National Studley Effect Rent Index

10

Methodology

Since 1995, the Studley Effective Rent Index (SERI) has been providing the real estate industry’s only comprehensive, in-depth study of effective rental rate trends and the real cost of occupancy for tenants in the nation’s major Central Business Districts (CBDs) and selected suburban markets. The SERI report provides “real world” numbers that refl ect lease terms, including negotiated rents and concessions, as well as operating expenses, real estate taxes and electricity costs.

Each year, Studley analysts examine larger long-term direct deals signed in the highest-quality Class A properties. Total (gross) rent is separated into its key components: net (or base) rent, operating expenses, real estate taxes and electricity costs. The Tenant Effective Rent Index (the cost of occupancy to the tenant) is derived from total rent less the value of concessions provided by the landlord. Finally, the Landlord Effective Rent Index (the landlord’s bottom line) is calculated from total rent less costs incurred by the landlord, which include expenses, concessions and commissions.

All statistics in this year’s SERI report are based on larger long-term leases completed during 2009 in existing or newly constructed Class A buildings.

Summary of Key Findings 1

National Benchmarks 2

Landlord Concessions 4

Tenant Effective Rent 6

Landlord Effective Rent 10

Total Rent Components 14

CBD Rent Trends 24

Suburban Rent Trends 32

Statistical Summary 36

Glossary 37

Supplementary Information 38

SERI2010

TABLE OF CONTENTS

S T U D L E Y E F F E C T I V E R E N T I N D E X 2 0 1 0 1

Summary of Key Findings

2009 20082009

Change2008

ChangeMarkets

DecreasingMarkets Increasing

Net (Base) Rent Index ‐ (Page 17) $29.51 $40.34 ‐26.9% ‐6.4% 15 1

(Operating Expenses) ‐ (Page 18) $9.86 $9.72 1.5% 3.2% 2 14

(Real Estate Taxes) ‐ (Page 19) $9.67 $9.32 3.8% 3.4% 2 14

(Electricity ) ‐ (Page 20) $2.69 $2.63 2.4% 4.3% 2 14

Total Rent Index ‐ (Page 21) $51.73 $62.24 ‐16.7% ‐2.9% 14 2

(Concessions) ‐ (Page 4) $91.10 $71.94 26.6% 19.4% 0 16

Tenant Effective Rent Index ‐ (Page 6) $38.98 $51.14 ‐23.8% ‐7.0% 0 16

Landlord Effective Rent Index ‐ (Page 10) $17.11 $29.21 ‐41.4% ‐13.1% 0 16

Real estate taxes rose at a faster pace than operating expenses and tenant electric.

The increase in tenant electric was about half that recorded in 2008.

Total rent posted a record decline, exceeding the 11.1% drop in 2002.

KEY CBD FINDINGS

COMMENTS

The net rent index fell for the second straight year, posting its steepest annual decrease on record.

Operating expenses registered a very moderate increase compared to prior years.

TOTAL RENT COMPONENTS

BENCHMARK EFFECTIVE RENT INDEXES

Concession packages spiked by more than 25.0%, exceeding last year's jump of nearly 20.0%.

A record jump in concessions combined with plummeting net rents spurred a decline of nearly 25.0%.

Landlords' bottom line plunged by more than 40.0% in 2009 as they extended generous packages and lowered

net rents.

Plunge in Net Rents Resets Market Floor

Effective rents registered their largest single-year correction since the SERI index began, as demand for offi ce space in most markets plummeted to its lowest

level in more than a decade. The value of concessions spiked by more than 25% and the decline in net (base) rents reset the starting point for rents in nearly

every market. Net rents plunged by more than 30% in the markets that had the most room for adjustment, such as Manhattan and West Los Angeles. Atlanta,

Chicago, and Tampa Bay posted more moderate declines of less than 10%, but the operating margins were already razor-thin in these markets. Only a few

markets – Denver, Houston, Philadelphia, and Washington, DC – can be accurately described as holding their ground on rents due to less severe conditions.

Although the effective rents of 2009 represent just one year’s worth of transactions, the decline was so extensive that the new starting point for net rents

– the fl oor for prime Class A space – has fallen to its levels of 2003 or in some cases of the mid-1990s. The upside was a much lower cost to lease space

– businesses that were able to sign new leases or restructure their current leases were able to lock in generational savings on real estate.

