demand
17%
percent, with an occasional deal involving a top Class A property pricing in Vacancy
the mid-6 percent range. The median price of Class A and Class B assets

gradually declined late last year, and additional downward pressure is 1.5 16%
Vacancy Rate
expected in 2008 due to tighter underwriting. Assets with attractive assumable
financing and long-term lease commitments, especially from the market’s top 1.0 15%
pharmaceutical and financial firms, will bring in the strongest offers. Prices for
Class C properties, meanwhile, have received a significant boost from owner- 0.5 14%
users, but such support began to wane in the second half of 2007. With tighter
credit availability, as well as a slower pace of job creation and company 0.0 13%
startups, owner-users are likely to assume a lesser role in the Class C property 04 05 06 07 08**
investment market this year, removing some upward pressure on prices.
Rent Trends
◆ 2008 NOPI Rank: 35, Down 4 Places. Modest rent growth and rising
vacancy pushed Northern New Jersey down four spots in the NOPI. $26
◆ Employment Forecast: This year, employers in the Northern New Jersey $24
region are forecast to boost payrolls 0.4 percent with the addition of 8,100
jobs, compared with 10,600 positions in 2007. Roughly 2,100 office-using
$22
jobs will be created in 2008, down from 3,700 new hires last year.
◆ Construction Forecast: Developers are expected to deliver 750,000 $20

square feet of office space this year, up from 650,000 square feet in 2007 04 05 06 07 08**
but an amount that represents a modest 0.7 percent increase in for-lease
inventory. All of the space slated for completion in 2008 is in Bergen and Sales Trends
Morris counties.
$200
Vacancy Forecast: The marketwide vacancy rate is projected to increase
◆
40 basis points to 14.4 percent in 2008, compared with a 10 basis point $175
drop last year.
◆ Rent Forecast: Softer demand will limit rent growth. During 2008, $150
asking rents are forecast to rise 2 percent to $27.16 per square foot, while
effective rents increase 1.7 percent to $23.35 per square foot. $125
◆ Investment Forecast: A growing flight to quality sentiment among

$100
investors will sustain the Northern New Jersey market. Properties in 03 04 05 06 07*
proven submarkets in Bergen, Essex and Union counties will dominate
buying activity. * Estimate ** Forecast

Oakland Up 2 Places 2008 Rank: 7 2007 Rank: 9
East Bay Office Demand

Supported by Tenant Relocations
Employment Trends
D
espite concerns over the impact of the cooling housing climate on the
Nonfarm Office-Using local economy, the Oakland office market will improve this year, aided
4%
by healthy business expansion and a lack of new inventory. Demand
for office space is supported by continued employment growth as well as
3% business relocations from San Francisco. The California Public Employees’

Retirement System announced it will relocate from San Francisco to Walnut
2% Creek in January, citing the need for additional space and proximity to North
Bay communities. In the southern submarkets, the Tri-Valley area remains a
1% target for business growth, as office demand continues to build as a result of
ongoing residential expansion. Elevated construction costs are keeping
0%
deliveries subdued, however, as developers will add just 0.5 percent to
04 05 06 07 08** inventory by year end, with much of the space concentrated in the South I-
680 submarket.
A lack of competition from additional stock, coupled with spillover
16%
Vacancy demand from an increasingly tight and expensive San Francisco market, will
continue to drive investors’ interest in East Bay office properties. Transaction
1.5 14% velocity will remain healthy throughout 2008, although lower loan-to-value
Vacancy Rate
ratios may lead to softening demand for smaller deals. These tighter lending
1.0 12% standards could also provide the impetus for upward pressure on cap rates,
which currently average in the low-6 percent range, and could drive
0.5 10% investors to more stable submarkets, such as the CBD and the North Contra
Costa region. Buyers may also want to consider opportunities in the Tri-
0.0 8% Valley market, where residential expansion and the projected 2009
04 05 06 07 08** completion of the BART terminal in Pleasanton are expected to spark
additional tenant and investor demand in the area.
Rent Trends
◆ 2008 NOPI Rank: 7, Up 2 Places. Forecasts for healthy occupancy gains

$27
and strong effective rent growth pushed Oakland up two spots in this
year’s index.
$24
◆ Employment Forecast: Employers in Oakland will expand payrolls

$21 steadily this year, adding 7,900 positions for a 0.7 percent increase.
Office-using employment is expected to gain 0.4 percent, or 1,000 jobs.
$18
04 05 06 07 08** ◆ Construction Forecast: Developers will add approximately 200,000
square feet to inventory by year end, down from nearly 270,000 square
Sales Trends feet last year.
$300
◆ Vacancy Forecast: After a 90 basis point improvement in 2007, vacancy
is forecast to decline 80 basis points to 11.4 percent in 2008.

$250
◆ Rent Forecast: Minimal new inventory and steady tenant demand will
$200 lead to healthy rent growth. Asking rents are expected to rise 4.1 percent
to $28.19 per square foot this year, while effective rents advance 5
$150 percent to $24.33 per square foot.
◆ Investment Forecast: Investor interest is expected to pick up for

$100
03 04 05 06 07* properties in the Tri-Valley market. Residential expansion, coupled with
additions to infrastructure, will drive tenant demand for area assets,
* Estimate ** Forecast supporting occupancy improvements and rent growth.

Down 4 Places 2008 Rank: 10 2007 Rank: 6 Orange County
Long-Term Fundamentals Bringing Buyers to

Orange County Despite Vacancy Uptick
Employment Trends
O
ffice properties in Orange County are expected to register solid
numbers in 2008, though turbulence in the local housing market will Nonfarm Office-Using
6%
continue to restrain space demand. Local office-using employment is
forecast to make a modest recovery this year, following substantial losses in
2007, particularly within the financial services sector. On the supply side, 4%
developers will reduce office construction significantly this year and vacancy
will record only a modest increase after spiking last year. Leasing activity 2%
will continue to be concentrated in the Class A sector, but an increase in the
amount of available sublease space will put upward pressure on vacancy in 0%
the lower tiers. While vacancy will rise throughout much of the metro this
year, the South submarket is projected to record occupancy improvement -2%
and reduced concessions in 2008 due to a dropoff in construction. 04 05 06 07 08**
Orange County’s diversified economic base and underlying prospects Office Supply and Demand
for long-term growth will maintain investor demand for office properties. In 4 Completions Absorption
14%
2007, cap rates averaged in the low- to mid-6 percent range, though yields Vacancy
are expected to rise this year to cover higher financing costs. The subprime

3 12%
collapse has put a temporary strain on the Orange County office market,
Vacancy Rate
resulting in many firms downsizing or relocating. This trend, however, may
trigger a response from cash-laden investors who view moderating prices as 2 10%
an opportunity to buy and position themselves for an eventual upswing.
Institutions and REITs will continue to play a considerable role in the metro’s 1 8%
investment activity, particularly for Class A assets in top locations, such as
Newport Beach, where rent growth is expected to outpace the metro average. 0 6%
04 05 06 07 08**

◆ 2008 NOPI Rank: 10, Down 4 Places. Office-using job growth will begin $35
to recover in 2008, keeping Orange County in the top 10 of the index.
$30
◆ Employment Forecast: Employers are forecast to add 4,000 jobs in 2008,

a 0.3 percent increase and up from 400 new hires last year. $25
Approximately 900 office-using positions will come online this year,
after 4,600 office-using jobs were eliminated in 2007.
$20
◆ Construction Forecast: Developers will complete roughly 620,000

square feet of new office space in 2008, down from 2.8 million square $15
04 05 06 07 08**
feet last year.
◆ Vacancy Forecast: Modest employment growth and competition from Sales Trends
sublease space will result in a 60 basis point increase in vacancy to 11.3
$300
percent in 2008. Last year, substantial job losses in office-using sectors
led to a 300 basis point spike in vacancy.

$250
◆ Rent Forecast: Asking rents are expected to advance 3.9 percent to
$32.16 per square foot this year, while effective rents gain 3.5 percent to $200
$27.45 per square foot. In 2007, asking and effective rents rose 6.8
◆ Investment Forecast: Looking ahead, demand for medical office space is

$100
likely to increase, with average annual employment growth in the 03 04 05 06 07*
educational and health services sector forecast at nearly 3 percent over
the next five years. * Estimate ** Forecast
Market Forecast Employment: 0.3% ▲ Construction: 78% ▼ Vacancy: 60 bps ▲ Asking Rents: 3.9% ▲

Orlando Up 1 Place 2008 Rank: 25 2007 Rank: 26
Attracted to Stabilizing Fundamentals,

Buyers Target Orlando’s Lower-Tier Assets
Employment Trends
F
undamentals in the Orlando office market are expected to shift in 2008
Nonfarm Office-Using as demand generated from moderate office-using employment growth
8%
is offset by new construction, resulting in a rise in vacancy. More than
40 percent of the office space slated to come online this year is concentrated in
6% the South Orlando submarket, where significant industrial development and

continued population growth are spurring construction. The Burnham
4% Institute for Medical Research is planning a 175,000-square foot facility in the
Lake Nona community within the next few years, which will lend support to
2% economic expansion in the South Orlando area. Much of this year’s vacancy
increase is forecast to occur in the Class A segment, which tightened consid-
0%
erably during the metro’s most recent expansion phase. Office condos placed
04 05 06 07 08** some pressure on the Class B/C sector in recent quarters, but more stringent
lending standards could restrict the condo market in the near term, and Class
Office Supply and Demand B/C properties should begin to record improving fundamentals in the
months ahead. Additionally, as the economy cools, more tenants in lower-tier
21%
Vacancy office properties are expected to renew their existing leases instead of
upgrading to higher-end space, further driving demand for Class B/C assets.
1.5 18%
Vacancy Rate
Transaction velocity tapered off gradually last year and is expected to