S T U D L E Y E F F E C T I V E R E N T I N D E X 2 0 1 02

National Benchmarks

National Benchmarks Comparison LandlordEffective

TenantEffective

Pivotal Fall in Effective Rents

Tenant occupancy costs (the National

Tenant Effective Rent Index) registered the

largest year-on-year decline since the SERI

index started in 1995. Tenant effective rent

decreased by 23.8% during 2009, falling from

$51.14 to $38.98. Tenant effective rent was

about 2.5% below its mark in 2005 ($40.00).

The National Landlord Effective Rent Index

dropped by a record 41.4%, plummeting from

$29.21 in 2008 to $17.11 in 2009.

A sharp drop in net rent, combined with

generous concession packages, caused the

decline.

$0

$10

$20

$30

$40

$50

$60

Tenant Effective Rent $37.63 $45.44 $43.68 $36.73 $35.15 $36.35 $40.00 $46.14 $55.02 $51.14 $38.98

Landlord Effective Rent $21.61 $28.74 $27.33 $19.65 $17.64 $18.06 $20.79 $26.39 $33.63 $29.21 $17.11

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


SERI2010

Total Rent Dives

Total (or gross) rent fell by 16.7% in 2009, declining from $62.24 to $51.73. Total rent consists of four components: net (or base) rent, operating expenses, real estate taxes and electricity.

The sharp drop in net rent was the critical factor in 2009. Net rent declined for the second straight year, falling by 26.9% to $29.51. By comparison, net rent decreased by 6.4% in 2008 to $40.34.

Expenses associated with building operations continued to increase. Real estate taxes rose by 3.8% to $9.67, slightly more than last year’s growth of 3.3%. Electricity posted a more moderate gain than in recent years, inching up by 2.4% to $2.69. Operating expenses recorded the most modest rise, of 1.5% from $9.72 to $9.86.

Total Rent Components Net Rent Operating Expenses

Real Estate Taxes Electricity

$43.67 $51.22 $48.14 $42.81 $42.09 $43.37 $46.68 $53.01 $64.07 $62.24 $51.73Total Rent

$0

$10

$20

$30

$40

$50

$60

$70

Net Rent $29.54 $36.66 $33.18 $26.94 $25.58 $26.01 $28.43 $33.97 $43.11 $40.34 $29.51

Operating Expenses $6.78 $7.01 $7.26 $7.54 $7.84 $8.13 $8.22 $8.59 $9.42 $9.72 $9.86

Real Estate Taxes $5.62 $5.71 $5.82 $6.42 $6.74 $7.23 $7.84 $8.09 $9.02 $9.32 $9.67

Electricity $1.73 $1.84 $1.87 $1.91 $1.94 $2.00 $2.20 $2.33 $2.52 $2.63 $2.69

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


Landlord Concessions

Fire Sale ConcessionsThe value of concession packages has increased in every year since 2006, with double-digit spikes in each of the last two years. In prior years, the increase was caused in part by the growth in rental rates that in turn infl ated the value of the packages. In 2009, the value of concession packages spiked by a record 26.6% from $71.94 to $91.10, in spite of steep declines in net rent. Landlords went to great lengths in most markets to get leases completed. In some markets, though, the depletion of reserves and the inability to secure funding kept tenant improvement dollars in check, forcing many landlords to offer expanded free rent periods instead. The value of concession packages reached record levels in 2009 in all but four markets as landlords scrambled to jumpstart waning demand. Every market except Philadelphia (up by only 7.1%) posted a double-digit increase in the value of concession packages. Values pushed above $100 in four markets: Chicago (+16.7% to $105.00); Atlanta (+18.2% to $105.00); Midtown Manhattan (+22.3% to $115.00) and Washington, DC (+87.1% to $131.00). The increase in concession packages in Washington, in contrast to that in the other markets, was not

$0

$20

$40

$60

$80

$100

$120

$140

2008 $70.00 $94.00 $88.86 $90.00 $78.00 $42.50 $55.88 $53.75 $37.50 $50.00 $45.00 $50.00 $44.00 $45.00 $29.00 $42.00

2009 $131.00 $115.00 $105.00 $105.00 $92.84 $65.85 $64.12 $62.04 $58.56 $57.50 $57.04 $55.00 $51.34 $50.00 $47.00 $45.00

WDC MTNY ATL CHI DTNY MIA TAM DEN HOU NJ SANFRAN DT LA DAL WLA SDO PHI

2008 2009Tenant Concessions: Market Comparison


SERI2010accompanied by a signifi cant decrease in net rents. Landlords in the nation’s capital chose to lure tenants with record-setting concessions including generous build-outs, but held their ground on base rents.

Amortized concessions as a percentage of gross rent provide a more precise gauge of the dramatic spike in the true value of packages. The 16.7% decline in gross rents combined with the 26.6% increase in concessions pushed the ratio of concession packages to initial year’s rent from 17.1% in 2008 to 24.3% in 2009, well above the peak ratio of 20.1% in 2003. Washington, DC (+11.5 pp) and Miami (+13.0 pp) registered the largest year-on-year increases in concessions as a percentage of initial year rent. In contrast, this percentage rose more moderately in Downtown Los Angeles (+1.3 pp) and San Francisco (+2.2 pp).

Tenants were also able to negotiate other substantial incentives not quantifi ed in the value of concession packages. These ranged from cancellation options and offset rights to fl exibility on moving and cabling allowance. Other companies gained building signage. The most notable instance was Willis Group’s lease that resulted in the renaming of Chicago’s iconic Sears Tower.

Value of Amortized ConcessionsLowest

(San Francisco)

Highest(Chicago)

NationalAverage

0%

5%

10%

15%

20%

25%

30%

35%

40%

National 13.8% 11.3% 14.2% 18.7% 20.1% 19.5% 17.9% 15.7% 13.9% 17.1% 24.3%

San Francisco (Low) 6.2% 3.4% 8.0% 21.0% 21.0% 20.4% 18.2% 16.8% 11.2% 13.9% 16.0%

Chicago (High) 15.7% 20.0% 26.1% 31.1% 31.6% 33.5% 36.9% 34.5% 28.1% 34.1% 38.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Amortized value of concession package/initial year's gross rent


Tenant Effective Rent

Tenant Effective Rent Market Comparison 2009National Median 2008

Occupancy Costs Dive

Tenant effective rent, the cost of occupancy for fi rms, declined by 23.8% in 2009, falling to $38.98.

In markets such as Manhattan, the steep drop was due to generous concession packages and a record cut in net rents. In 2008, the $100 mark was the starting point for negotiations in Midtown Manhattan, but this dropped to the $60.00-$70.00 range by midyear 2009. Even with these fl uctuations, few markets changed positions from a year ago – Midtown Manhattan remained the most costly for tenants, and Atlanta was once again the least expensive.

$0$5

$10$15$20$25$30$35$40$45$50$55$60$65$70$75$80$85$90

2008 $82.95 $54.64 $49.79 $45.21 $45.77 $34.93 $29.33 $37.71 $37.71 $25.60 $25.68 $23.12 $28.59 $19.74 $18.73 $17.94

2009 $49.62 $47.92 $46.06 $33.46 $32.00 $29.04 $27.85 $26.01 $24.54 $23.95 $23.66 $22.69 $22.30 $19.50 $17.65 $16.04

MTNY WDC SANFRAN WLA DTNY HOU DTLA MIA SDO NJ CHI PHI DAL DEN TAM ATL


Tenant Effective Rent Trends: Year-on-Year Change

SERI2010

Index Falls By Nearly 25%

The 23.8% decline in tenant effective rent during 2009 exceeded the 15.9% drop in 2002, which had been the largest year-on-year decrease. Tenant effective rent has now fallen by 29.2% from its peak of $55.02 in 2007. During the last recession, tenant effective rent fell by a total of 22.7%, from $45.44 in 2000 to $35.15 in 2003.

Tenant occupancy costs will decline further in 2010, but the decreases will probably be in the 5% to 10% range rather than the extreme drops seen during 2009. An additional 10.0% decrease would push tenant occupancy costs just below their mark in 2003. -30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Annual Change 5.8% 20.8% -3.9% -15.9% -4.3% 3.4% 10.0% 15.3% 19.2% -7.0% -23.8%1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cumulative decline: -22.7%

Cumulativedecline: -29.2%

10-Year Average: +0.4%


Tenant Effective Rent by Market

Tenant Occupancy Costs Decline Across the Board

Tenant occupancy costs declined in every market, with decreases of at least 10% in nine of the 16 markets. Tenant effective rent fell by more than 25% in fi ve markets, with the steepest drops occurring in Miami (-31.0%), San Diego (-34.9%) and both Manhattan submarkets (-40.2% in Midtown and -30.1% Downtown).

In ten of the markets, tenant effective rents fell at a much more moderate rate of less than 20.0%. In four of these markets – Denver (-1.2%), Philadelphia (-1.8%), Washington, DC (-12.3%) and Houston (-16.9%) – the relative stability can be attributed to healthier demand or more limited supply of quality product. Denver’s and Philadelphia’s CBDs, for example, both have a smaller supply of premiere product, and compared to other markets, the recession did not hit either of these markets as hard in terms of layoffs. Sublet supply consequently increased but not to the extent seen in Los Angeles, Chicago or Manhattan.