1.0 15% move at a similar pace in 2008, as the tightening credit environment affects the
near-term direction of the market. Cap rates in the metro are currently in the
0.5 12% mid-6 percent to high-7 percent range, though recent sales of some Class B/C
assets have priced in the low-8 percent range. Overall, the slowdown in
0.0 9% velocity and an anticipated rise in cap rates is expected to restrict price appre-
04 05 06 07 08** ciation in the near term. Sales activity will likely be concentrated in older
properties in the lower tiers, where assets with stable operating fundamentals
Rent Trends should prove to be sound investments as the market transitions.
$24
2008 Market Outlook
$21
◆ 2008 NOPI Rank: 25, Up 1 Place. Above-average job growth moved
$18
Orlando up one spot in the ranking this year.
◆ Employment Forecast: In 2008, employers are forecast to add 17,800

$15 workers, a 1.6 percent increase but a decline from 25,100 jobs created last
year. Office-using employment is expected to post a 1.2 percent gain, as
$12 3,500 positions will be generated this year.
04 05 06 07 08**
◆ Construction Forecast: Developers are expected to complete 680,000
Sales Trends square feet of competitive office space in 2008, down from 1 million
square feet in 2007.
$250
◆ Vacancy Forecast: Competition from new space will result in metrowide

$200 vacancy climbing 60 basis points to 11.5 percent in 2008.
$150 ◆ Rent Forecast: Concessions should stay in check this year, as both
asking and effective rents are forecast to gain 3.6 percent to $22.59 per
$100 square foot and $19.18 per square foot, respectively.
◆ Investment Forecast: Properties in the Class B/C sector should still

$50
03 04 05 06 07* garner investor interest in the growing suburban areas and Downtown
submarket, where demand for office space is expected to remain steady
* Estimate ** Forecast through the year.

Up 4 Places 2008 Rank: 28 2007 Rank: 32 Philadelphia
Vacancy Improvement Points to a Strong

Year for Philadelphia Office Market
Employment Trends
P
hiladelphia’s office market appears poised for a few more quarters of
steady demand momentum, as the region remains largely unaffected Nonfarm Office-Using
4%
by the decrease in mortgage-related finance employment. Entering
2008, the Class A segment in areas such as Center City, Montgomery and
Bucks counties was posting vacancy of approximately 10 percent. Slower job 3%
growth will curtail absorption of Class A space somewhat, especially in the
second half of the year, but the limited availability of top-end space will 2%
support rent growth of approximately 5 percent. In the market’s Class B/C
sector, recent vacancy improvements are partly attributable to a decrease in 1%
office inventory, as some properties were converted to owner-occupied
buildings. More modest economic growth this year, however, will 0%
discourage building purchases by small firms, sending some space seekers to 04 05 06 07 08**
the rental market instead. Accordingly, submarkets with a preponderance of
Class B/C properties, such as South Jersey and North Philadelphia, should Office Supply and Demand
record either a flat or modestly lower vacancy rate and steady rent growth. 4 Completions Absorption 14%
Vacancy
In the investment arena, properties will likely continue to trade at cap

rates ranging from 7 percent for higher-quality properties to 9 percent in the 3 13%
Vacancy Rate
lower tiers. The median price has declined slightly over the past 12 months,
especially among Class B and Class C properties, but bargain-conscious 2 12%
buyers should not expect a more substantial adjustment. The steady pace of
rent growth will support current valuations, as the runup in prices over the 1 11%
past several years has been driven primarily by improving fundamentals
rather than speculative investment. Still, the median price is up 28 percent 0 10%
since 2004, and long-term owners that have successfully improved their 04 05 06 07 08**
property’s performance may look to capture accumulated gains.
Rent Trends
◆ 2008 NOPI Rank: 28, Up 4 Places. Expectations for a modest decrease in

vacancy pushed Philadelphia up four spots in the NOPI this year. $24
◆ Employment Forecast: Local employers will hire 19,000 workers in 2008,

$22
a 0.6 percent increase; in 2007, 27,000 jobs were created. Approximately
4,200 new office-using positions are forecast this year, down from the
7,200 spots added in 2007. $20
◆ Construction Forecast: This year, builders will deliver 1.7 million square $18
feet of competitive office space, down from 1.8 million square feet in 04 05 06 07 08**
2007. The 1.2 million-square foot Comcast Center in Center City will
account for most of the new space in 2008. Sales Trends
◆ Vacancy Forecast: Despite a reduced rate of employment growth, $140
demand is still expected to grow faster than supply, leading to a 20 basis
point drop in the vacancy rate to 11.1 percent by year end. In 2007, $130
absorption was stronger, totaling 2.6 million square feet, and vacancy
declined 140 basis points.
$120
◆ Rent Forecast: Fueled by strong advances in the Class A sector,
marketwide asking rents are forecast to rise 3.5 percent in 2008 to $23.98 per $110
square foot. Effective rents will add 4 percent to $20.77 per square foot.
$100
◆ Investment Forecast: Assets in established submarkets are competitive- 03 04 05 06 07*
ly priced relative to other Eastern markets and will become increasingly
attractive to exchange buyers cashing out of neighboring metros. * Estimate ** Forecast

Phoenix Down 7 Places 2008 Rank: 14 2007 Rank: 7
Lower Business Costs Supporting Continued

Expansion Despite Housing Downturn
Employment Trends
M
odest economic growth will continue to generate tenant demand for
Nonfarm Office-Using Phoenix office space in 2008, although metrowide vacancy is expected
8%
to record a moderate increase. Tenant demand is being supported by
services companies that are taking on additional space to increase market
6% share and serve the rapidly expanding population. Wells Fargo, for example,
recently opened a hub in Glendale; the new facility will house administrators
4% for all West Valley branches and transplant jobs to the area. Additionally,
downtown is becoming increasingly popular with tenants, evidenced by
2% Wachovia’s recently announced plans to locate its Arizona headquarters in
downtown Phoenix in 2009. Metrowide employment growth is expected to
0%
moderate this year due to continued cooling in the housing market, but the
04 05 06 07 08** long-term employment picture remains bright. On the supply side, construc-
tion will taper off in 2008. New supply will be largely concentrated in
Office Supply and Demand outlying areas, such as the Mesa/Chandler submarket, where the addition of
nearly 800,000 square feet of space will push vacancy up to the high-14
20%
Vacancy percent range.
6 18% Investor demand for office properties in Phoenix will remain strong this
Vacancy Rate
year, though tighter lending conditions may keep some private buyers on the
4 16% sidelines. Sales velocity slowed in the second half of 2007 and cap rates,
which averaged in the high-6 percent to low-7 percent range last year, are
2 14% likely to trend higher. Out-of-state investors with significant cash reserves
are expected to take this opportunity to pursue potential bargains, seeking
0 12%
office properties in infill locations, such as the Interstate 10 corridor near
04 05 06 07 08** downtown and Tempe, where supply growth will be minimal. Investors
may want to use some caution, however, as these properties may face
elevated competition from sublease space that was vacated at the height of
Rent Trends
last year’s subprime mortgage meltdown.
$27
2008 Market Outlook
$24
◆ 2008 NOPI Rank: 14, Down 7 Places. A cooling housing market will slow
$21
job growth, pushing Phoenix down seven positions in the index this year.
◆ Employment Forecast: Employers in Phoenix are expected to increase

$18 payrolls 1.3 percent this year, adding 25,100 jobs. Office-using employment
growth is forecast at 0.8 percent with the creation of 4,500 positions. Last
$15 year, overall and office-using employment both grew 1.5 percent.
04 05 06 07 08**
◆ Construction Forecast: Builders are expected to deliver 2.8 million
Sales Trends square feet of new office space this year, down from 3.5 million square
feet in 2007.
$200
◆ Vacancy Forecast: After a 170 basis point jump last year, vacancy in
$175 Phoenix is projected to climb 90 basis points to 14.7 percent in 2008.
$150 ◆ Rent Forecast: Asking rents are forecast to increase 4.7 percent this year
to $25.54 per square foot, while effective rents will rise 4.4 percent to
$125 $21.88 per square foot.
◆ Investment Forecast: Office properties around the Phoenix-Mesa

$100
03 04 05 06 07*
Gateway Airport should garner more investor interest in the future. City
officials in Mesa are seeking to transform the area into a new urban
* Estimate ** Forecast center, with the hopes of attracting corporate headquarters to the region.

Up 11 Places 2008 Rank: 12 2007 Rank: 23 Portland
Decreasing Vacancy Attracting

Out-of-State Investors to Portland
Employment Trends
T
ight conditions and limited construction will generate considerable
improvement in the operating performance of Portland-area office Nonfarm Office-Using
4%
properties this year. Much of the gain will occur in the Class B sector,
which is benefiting from spillover demand by tenants unable to lease space in
top-tier assets. Few large, contiguous blocks of Class A space are available for 3%
lease, especially in the popular Downtown and Kruse Way submarkets, and
construction is minimal. As such, tenants with large space requirements will 2%
target lower-tier properties in these areas, giving owners leverage when
negotiating leases. Additionally, companies that signed discounted leases for 1%
Class A space during the beginning of the decade are facing higher rents as
contracts expire, which could result in a migration to Class B space in order to 0%
maintain occupancy costs. On the supply side, significant barriers to entry will 04 05 06 07 08**
keep construction restrained again this year, despite strong fundamentals.
Within the city limits, few infill locations suitable for office construction are Office Supply and Demand
available, and zoning regulations slow the development process considerably. 2.0 Completions Absorption 18%
Vacancy
Portland’s economic outlook will continue to attract investors to the area,

keeping transaction velocity near current levels. Buyers are becoming more 1.5 16%
Vacancy Rate
cautious, however, especially out-of-state investors who are primarily
targeting assets in major office-using districts. Given the discrepancy in rents 1.0 14%
between Class A and Class B properties, some repositioning opportunities
may begin to take shape in the coming months, especially in buildings with 0.5 12%
significant blocks of space coming up for lease. Additionally, REITs and insti-
tutions expanding and upgrading their portfolios are expected to target office 0.0 10%
assets in Portland, as cap rates in the low-7 percent range offer a premium 04 05 06 07 08**
when compared to the nearby Seattle and Northern California markets.
Rent Trends
◆ 2008 NOPI Rank: 12, Up 11 Places. Strong effective rent growth and
occupancy gains caused Portland’s 11-place rise in the ranking. $21
◆ Employment Forecast: After adding 11,500 positions in the metro last year,
$18
employers are expected to expand payrolls 1.2 percent with the creation of
12,900 jobs in 2008. Office-using employment is also accelerating, with a 1.1
percent increase, or 2,600 new hires, forecast by year end. $15
◆ Construction Forecast: Significant barriers to entry will limit office con- $12
struction to 250,000 square feet in 2008, a 0.7 percent addition to existing 04 05 06 07 08**
stock. Last year, completions totaled 437,000 square feet.
◆ Vacancy Forecast: Limited construction and continued employment Sales Trends

expansion will push vacancy down 70 basis points to 10.5 percent this $180
year. In 2007, vacancy shed 70 basis points.
$160
◆ Rent Forecast: Tight conditions will lead to robust rent gains and
concession burn in 2008. Asking rents are forecast to advance 3.6 percent
to $22.44 per square foot, while effective rents increase 5 percent to $140
$120
◆ Investment Forecast: Investors may want to target the Vancouver
submarket, where vacancy is currently above the metro average.
$100
Spillover demand from the Central City and John’s Landing submarkets 03 04 05 06 07*
is expected to generate occupancy gains and above-metro average
revenue growth this year. * Estimate ** Forecast

Riverside-San Bernardino No Change 2008 Rank: 8 2007 Rank: 8
Investors Drawn to Healthy Leasing Activity

in Inland Empire’s Western Cities
Employment Trends
F
or the Inland Empire office market, above-average construction activity
Nonfarm Office-Using will be the prevailing trend in 2008. Local job creation is projected to
8%
exceed the national average again in 2008, but it will lag the robust
expansion recorded in previous years due to slower growth in housing-
6% related sectors. In terms of new supply, this year’s completions will be more
than double the metro’s five-year annual average, representing a nearly 8
4% percent boost to total inventory. While metrowide vacancy is expected to
push higher this year, leasing activity in the Chino/Montclair/Upland
2% submarket is anticipated to remain strong, supported by the area’s trans-
portation access and proximity to coastal counties. As such, vacancy in the
0%
area is forecast to improve and settle in the mid-10 percent range, allowing
04 05 06 07 08** owners to trim concessions. Absorption will also stay robust in the Temecula
Valley/Murrieta submarket, where demand from population-serving
Office Supply and Demand employment sectors continues to sustain the need for additional space.
16%
Vacancy Competitive cap rates and a favorable extended outlook will attract
buyers to the Inland Empire in 2008. Cap rates averaged in the mid-6 percent
3 14% range last year, where they are expected to remain throughout much of 2008.
Vacancy Rate
In recent years, Class B/C owners have benefited from spillover demand
2 12% generated by aggressive rent growth in the Class A segment; however, this
trend will likely reverse as new high-end supply comes online and competes
1 10% for tenants. This year, buyers who typically target lower-tier space may
become hesitant to assume significant re-leasing risk due to slower
0 8% employment growth. As a result, many investors are likely to opt for high-
04 05 06 07 08** occupancy properties in stable inland cities, such as Chino, where the con-
struction pipeline remains thin due to land constraints.
Rent Trends
◆ 2008 NOPI Rank: 8, No Change. The Inland Empire held its position in
$24
2008 despite more modest employment growth than in recent years.
$21
◆ Employment Forecast: Local employers are forecast to expand payrolls
by 20,000 positions this year, a 1.5 percent increase. Office-using sectors
$18 are expected to add 1,800 new hires in 2008, a gain of 0.8 percent.
$15 ◆ Construction Forecast: Office completions will total 1.5 million square
04 05 06 07 08** feet this year, down from 1.6 million square feet in 2007.
Sales Trends ◆ Vacancy Forecast: A reduced pace of job creation and above-average
supply growth will push up marketwide vacancy 160 basis points to
$250 15.1 percent. Last year, vacancy climbed 370 basis points.
$200 ◆ Rent Forecast: The delivery of more expensive space is projected to

support asking rent growth of 3.8 percent to $23.48 per square foot in
$150 2008, while effective rents are forecast to climb 2.9 percent to $20.12 per
square foot.
$100
◆ Investment Forecast: Potential buyers may want to consider locations in
the Palm Springs/Palm Desert submarket. A lack of construction and
$50
steady household growth have led to increasingly tight conditions, a
03 04 05 06 07*
trend that is expected to continue given the limited number of projects
* Estimate ** Forecast in the pipeline.

Down 10 Places 2008 Rank: 32 2007 Rank: 22 Sacramento
Large Buyers Active in Sacramento

Despite Forecast Vacancy Uptick
Employment Trends
O
ffice-using employment in Sacramento will lag this year, but more
modest construction activity will result in only a slight uptick in Nonfarm Office-Using
6%
vacancy. While total employment growth in 2008 will be similar to last
year’s pace, Sacramento is one of the harder-hit residential markets, and
housing-related layoffs will serve as a drag on traditional office-using 4%
industries. Metrowide vacancy is expected to edge higher this year, but
much of the increase will be concentrated in submarkets receiving the bulk 2%
of new construction, including Downtown/Midtown and the Route 50
Corridor. Both submarkets are forecast to record vacancy increases of more 0%
than 100 basis points this year, but the long-term outlook for both areas
remains positive, and these upswings are expected to be temporary. In -2%
suburban submarkets, such as the Roseville/Rocklin and Carmichael/Fair 04 05 06 07 08**
Oaks/Citrus Heights, construction will be modest, and absorption should
remain positive, albeit slower than in recent years. Office Supply and Demand
2.0 Completions Absorption 16%
Despite some forecast volatility in the near term, investors continue to Vacancy
target office properties in Sacramento, drawn by the region’s healthy long-

1.5 15%
term outlook. Institutional buyers have been particularly active, seeking out
Vacancy Rate
newer properties in the area’s growing suburbs. Cap rates for all office
properties have averaged in the high-6 percent to mid-7 percent range but 1.0 14%
could edge higher in 2008 as vacancy rises and revenue growth slows.
Investors may want to pay particular attention to Class A assets in the 0.5 13%
Roseville/Rocklin submarket; strong tenant demand in the area should
result in healthy revenue gains. 0.0 12%
04 05 06 07 08**
2008 Market Outlook

Rent Trends
◆ 2008 NOPI Rank: 32, Down 10 Places. Expected job losses in office- $27
using sectors caused Sacramento to decline 10 spots in this year’s NOPI.
$24
◆ Employment Forecast: After creating 9,200 positions in 2007, employers
are forecast to expand payrolls by 0.5 percent this year, adding 4,300
$21
new jobs. Office-using employment is forecast to decrease 0.3 percent, or
by 500 workers, in 2008.
$18
◆ Construction Forecast: Developers are projected to deliver 1.1 million
square feet of new office space this year, down from 1.5 million square $15
feet in 2007. Construction will be concentrated in the Downtown/ 04 05 06 07 08**
Midtown submarket and areas east of the metro.
Sales Trends
◆ Vacancy Forecast: Supply growth will outpace tenant demand, and
$250
vacancy is forecast to rise 30 basis points this year to 14.3 percent.
◆ Rent Forecast: With vacancy pushing higher, owners will increase $200
concessions this year. Asking rents are forecast to grow 3.1 percent to
$25.32 per square foot by year end, while effective rents gain 2.6 percent $150
to $21.33 per square foot.
$100
◆ Investment Forecast: Value-seeking buyers may want to consider Class
B/C assets in the Downtown/Midtown submarket. Vacancy in these
$50
properties is forecast to hover between 7 percent and 9 percent this year, 03 04 05 06 07*
while average asking rents in the area are projected to exceed $30 per
square foot, considerably higher than other lower-tier assets. * Estimate ** Forecast

Salt Lake City Up 10 Places 2008 Rank: 20 2007 Rank: 30
Southern Suburbs Receiving

Spillover Demand in Salt Lake City
Employment Trends
S
alt Lake City’s office market is expected to remain strong, underpinned
Nonfarm Office-Using by an increasingly tight downtown market that is forcing some demand
8%
into suburban areas. The metro’s educated work force and affordability
continue to attract businesses, and 2008 will mark another year of above-
6% average employment growth. Healthy tenant demand is driving

development activity, as builders are expected to increase existing office stock
4% 2.6 percent by year end. Much of the new construction will be concentrated
in the southern submarkets, where leasing activity remains brisk as
2% companies opt for space near rapidly expanding residential communities.
With new construction primarily located in the suburbs, conditions within
0%
the CBD remain extremely tight, and some firms are beginning to consider
04 05 06 07 08** redevelopment opportunities downtown as options for additional space.
Despite elevated construction levels that will cause vacancy to push higher,
Office Supply and Demand owners will still be able to record healthy rent increases.
Vacancy The Salt Lake City office investment market is expected to remain active
throughout 2008, as the metro’s healthy economic growth continues to attract
1.5 16%
buyers. Investors should expect acquisition activity to stay robust in the
Vacancy Rate
southern part of the county, specifically South Town and Cottonwood. New
1.0 14% office developments continue to fill quickly in these submarkets, with
persistent tenant demand anticipated to support continued rent growth. Other
0.5 12% opportunities exist in and around the CBD, where the need for new Class A
space is enabling some investors to create value through repositioning under-
0.0 10% performing assets, and subsequently increase rents.
04 05 06 07 08**

$21 ◆ 2008 NOPI Rank: 20, Up 10 Places. Salt Lake City moved up 10 spots in
the NOPI this year due to the nation’s strongest employment forecast.
$18
◆ Employment Forecast: Employers within the Salt Lake City market are
$15
expected to add 17,000 positions in 2008, an increase of 2.6 percent. Last
year, 22,000 jobs were created for a 3.5 percent gain. Office-using
employment is forecast to expand by 1.6 percent, or 2,800 new hires,
$12
compared with 4.5 percent growth in 2007.
$9 ◆ Construction Forecast: Nearly 750,000 square feet of space will come

04 05 06 07 08**
online in the market in 2008, down from 1.4 million square feet
delivered last year.
Sales Trends
◆ Vacancy Forecast: After a 50 basis point increase in 2007, vacancy is
$160
projected to rise 40 basis points to 12.5 percent this year.
$140 ◆ Rent Forecast: Relatively healthy economic expansion will stimulate

rent growth. Asking rents are expected to advance 4.5 percent to $19.03
$120 per square foot by year end, while effective rents will rise 4.8 percent to
$100
◆ Investment Forecast: Investors may want to consider properties in Salt
Lake City’s CBD. Increasingly tight occupancy will provide for healthy
$80
03 04 05 06 07* increases in property revenues as the use of concessions fades. By year
end, average rent gains are expected to near 6 percent, driving revenue
* Estimate ** Forecast growth to the mid-6 percent range.

Up 3 Places 2008 Rank: 22 2007 Rank: 25 San Antonio
San Antonio an Attractive Option

for Employers and Investors
Employment Trends
S
an Antonio is transitioning from an often-overlooked secondary office
market to a diversified metro with an increasing number of traditional Nonfarm Office-Using
8%
back-office positions and major corporate operations. Historically,
major employers have targeted lower-tier space in San Antonio to house
back-office operations, such as customer service call centers, due to the 6%
metro’s central location and the availability of a bilingual labor force. Over
the past few years, however, the addition of true Class A properties, 4%
combined with considerable rent increases in coastal markets and nearby
Austin, has made the market significantly more attractive to companies 2%
concerned about costs. San Antonio’s low business costs will support
additional major corporate relocations to the area in the future, followed by 0%
support companies. Strategic Staffing Solutions, an IT staffing company, for 04 05 06 07 08**
example, recently moved to the area to assist a major client. Aided by
increasing tenant demand, occupancy will climb for the fourth consecutive Office Supply and Demand
year in 2008, driving strong rent growth. 2.0 Completions Absorption 20%
Vacancy
The investor pool in San Antonio is expected to become more diversified

this year. REITs will up their stakes in the metro, as will out-of-state 1.5 18%
Vacancy Rate
investors looking for above-average yields in a stable growth market.
Metrowide, average cap rates are currently in the mid-7 percent range, a 1.0 16%
significant premium over West Coast assets. Additionally, cash-heavy
buyers will be able to find more opportunities for local top-tier properties, 0.5 14%
which now comprise a large portion of the inventory in the metro. Investors
may find opportunities in the West and Northwest submarkets, where 0.0 12%
several of the market’s major employers and their subsidiaries and vendors 04 05 06 07 08**
are located.
Rent Trends
2008 Market Outlook Asking Rent Effective Rent
$20
◆ 2008 NOPI Rank: 22, Up 3 Places. Metrowide absorption is expected to
remain strong, fueling San Antonio’s three-spot rise in the index.
$18
◆ Employment Forecast: After adding 18,800 positions last year, local

$16
employers will create 19,400 new jobs in 2008, a 2.3 percent increase.
Office-using employment will gain 3,900 workers, or 2 percent growth.
$14
◆ Construction Forecast: Construction will remain relatively steady this
year, with 970,000 square feet forecast to come online. The new space $12
will expand local office stock by 3.7 percent. In 2007, 900,000 square feet 04 05 06 07 08**
of office space was delivered.
Sales Trends
◆ Vacancy Forecast: Demand will outpace supply again this year, causing
$120
the metrowide vacancy rate to shed 30 basis points to finish 2008 at 13.7
percent. Vacancy improved 80 basis points in 2007.

$110
◆ Rent Forecast: Healthy absorption levels will enable owners to continue
increasing rents. Asking rents are forecast to rise 3.7 percent to $19.57 $100
per square foot in 2008, while effective rents advance 4.1 percent to
$16.48 per square foot. $90
◆ Investment Forecast: Opportunities can be found northwest of the city

$80
center near the rapidly expanding Loop 1604, where demand is 03 04 05 06 07*
currently being generated by companies seeking to relocate closer to
residential developments. * Estimate ** Forecast

San Diego Down 5 Places 2008 Rank: 16 2007 Rank: 11
Downtown San Diego Presenting

Opportunities for Investors in 2008
Employment Trends
T
he San Diego office market will experience some softening this year as
Nonfarm Office-Using the cooling housing market causes financial firms to reduce payrolls;
6%
however, the metro’s long-term outlook remains positive. The local
economy suffered some setbacks last year, which were exacerbated by the
4% wildfires that ravaged the area in October, resulting in disruptions of

operations for thousands of businesses. The housing market, which had
2% supported the local economy in recent years, also softened, and as 2007 came
to a close, office-using employment was experiencing net losses. These
0% layoffs are expected to continue into the first half of 2008, before the economy
begins to pick up late this year. On the supply side, completions will slow
-2%
considerably this year after peaking in 2007, which should ease some of the
04 05 06 07 08** upward pressure on vacancy.
Sales activity in 2007 was concentrated primarily in San Diego’s
Office Supply and Demand suburban submarkets, but public infrastructure improvements like the
3 Completions Absorption 14% North Embarcadero Visionary Project and the Manchester Pacific Gateway,
Vacancy
will enhance the attractiveness of downtown in 2008. These developments,
2 13% which are scheduled to break ground this year, are expected to help spark
Vacancy Rate
buyer interest in the region. Investors looking to establish a foothold within

1 12% the submarket could be left behind if they sit on the sidelines expecting better
deals will be available in the future. Investment activity accelerated in 2007,
0 11% but prices remained fairly steady. Metrowide cap rates edged up to the mid-
to high-6 percent range last year, and could rise moderately in 2008 as
10%
vacancy and concessions push higher.
-1
04 05 06 07 08**
2008 Market Outlook
Rent Trends ◆ 2008 NOPI Rank: 16, Down 5 Places. Forecast office-using job losses
Asking Rent Effective Rent drove San Diego down five spots in the index despite slower construction.
$32
◆ Employment Forecast: Local employers are expected to increase

$28 payrolls by 0.3 percent this year, adding 4,100 jobs. Office-using
employment will decline by 1 percent, with the loss of 3,500 positions.
$24 In 2007, total employment advanced by 0.7 percent, while office-using
jobs gained 0.4 percent.
$20 ◆ Construction Forecast: Developers will bring approximately 1 million
square feet of office space online in 2008, down from 2.1 million square
$16 feet completed last year. This year’s completions will mark the lowest
04 05 06 07 08**
amount brought to the market since 2004.
◆ Vacancy Forecast: Despite modest amounts of new construction, the
Sales Trends
decline in office-using jobs will lead to a 50 basis point increase in
$300 vacancy to 13.3 percent in 2008.
◆ Rent Forecast: Asking rents are forecast to increase 3.6 percent to $30.82
$250
per square foot this year. Owners will increase concessions in an effort
to retain tenants, and effective rents are forecast to advance 3.1 percent
$200 to $26.92 per square foot.
$150 ◆ Investment Forecast: Cash-heavy investors may find that Class A

properties are priced attractively. As new space flooded the market over
the past two years, Class A vacancy has increased more than 200 basis
$100
03 04 05 06 07*
points, and fewer top-tier assets have changed hands. With the
development pipeline thinning and the job market expected to turn around
* Estimate ** Forecast beginning in 2009, Class A assets could offer some upside potential.

Up 12 Places 2008 Rank: 4 2007 Rank: 16 San Francisco
San Francisco to Remain Among

Nation’s Strongest Office Markets
Employment Trends
T
he San Francisco office market is enjoying a strong resurgence that is
expected to continue through 2008. Tenant demand for office space is Nonfarm Office-Using
3%
being driven by the expanding information sector, which is forecast to
add another 800 jobs this year. Growth of local tech firms is also generating
increased construction activity. For example, Alexandria Real Estate Equities 2%
has announced plans to deliver approximately 2.2 million square feet to
Mission Bay over the next few years, consisting of properties that will be 1%
marketed to traditional technology and biotech companies. This year, more
than half of the metro’s scheduled new supply will come online in the South 0%
Financial District. Pre-leasing activity in the area has been strong, and
vacancy in the submarket is expected to remain near the metro average, -1%
allowing owners to implement healthy rents gains this year. Going forward, 04 05 06 07 08**
properties in the lower tiers may outperform, as rents have increased signif-
icantly in recent years, and many firms may choose to migrate to less Office Supply and Demand
expensive space when leases expire. 8 Completions Absorption
21%
Vacancy
Transaction velocity accelerated in 2007, ignited by robust revenue gains

6 18%
that attracted capital from a diverse mix of buyers. This year, sales activity
Vacancy Rate
could moderate somewhat due to tighter underwriting, despite some of the
strongest fundamentals in the country and elevated investor demand. Cap 4 15%
rates edged lower in 2007 but are expected to level off in the mid-5 percent
to low-6 percent range this year. Buyers may find properties with upside 2 12%
potential in the South of Market Area and Union Square submarkets. Rents
have risen rapidly in surrounding submarkets, including the Financial 0 9%
District and South Beach, and some tenants who are priced out of properties 04 05 06 07 08**
in these areas may move to less expensive regions nearby.

Rent Trends
◆ 2008 NOPI Rank: 4, Up 12 Places. Healthy rent gains and below- $40
average vacancy pushed San Francisco up 12 spots in the NOPI.
$30
◆ Employment Forecast: San Francisco employers are expected to add
10,200 jobs this year, a 1 percent increase to payrolls but down from 1.3
percent in 2007. Office-using employment will increase 1.2 percent, or $20
by 4,000 positions, in 2008.
$10
◆ Construction Forecast: Builders are forecast to deliver 1.4 million square 04 05 06 07 08**
feet of new office space this year, up from 335,000 square feet in 2007.
Sales Trends
◆ Vacancy Forecast: The influx of new office space, coupled with slower job
$350
growth will drive a 20 basis point rise in the vacancy rate to 9.6 percent this
year. Vacancy shed 230 basis points in 2007.

$300
◆ Rent Forecast: Tight vacancy will support healthy rent growth again in
2008, albeit at a slower rate than a year ago. Asking rents are forecast to $250
increase 5.8 percent in 2008 to $42.46 per square foot, while effective
rents advance 5.9 percent to $36.52 per square foot. $200
◆ Investment Forecast: With heightened demand for top-tier space in San

$150
Francisco, investors may find success upgrading existing properties, as 03 04 05 06 07*
rents continue to rise faster than the national average and elevated land
and development costs minimize the threat from overbuilding. * Estimate ** Forecast

San Jose Up 11 Places 2008 Rank: 13 2007 Rank: 24
Expanding Technology Sector Fueling

Demand for Office Space in San Jose
Employment Trends
A
fter several years of restrained office construction, builders in the San
Nonfarm Office-Using Jose metro area are stepping up deliveries in response to a strengthen-
4%
ing local economy and a resurgent technology sector. High-tech
employers including Cisco, Qualcomm and Broadcom have continued to
3% expand their work forces in the metro, generating tenant demand for
additional space. Last year, Cisco signed two leases in Milpitas, totaling
2% 800,000 square feet, and further expansion plans may emerge if the
technology sector continues to improve. Since peaking in 2003, vacancy has
1% declined approximately 1,000 basis points, and developers are responding to
heightened tenant demand by placing more projects into the development
0%
pipeline. Much of the new office space will come online in the Santa
04 05 06 07 08** Clara/Sunnyvale submarket, including the multi-phase Moffett Towers. The
project is expected to total 1.8 million square feet of space when complete,
Office Supply and Demand including 800,000 square feet in 2008.
Vacancy In 2008, healthy revenue gains in the local office market will continue to
command investors’ attention. In addition, many cash-heavy employers
1.5 21% have recently become office investors, opting to own buildings rather than
Vacancy Rate
sign new leases as rents push higher. In 2007, for example, BEA Systems
1.0 18% purchased a 381,000-square foot office building that will serve as the
company’s headquarters. With owner-users playing a larger role, the buyer
0.5 15% pool is expected to get deeper, and sales activity should remain near current
ranges. Cap rates averaged in the high-5 percent to low-6 percent range in
0.0 12% 2007, and may edge somewhat higher this year, following the national trend.
04 05 06 07 08**

$35 ◆ 2008 NOPI Rank: 13, Up 11 Places. San Jose rose 11 places in the ranking
this year, as healthy absorption is forecast to push rents higher.
$30
◆ Employment Forecast: Employment growth is forecast to reach 0.7

percent, or 6,600 jobs, this year, down from 1.2 percent in 2007. Nearly
$25
2,000 office-using positions will be added in 2008, a 0.8 percent gain.
$20 ◆ Construction Forecast: Office completions are expected to reach 1.3

million square feet this year, considerably greater than the 315,000
$15 square feet delivered in 2007. Activity should slow in the coming years,
04 05 06 07 08** as only 3.5 million square feet is in the planning pipeline.
Sales Trends ◆ Vacancy Forecast: Vacancy is forecast to finish the year at 13.5 percent,
down 10 basis points from year-end 2007. Strong tenant demand will
$400
result in absorption of approximately 1.4 million square feet, offsetting
the increase in construction.

$350
◆ Rent Forecast: Tightening conditions will enable owners to reduce
$300 concessions this year. Asking rents are expected to increase 5.4 percent
to $32.72 per square foot, while effective rents gain 5.7 percent to $29.02
◆ Investment Forecast: Investors may want to take note of incentives

$200
03 04 05 06 07* offered by the local government to attract employers to downtown San
Jose. As the area becomes more popular with tenants, vacancy should
* Estimate ** Forecast tighten, and owners may be able to implement significant rent increases.

Up 3 Places 2008 Rank: 1 2007 Rank: 4 Seattle
Impressive Rent Gains Attracting National

Investors to Puget Sound Office Market
Employment Trends
C
onditions in the Seattle office market will remain tight this year,
though new construction will outpace demand growth modestly, Nonfarm Office-Using
5%
leading to an uptick in vacancy. Buoyed by the technology sector,
office-using employment gains will measure well above the national rate
again in 2008. Many companies are choosing to expand their operations in 4%
the Seattle metro, where the talent pool rivals tech strongholds in Northern
California. As such, leasing activity among high-tech companies has 3%
accelerated, as evidenced by Yahoo’s recent commitment for 115,000 square
feet in Bellevue. The new lease marks the removal of one of the last large, 2%
contiguous blocks of space available in the market. Developers, however, are
responding to new demand by ramping up construction, and this year’s 1%
completions will exceed the total of the past four years’ combined. Vulcan, 04 05 06 07 08**
for example, is building a 1.5 million-square foot office campus in South Lake
Union, widely rumored to be the future headquarters for Amazon.com. Office Supply and Demand
Speculative building is also taking shape. Nearly 1.1 million square feet of 4 Completions Absorption
16%
office space is planned in Kirkland, and an additional 500,000 square feet is Vacancy
slated for delivery in Issaquah next year.

3 14%
Vacancy Rate
Bolstered by an active pool of investors and a positive economic and
demographic outlook, buying activity will remain robust in 2008. Although 2 12%
strong buyer demand has pushed average cap rates into the low- to mid-6
percent range, initial yields are still more favorable than some high-priced 1 10%
California markets. Buyers will want to be cautious of new construction,
however, as some of the high costs of building have been offset by impressive 0 8%
rent gains over the past two years. Additionally, a heavy concentration of 04 05 06 07 08**
technology- and aviation-related positions make the market more susceptible to
economic downturns. Nevertheless, strong international trade should mitigate Rent Trends
the chance of layoffs on the scale exhibited during the early part of this decade. Asking Rent Effective Rent
$35
2008 Market Outlook

$30
◆ 2008 NOPI Rank: 1, Up 3 Places. Forecasts for above-average job

growth and rent gains drove Seattle up three places into the top spot of $25
this year’s index.
◆ Employment Forecast: Employers are expected to add 31,000 positions in $20

the metro this year, a 1.7 percent increase in overall employment. Office-
using payrolls will expand 1.9 percent with the creation of 10,000 jobs. $15
04 05 06 07 08**
◆ Construction Forecast: Delivery of new office space will increase to 3.2
million square feet in 2008, boosting overall office inventory 4.4 percent. Sales Trends
In 2007, 1.8 million square feet of space came online.
$250
◆ Vacancy Forecast: Elevated construction and modestly slower
employment growth will push vacancy up 20 basis points to 9.2 percent $200
by year end. Last year, vacancy decreased 30 basis points.
◆ Rent Forecast: Asking rents will advance to $31.71 per square foot this $150
year while effective rents climb to $28.29 per square foot, gains of 7.1
◆ Investment Forecast: Investor interest will likely increase for suburban

$50
office assets in areas such as the Northend/Snohomish submarket, 03 04 05 06 07*
where spillover leasing activity is expected to pick up this year due to
tight conditions and high rents in the adjacent Central submarket. * Estimate ** Forecast

St. Louis New to NOPI 2008 Rank: 37 2007 Rank: NA
Downtown St. Louis Office Market

Poised for Gradual Turnaround
Employment Trends
S
lower employment growth and increased speculative office
Nonfarm Office-Using development will cause a mild uptick in the St. Louis vacancy rate this
4%
year. While completions are expected to accelerate from the pace
established over the last few years, deliveries will come in well below levels
3% posted during the first part of the decade and will account for only a modest
addition to overall inventory. Occupancy in downtown St. Louis, however,
2% is forecast to improve in 2008, a trend that should continue going forward. A
resurgence in urban living in the area has resulted in an influx of well-
1% educated, young professionals, whose growing presence will likely attract
relocating firms in the years ahead. In fact, the urban core is anticipated to
0%
register its first year of positive office absorption in six years, driving a 130
04 05 06 07 08** basis point decline in vacancy.
Office Supply and Demand Near-term fluctuations aside, St. Louis’ positive extended outlook will
sustain investor demand in 2008, though overall sales activity may moderate
20%
Vacancy somewhat. This year, more conservative underwriting is expected to
dampen transaction velocity, causing some motivated sellers who want to
2 18% avoid extended list times to adjust price expectations. As such, cap rates are
Vacancy Rate
likely to trend up from the high-7 percent range, providing opportunities for
1 16% out-of-state buyers looking to expand their portfolios. Investors may want to
consider properties in the centrally located Olive/Westport submarket,
0 14% which is expected to continue to account for a significant share of metrowide
absorption in the years to come. Concessions in the submarket are elevated
-1 12% but should decline significantly going forward as tenants expand operations
04 05 06 07 08** in the area. Elsewhere, Class B assets near the downtown area may provide
opportunities for forward-looking buyers seeking to raise property values
Rent Trends through renovation efforts.
$22
2008 Market Outlook
$20
◆ 2008 NOPI Rank: 37, New to Ranking. St. Louis makes its debut in the
$18
bottom quarter of the index due to slowing employment growth and a
modest vacancy rise.
$16 ◆ Employment Forecast: Local job growth will slow to 11,600 position this
year, a 0.8 percent gain, after 18,000 jobs were added in 2007. Office-using
$14 employers are forecast to hire 1,700 workers for an increase of 0.6 percent.
04 05 06 07 08**
◆ Construction Forecast: Developers will bring 640,000 square feet of
Sales Trends office space to the market in 2008, up from 500,000 square feet last year.
New space will represent a 1.4 percent addition to inventory.
$140
◆ Vacancy Forecast: After falling 60 basis points in 2007 to its lowest level in
$120 three years, vacancy will inch up 20 basis points to 14.9 percent this year.
$100 ◆ Rent Forecast: Asking rents are expected to reach $20.45 per square foot
by year-end 2008, a gain of 2.5 percent, while effective rents will advance
$80 2.1 percent to $16.82 per square foot.
◆ Investment Forecast: Investors seeking upside potential will continue to

$60
03 04 05 06 07* target properties in the Clayton submarket. While prices in the area
remain elevated, new development is forecast to be minimal in the years
* Estimate ** Forecast ahead, and tenant demand is expected to remain strong.

Down 6 Places 2008 Rank: 19 2007 Rank: 13 Tampa
Despite Limited Vacancy Uptick, Divergent

Price Trends Present Opportunities in Tampa
Employment Trends
O
ffice vacancy in Tampa fell 500 basis points from 2003 to 2006 but is now
expected to rise for a second successive year. Recent improvements in Nonfarm Office-Using
12%
market fundamentals have been attributable to vigorous demand for
Class A space in areas such as the Westshore and North Tampa submarkets,
but demand-side momentum was receding as 2007 ended. In North Tampa, 9%
Class A demand will cool for the next several quarters due to the effects of a
soft housing market on employer expansion. In the lower tiers of the local 6%
office market, recent vacancy improvements are partly attributable to a
reduction in for-lease inventory, presumably for conversion to owner- 3%
occupied space. In Pinellas County, for example, a vacancy decline of more
than 400 basis points since 2005 can be explained to some degree by a 7 percent 0%
loss in the amount of for-lease stock. Slower office-using job growth, though, 04 05 06 07 08**
will curtail purchases of Class B/C space and stem the flow of inventory
reductions in the near term. This trend could be beneficial, however, as some Office Supply and Demand
businesses that would have purchased space remain renters instead. 3 Completions Absorption 18%
Vacancy
On the investment side, cap rates are expected to stay within the current

2 16%
range of 7.3 percent for Class A assets to 8 percent or more for Class B/C
Vacancy Rate
properties. Marketwide, the rate of price appreciation eased last year,
although different trends emerged in Hillsborough and Pinellas counties. 1 14%
Climbing prices in Hillsborough County may encourage owners to list
properties while high valuations persist. In Pinellas County, prices fell 0 12%
gradually over the latter half of 2007, perhaps reflecting comparatively weaker
fundamentals in areas such as the middle section of the county. Investors may -1 10%
want to consider the historically reliable performance of properties and view 04 05 06 07 08**
the current dip in prices as an opportunity to explore potential purchases.

Rent Trends
◆ 2008 NOPI Rank: 19, Down 6 Places. A dropoff in office-using job

growth caused Tampa to fall six places in this year’s index. $21
◆ Employment Forecast: Employers are expected to expand payrolls 1.1 $18

percent in 2008 with the addition of 15,300 positions. Office-using
employment growth will fall to 2,300 jobs this year due to a slowdown $15
in housing-related financial services employment.
◆ Construction Forecast: Developers will deliver 800,000 square feet of $12

04 05 06 07 08**
for-lease office space in 2008, down from 1 million square feet last year.
◆ Vacancy Forecast: Supply growth will be only partially offset by a modest Sales Trends
increase in demand, driving a 70 basis point rise in vacancy to 12.7 percent $180
this year. Sublease space trends merit watching, especially in buildings
with high concentrations of mortgage- and housing-related firms.

$150
◆ Rent Forecast: Asking rents are expected to climb 4.2 percent this year
to $22.76 per square foot, while effective rents rise 4 percent to $19.65 per $120
square foot, down from a surge of 8.3 percent last year.
$90
◆ Investment Forecast: Areas along Interstate 4 and Interstate 75 in East
Tampa are poised for population growth, as well as a corresponding rise
$60
in office-using employment and office demand. While development 03 04 05 06 07*
deals in the region will garner attention, investors intent upon establish-
ing an early presence will step up purchases of existing assets. * Estimate ** Forecast

Tucson Up 4 Places 2008 Rank: 11 2007 Rank: 15
Steady Back-Office Job Growth and Limited

New Supply Favor Tucson Office Market
Employment Trends
O
ffice property owners in Tucson will benefit from a healthy
Nonfarm Office-Using employment market and a lack of significant building in 2008. The
9%
metro’s pro-business climate and robust household growth continue
to encourage payroll expansion in population-driven employment segments.
6% As in years past, some space demand will be absorbed in build-to-suit assets.

Afni, for example, announced plans to build a 53,000-square foot call center
3% this year in the Northwest submarket. The development will generate 200
new back-office positions, while the company also plans to add 150 jobs at an
0% existing site in the Eastside submarket. On the whole, construction is limited,
creating little risk of a supply/demand imbalance. As a result, vacancy is
-3%
forecast to end the year at its lowest level since 2000, allowing for solid rent
04 05 06 07 08** growth and reduced concessions. Rent growth in the Tucson office market is
expected to be led again by the metro’s largest submarket, the Eastside,
Office Supply and Demand which is forecast to record effective rent gains of nearly 5 percent this year.
16%
Vacancy The metro’s attractive long-term demand drivers and positive economic
outlook will sustain investor activity in 2008. Average cap rates for Class B/C
0.5 14% properties are expected to settle in the high-7 percent range, while newer
Vacancy Rate
assets are projected to trade at cap rates in the low-7 percent range. Risk-
0.0 12% tolerant buyers with significant cash reserves will likely favor the Downtown
submarket; renovation efforts are ongoing, while vacancy is forecast to
-0.5 10% improve as more businesses move into the area in the coming years. Investors
seeking long-term growth potential will likely target newer, well-located
-1.0 8% assets in the Northwest submarket, where residential growth and the
04 05 06 07 08** expansion of Interstate 10 could drive some tenant demand for office space.

$24
◆ 2008 NOPI Rank: 11, Up 4 Places. Vacancy is expected to drop below 10
percent in Tucson this year, fueling a four-spot rise in the ranking.
$21
◆ Employment Forecast: Employers are forecast to add 5,200 jobs this

$18
year, a 1.4 percent increase. Office-using job growth is expected to climb
0.8 percent, or by 600 positions, after contracting 1.7 percent last year
$15 due to layoffs in housing-related industries.
$12 ◆ Construction Forecast: Completions are projected to total approximate-

04 05 06 07 08** ly 75,000 square feet in 2008, down from 130,000 square feet last year.
The Northwest submarket will account for all of the new space forecast
Sales Trends to come online this year.
$175
◆ Vacancy Forecast: After remaining steady last year, vacancy is expected
to decline 70 basis points to 9.9 percent by year-end 2008.

$150
◆ Rent Forecast: Asking rents are forecast to climb 3.7 percent to $22.24
$125 per square foot this year, while effective rents gain 4.4 percent to $19.20
per square foot.
$100
◆ Investment Forecast: Opportunities may be found in the Central
submarket, where the University of Arizona is driving population
$75
03 04 05 06 07*
growth and limited new completions are bolstering fundamentals.
Accordingly, owners in the area are expected to trim concessions and
* Estimate ** Forecast register solid revenue growth, placing upward pressure on prices.

Down 4 Places 2008 Rank: 6 2007 Rank: 2 Washington, D.C.
Overall Health of D.C. Market Intact Despite

Elevated Construction Levels
Employment Trends
O
ffice-using employment in the Washington, D.C., metro will continue to
expand in 2008, but at a more modest rate than in recent years, easing Nonfarm Office-Using
4%
space demand. In the District, a general slowdown in leasing
momentum at the end of 2007 will carry over, resulting in a 50 basis point rise
in the vacancy rate to 7.9 percent this year. Rent growth will remain strong due 3%
to limited space availability, as asking and effective rents are each projected to
surge 8 percent. In the Maryland suburbs, an expected lack of growth in 2%
mortgage-related employment will contribute to a 90 basis point rise in the
vacancy rate to 10.4 percent, despite a decline in completions. Beyond 2008, 1%
prospects for key submarkets in Maryland, such as Bethesda and the I-270
Corridor, remain positive due to the area’s well-educated work force. 0%
04 05 06 07 08**
In Virginia, approximately 5.2 million square feet of space is slated to
come online in 2008, most of it in communities outside the Beltway, like
Herndon and Ashburn. Recently, new space in Virginia has been slow to
lease, a trend that is expected to continue due to restrained job growth. Vacancy
Along the Route 28 corridor, for example, buildings delivered in 2006 and

9 11%
2007 were 50 percent vacant at the end of last year. Still, the current
Vacancy Rate
imbalance of supply and demand in Virginia is expected to be short-lived,
and the vacancy rate will likely decline when faster economic growth 6 10%
resumes. Indeed, investors should regard the current slowdown in the entire
metro area as temporary and begin to identify potential purchases before the 3 9%
next upturn occurs. Class B and Class C assets, particularly, may be well-
positioned to benefit from the next wave of new business startups that is 0 8%
likely to transpire when economic growth begins to pick back up again. 04 05 06 07 08**

$40
◆ 2008 NOPI Rank: 6, Down 4 Places. Demand remains healthy in
Washington, D.C., but active building drove a four-spot drop in the index.
$36
◆ Employment Forecast: Employers added 44,000 jobs last year and will
create 25,000 new positions in 2008 for a 0.8 percent gain. Growth in office- $32
using sectors will total 10,400 jobs, compared with 21,000 positions in 2007.
$28
◆ Construction Forecast: The marketwide stock of competitive office
space will expand by 6.8 million square feet in 2008. Last year, 7.4
million square feet of space was completed. $24
04 05 06 07 08**
◆ Vacancy Forecast: Slower absorption of new space will underpin an 80

basis point rise in the marketwide vacancy rate to 9.9 percent in 2008. In Sales Trends
Virginia, vacancy will climb 90 basis points to 11.1 percent, similar to the
$300
increase registered in 2007.
◆ Rent Forecast: Asking rents are expected to increase 5.1 percent to $250
$37.10 per square foot in 2008, while effective rents advance 4.8 percent
to $32.73 per square foot. $200
◆ Investment Forecast: Properties in close-in suburbs become more $150

valuable every year, and the redevelopment of older assets in areas such
as College Park and Falls Church could provide significant returns for
$100
patient investors. Also, marketwide average cap rates, which vary from 03 04 05 06 07*
6.0 percent to 7.8 percent, will remain in their current range, though
upward pressure on initial returns is likely for assets in outlying areas. * Estimate ** Forecast

West Palm Beach Down 12 Places 2008 Rank: 31 2007 Rank: 19
Palm Beach Office Investors Moving Away

from Class C Assets, Focusing on Top Tiers
Employment Trends
T
he long-term prospects for the Palm Beach County office market remain
Nonfarm Office-Using bright due to ongoing population growth and an expanding economy,
8%
but the near term will be marked by softening space demand. The
vacancy rate climbed 120 basis points in 2007 and is projected to rise again
6% this year in response to a reduced rate of employment growth, partly attrib-

utable to a slower housing market. Effective rents, meanwhile, surged 6.7
4% percent last year, with a more modest increase forecast in 2008 as countywide
leasing volume decreases. In the large Boca Raton submarket, for example,
2% effective rent growth tapered steadily during the year to 5.8 percent. Effective
rents in the submarket are anticipated to rise approximately 3.5 percent this
0% year, and concessions, which ticked up at year end, could continue to climb
04 05 06 07 08** in the quarters ahead due to softer demand.
Office Supply and Demand In the investment market, the county’s recent rent growth will sustain
3 Completions Absorption investors’ interest. Prices appreciated again last year as buyers outnumbered
16%
Vacancy sellers, though cap rates rose incrementally to between 6.7 percent and 7.8
percent by year end. Marketwide average cap rates may remain in their
2 14%
current range over the next several months as investment activity shifts from
Vacancy Rate
Class C properties to better-quality Class A and Class B assets. Conversion

1 12%
buyers bid up the price of lower-tier properties to more than the price for
Class A and Class B assets from 2005 through early 2007, but the trend was
0 10% clearly reversing by year end. Class C properties will still change hands in
the months ahead, but owners will have to adjust price expectations to
-1 8% account for the absence of conversion buyers.
04 05 06 07 08**
2008 Market Outlook

Rent Trends
$32
Asking Rent Effective Rent ◆ 2008 NOPI Rank: 31, Down 12 Places. Completions will increase while
absorption will be minimal, causing West Palm Beach to slip 12 places.
$28
◆ Employment Forecast: In 2008, total employment will expand by 7,400
workers, a 1.2 percent increase but a decline from 10,000 jobs created last
$24 year. Office-using sectors are expected to add 1,400 positions this year,
compared with 3,900 new hires in 2007.
$20
◆ Construction Forecast: Builders are scheduled to deliver 1 million
$16
square feet of for-lease office space in 2008, up from 300,000 square feet
04 05 06 07 08** last year. The 296,000-square foot CityPlace Tower in downtown West
Palm Beach is expected to come online in the first quarter.
Sales Trends
◆ Vacancy Forecast: Leasing activity is slowing, and new supply is
$250 projected to outpace absorption, leading to a 120 basis point rise in the
vacancy rate this year to 12.6 percent. Additional competition for
$200 tenants may stem from unsold office condos re-entering the rental pool.
◆ Rent Forecast: This year, asking rents are forecast to climb 3.3 percent to
$150
$29.84 per square foot, and effective rents are expected to add 3.1
percent to $25.38 per square foot.
$100
◆ Investment Forecast: Over the long term, properties located in the

$50 southern portion of the county in areas such as Boca Raton, Boynton
03 04 05 06 07* Beach and Delray Beach will maintain strong occupancy and rent
* Estimate ** Forecast growth, providing investors with solid returns and upside potential.

National Office and Industrial Properties Group Managing Directors

Alan L. Pontius, Senior Vice President, National Director, Harvey E. Green, President, Chief Executive Officer
National Office and Industrial Properties Group Tel: (818) 907-0600 / hgreen@marcusmillichap.com
Yitzie Sommer, Senior Manager, Research and Marketing
National Office and Industrial Properties Group Linwood C. Thompson, Senior Vice President, Managing Director
National Multi Housing Group
National Research Team Tel: (678) 808-2700 / lthompson@marcusmillichap.com
John Chang, National Research Manager Gary R. Lucas, Senior Vice President, Managing Director
Bryan O’Keefe, National Client Services Manager Tel: (415) 963-3000 / glucas@marcusmillichap.com
Peter O’Neil, National Publications Manager
Thomas Hershey, Senior Analyst Bernard J. Haddigan, Senior Vice President, Managing Director
Erica Linn, Senior Analyst National Retail Group
Chris Best, Research Associate Tel: (678) 808-2700 / bhaddigan@marcusmillichap.com
Sarah Brewer, Research Administrator
Michael Brown, Research Associate John J. Kerin, Senior Vice President, Managing Director
Amber Bryan, Assistant Editor Tel: (818) 907-0600 / jkerin@marcusmillichap.com
Justin Buckley, Research Analyst David A. Wetta, Senior Vice President, Managing Director
Greg Clemmer, Market Analyst Tel: (602) 952-9669 / dwetta@marcusmillichap.com
Justin Davenport, Research Analyst
Jonni deGraaf, Research Analyst Mitchell R. LaBar, Senior Vice President, Managing Director
David Delich, Research Analyst Tel: (818) 907-0600 / mlabar@marcusmillichap.com
David DeMarti, Research Associate
Neil Evans, Research Associate Donald A. Lorenz, Senior Vice President, Managing Director
Art Gering, Senior Market Analyst Tel: (650) 494-9800 / dlorenz@marcusmillichap.com
Josh Gisselquist, Research Associate Hessam Nadji, Senior Vice President, Managing Director
Steve Hovland, Market Analyst Research Services
Kevin Major, Research Analyst Tel: (925) 953-1700 / hnadji@marcusmillichap.com
Jon McNulty, Research Associate
Nancy Olmsted, Research Associate Stuart E. Kaiser, Chief Financial Officer, Managing Director
David Sours, Research Associate Tel: (818) 907-0600 / skaiser@marcusmillichap.com
Jarrod Thuener, Research Associate
Patricia Trinidad, Research Associate Kevin A. Assef, Senior Vice President, Managing Director
Christopher Wright, Research Associate Tel: (909) 456-3400 / kassef@marcusmillichap.com
Greg A. Moyer, Senior Vice President, Managing Director

Communications/Graphic Design Tel: (773) 867-1500 / gmoyer@marcusmillichap.com
Michelle Cocagne, First Vice President,
Corporate Communications Paul S. Mudrich, General Counsel, Managing Director
John Sterns, Marketing Manager Tel: (650) 396-1900 / pmudrich@marcusmillichap.com
Stacey Corso, Public Relations Manager
Gene A. Berman, Senior Vice President, Managing Director
Tel: (954) 245-3400 / gberman@marcusmillichap.com
Contact:
John Chang Alan L. Pontius, Senior Vice President, National Director
National Research Manager National Office and Industrial Properties Group
2398 E. Camelback Road, Suite 550 Tel: (415) 391-3000 / apontius@marcusmillichap.com
Phoenix, Arizona 85016
Tel: (602) 952-9669 William E. Hughes, Senior Vice President, Managing Director
Fax: (602) 952-9825 Marcus & Millichap Capital Corporation
john.chang@marcusmillichap.com Tel: (949) 851-3030 / whughes@marcusmillichap.com
Statistical Summary Note: Metro-level employment growth is calculated on a year-over-year basis using a fourth quarter average. Vacancy, and annual asking and
effective rent are year-end figures. Effective rent is equal to asking rent less concessions. Median prices and cap rates are a function of the age, class and geograph-
ic area of the properties trading and therefore may not be representative of the market as a whole.
Note: Averages and medians may be based on all property classes or Class A and Class B only in some markets. Geographic market boundaries, survey samples,
methodologies and data may change, affecting historical reporting basis and comparability with past reports or analyses. In the event of a basis change, historical
data is recalculated. If you have any questions regarding a historical series or methodology, please contact John Chang at john.chang@marcusmillichap.com. The
information contained in this report is deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, war-
ranty or guarantee, expressed or implied, may be made as to the accuracy or reliability of the information contained herein.
Sources: Marcus & Millichap Research Services, American Council of Life Insurers, Bloomberg, Blue Chip Economic Indicators, Bureau of Economic Analysis, California Department of
Finance, Commercial Mortgage Alert, CoStar Group, Inc., economy.com, Federal Reserve Board, Freddie Mac, Morgan Stanley, NCREIF, National Real Estate Index, National Venture Capital
Association, Northwestern Mutual Life Insurance, Property & Portfolio Research, PWC Moneytree, Reis, Inc., Real Capital Analytics, Real Estate Center at Texas A&M University, SRC, The
Conference Board, TWR/Dodge Pipeline, U.S. Bureau of Census, U.S. Bureau of Labor Statistics, U.S. Department of the Treasury, U.S. Securities and Exchange Commission.
© Marcus & Millichap 2008

National Office and Industrial Properties Group
M
arcus & Millichap’s National Office and Industrial Properties Group (NOIPG) offers clients property-
specific and local market expertise regarding office and industrial property transactions.
Leveraging the firm’s network of more than 1,300 agents in offices nationwide, the NOIPG matches
capital and properties across geographic boundaries. Supported by the company’s broad range of client-
focused services, Marcus & Millichap’s office and industrial property specialists help investors maximize
value while meeting their investment goals.
Turning Expertise into Investor Value
Specialized Office Market Research

■ Our Research Services group consists of a team of experienced professional real estate analysts with
extensive market knowledge, including office supply trends, rents, vacancies and construction, as well
as expert financial analysis. Customized and advisory research services are also available, including
market studies, property analysis and monitoring, development studies and long-term investment
strategy support. These tools provide our clients with a systematic method for evaluating all aspects
of their office investment options.
Local Expertise, National Marketing Platform

■ Our NOIPG professionals formulate the right marketing strategy and execute each transaction with
maximum efficiency based on client needs and objectives. Marcus & Millichap’s culture of information
sharing and unique communication technology (MNet) facilitates the matching of each office property
to the right investors, many of whom are active in multiple property types.
Unparalleled Access to Private and Institutional Investors

■ Extensive communication and information sharing among NOIPG professionals, coupled with our long-
term relationships with private investors, institutions, developers and syndicators, assures the exposure
of each listing to the largest pool of qualified and motivated investors. Each transaction is planned and
executed in a proactive manner, from designing the right marketing plan, to buyer selection and
managing the close.
For further information, contact:

Alan L. Pontius
National Director, National Office and Industrial Properties Group
Marcus & Millichap
750 Battery Street
Fifth Floor
San Francisco, California 94111
Tel: (415) 391-9220
apontius@marcusmillichap.com

Healthcare Real Estate Group
M
arcus & Millichap’s Healthcare Real Estate Group (HREG) sells investment properties nationwide
on behalf of individuals, partnerships and major institutions, as well as developers and hospital
systems. Investment professionals in the HREG are adept at understanding clients’ needs and
helping them meet their objectives. Clients benefit from our national market coverage and unique
culture of information sharing among Marcus & Millichap agents, which enable us to match buyers and
sellers, effectively moving capital across geographic regions and product types.
Adding Value Through Specialization, Investor Access
Health Care Property Expertise

■ Based on a thorough understanding of the property and local market, we provide expert property
underwriting and valuation, positioning each property at the leading edge of the market.
■ Our HREG agents are 100 percent focused on investment brokerage and offer transaction expertise
specific to the unique requirements of health care properties. Agents are able to analyze and
articulate each health care asset’s position within the local health care delivery system.
Access to Critical Research, Trends

■ HREG agents possess a wealth of knowledge on a wide variety of health care assets throughout the
nation, including medical office buildings and surgery centers. In addition, Marcus & Millichap’s
Research Services division produces comprehensive real estate market and economic analyses, helping
clients to evaluate investment options and make informed decisions.
Unrivaled Investor Relationships

■ Marcus & Millichap’s Healthcare Real Estate Group boasts an extensive track record of long-term client
relationships and repeat business from both institutional and private investors, including the industry’s
largest pool of 1031 exchange buyers. Our company’s national presence creates the maximum
exposure for each health care asset — locally, regionally and nationally.

Alan L. Pontius
National Director, Healthcare Real Estate Group
Marcus & Millichap
750 Battery Street
Fifth Floor
San Francisco, California 94111
Tel: (415) 391-9220
apontius@marcusmillichap.com

Marcus & Millichap Capital Corporation
M
arcus & Millichap Capital Corporation provides owners and investors access to the most
competitive real estate financing through prominent national and regional lenders. Our network
of experienced and dedicated finance professionals assures that each refinance, acquisition or
development financing receives the ideal rate and terms available in the marketplace. Each transaction is
executed through a reliable and closely managed process.
Experience, Relationships Produce Optimal Financing
Specialized Financing Expertise

■ Our national team of finance professionals has specialized experience in providing financing for a full
range of investment property types. Our goal is to secure the most competitive financing in both loan
terms and proceeds by leveraging our expertise in local real estate markets as well as the national
capital markets.
Proactive Loan Package Design

■ Our financing experts optimize the loan package, structure and terms based on the specific needs and
objectives of the client. From the application process to lender selection and managing the funding,
we use a proactive approach to simplify the entire process for the client.
■ The track record and market knowledge of our representatives play a critical role in designing the right
loan package up front. Each transaction is positioned to achieve the best financing before the
application process begins. Based on the latest local real estate market conditions, we produce a
detailed assessment of the subject property and current capital market conditions.
A Broad Selection of Lender Relationships

■ Through our long-term relationships with well-established and respected lenders, our professionals are
able to secure the right financing, with the most attractive rates and terms, for each transaction.
■ Reliability and the ability to deliver the ideal financing package on time are key aspects of our lender
selection, which includes commercial banks, securitized lenders, Fannie Mae, Freddie Mac, life
insurance companies and other capital sources. Only lenders with a proven history of execution are
chosen on behalf of our clients.

William E. Hughes
Managing Director, Marcus & Millichap Capital Corporation
19800 MacArthur Blvd., Suite 150
Irvine, California 92612
Tel: (949) 851-3030
whughes@marcusmillichap.com

Office Research Services
M
arcus & Millichap’s Research Services group utilizes a two-tiered approach of combining local
market research with national economic and real estate analysis to develop premier research
services for real estate investors. Marcus & Millichap’s research capabilities are customized by
property type to service the unique needs of owners and investors in various property sectors. Market
reports are produced on a regular basis in addition to specific submarket and area analyses to support
clients’ investment decisions.
Fact-Based Investment Strategies
Supply and Demand Analysis

■ Comprehensive office property analyses are produced based on the latest data on new supply,
vacancies, rents and sales trends tracked internally and through the most respected data sources in
the industry. On the demand side, expansion and relocations are tracked regularly as well as vital local
and national economic and demographic indicators. This comprehensive approach enables our office
investment professionals to integrate all variables that impact office property values for the benefit
of our clients.
Expert Financial Analysis

■ Our financial analysts work closely with our office investment experts to establish the current and
future value of office assets using custom models. Peer properties are analyzed in detail to establish
rent, vacancy and other competing factors relating to valuation. In addition, office projects under
construction, recent office property sales as well as comparable properties on the market are
reviewed.
Tenant, Credit Analysis

■ Our national database of businesses allows our NOIPG professionals to analyze employment density,
major employers at the local level as well as employment by industry and/or business category to
further determine the economic strength of specific trade areas. Access to various credit rating
databases allows owners and investors to evaluate the strength of key tenants and establish various
re-tenanting options and property positioning strategies within local markets.

John Chang
National Research Manager
Marcus & Millichap
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Phoenix, Arizona 85016
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Melbourne Santa Fe
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Suite E-5 1900 Summit Tower Boulevard Suite 462
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Suite 260 Suite 100
Oakland, CA 94607 Salt Lake City, UT 84101
Tel: (510) 379-1200 Tel: (801) 736-2600
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2008 National Office Report

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2008 National Office Report

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Real Estate Investment Research

2008 National Office Report

To our valued clients:

Harvey E. Green Hessam Nadji

National Office Market Overview

2008 Annual Report page 3

Millions of Square Feet

2008 National Office Property Index

4% Housing Market Driving Normalization in the Office Market

Following an extended run of outstanding performance, the office

market is expected to record results closer to historical averages this year

as continued weakness in the banking industry and the housing market

slows employment growth. After peaking in 2003, national office vacan-

21% year, completions are expected to total approximately 68 million square

becomes available. Markets where elevated land costs make speculative

construction more challenging to pencil out, such as New York City,

strongest returns this year. Rent growth in these markets, however, is

forecast to come in below last year’s double-digit gains.

page 4 2008 Annual Report

2008 Annual Report page 5

U.S. Economic Resilience Put to Test in First

Oil Prices and Core Inflation 2008 National Economic Outlook

export activity and a still-sturdy corporate sector.

◆ Job Creation Slows. Employment is forecast to increase 0.8 percent in

Net Exports of Goods and Services

◆ Financial Markets Volatile. A lack of investor confidence will continue

page 6 2008 Annual Report

Modest Uptick in Vacancy in 2008; Tighter

Square Feet Completed (millions)

Office space absorption is expected to decelerate during the first half of

Millions of Square Feet

Concessions as a % of Asking Rents

◆ Rent Growth Decelerating. Despite a modest increase in vacancy,

◆ Demographics Favor Medical Office. Medical office vacancy will increase

2008 Annual Report page 7

Reversion to the Norm Still Having Dramatic

lenders react swiftly to new economic and credit market indicators.

underwriting in recent years may have compromised some mortgage pools.

expected to return to pre-shock levels any time in the foreseeable future.

◆ Interest-Only Loans Decline. Cautious lenders have reduced riskier

◆ Lenders Placing Greater Weight on Location and Quality. Most life

page 8 2008 Annual Report

Quality, Location and Operations, Not Capital

Median Price per Square Foot

Average Cap Rate

Avg. Cap Rates

◆ Foreign Investors Active. Foreign investment in U.S. office properties

primary coastal markets. The weak dollar will continue to encourage

◆ Low-Leverage Buyers at an Advantage. The financing tides have 75%

◆ Office Cap Rates Comparatively Favorable. Cap rates for office

2008 Annual Report page 9

Healthy Job Growth Pushing

2008 Market Outlook

◆ Employment Forecast: Local employers are forecast to add 32,300 jobs

◆ Construction Forecast: Builders are expected to deliver 2.5 million

page 10 2008 Annual Report

New Supply Pushing Vacancy Higher;

Square Feet (millions)

◆ Investment Forecast: Buyers with longer holding periods may want to

2008 Annual Report page 11

Rents Continue to Push Higher in Boston

may want to consider opportunities in Cambridge, which is experiencing

◆ Employment Forecast: Boston employers are expected to increase