On the other hand, in markets such as Tampa Bay (-5.8%), New Jersey (-6.5%), Chicago (-7.9%) and Atlanta (-10.9%), tenant effective rent was already well below the national average headed into 2009. These markets had already experienced rent defl ation during 2007 and 2008, and landlords had little margin left to squeeze out lower net rents or increase concessions. In Atlanta, for example, tenant effective rent was just below $18.00 in 2008 – the lowest it had been on a non-infl ation adjusted basis since the mid-1990s. This rate fell to $16.04 in 2009.


SERI2010

Tenant Effective Rent: Year-on-Year Change by Market

-5.1%

-5.8%

-6.5%

-7.5%

-7.9%

-10.6%

-12.3%

-16.9%

-22.0%

-26.0%

-30.1%

-31.0%

-34.9%

-40.2%

-1.8%

-1.2%

-45% -40% -35% -30% -25% -20% -15% -10% -5% 0%

Denver

Philadelphia

Downtown LA

Tampa Bay

New Jersey

San Francisco

Chicago

Atlanta

Washington, DC

Houston

Dallas

West LA

Manhattan (DT)

Miami

San Diego

Manhattan (MT)


Landlord Effective Rent Market Comparison 2008 2009National Median

Landlord Effective Rent

$0

$10

$20

$30

$40

$50

$60

2008 $32.12 $27.85 $52.44 $23.19 $29.12 $15.03 $22.72 $23.88 $11.68 $16.30 $23.83 $9.73 $8.28 $7.39 $6.31 $5.62

2009 $28.60 $21.09 $19.57 $17.70 $17.49 $13.40 $12.25 $11.76 $10.16 $10.10 $9.99 $9.15 $7.68 $6.61 $4.09 $3.65

SANFRAN WDC MTNY HOU WLA DTLA MIA SDO NJ DAL DTNY DEN PHI TAM CHI ATL

Decline Exceeds 40%

Landlord effective rents fell by 13.1% in 2008. This was just the cusp of the collapse; the landlord effective rent index dove by 41.4% to $17.11 in 2009.For the fi rst time since 2003, Midtown Manhattan was pushed off the top of the scale, supplanted by San Francisco and Washington, DC. The median landlord effective rent (San Diego) fell from $23.88 to $11.76 in 2009, and the highest landlord effective rent (San Francisco, $28.60) fell below $30.00 for the fi rst time since 2004. Chicago and Atlanta were in the bottom two positions for the second straight year.


SERI2010

Concentrated Collapse

It took three years in the last downturn for landlord effective rents to fall by 38.6% from peak to trough. Landlord effective rents have fallen by nearly 50.0% from their peak rate of $33.63 in 2007. The bulk of this correction occurred over four quarters from late 2008 to midyear 2009. The nosedive of nearly 42.0% in landlord effective rents during 2009 pushed the index down to just above the $16.06 rate recorded in 1997. Diffi culty in securing capital and the number of properties with approaching fi nancial commitments make the contraction in cash fl ow much more problematic in this cycle.

Landlord Effective Rent Trends: Year-on-Year Change

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Annual Change 10.6% 33.0% -4.9% -28.1% -10.2% 2.3% 15.1% 26.9% 27.4% -13.1% -41.5%1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cumulative decline: -38.6%

Cumulativedecline:-49.1%

10-Year Average: -2.3%


Landlord Effective Rent by Market

Pervasive Cut in Landlord Effective Rent

As the recession fi rst emerged in 2008, landlords held their ground on rents, initially increasing concession packages instead. By early 2009, though, with demand at record lows and sublet supply fl ooding the market (particularly in the top-tier Class A properties that had pushed rents to record highs in 2007), landlords had to make sharp adjustments to net rents as well. During 2009, landlord effective rent fell by double digits in every market except Denver (-6.0%) and Philadelphia (-7.2%). Tenants willing to sign deals in 2009 came to the table anticipating substantial discounts in rents as well as generous incentives.

Landlord effective rent fell by more than 40% in four markets including Miami (-46.1%), San Diego (-50.8%), and both Manhattan markets (-58.1% in Downtown and -62.7% in Midtown) Even markets that had headed into 2009 with scant landlord effective rents of less than $10.00 suffered additional haircuts to margins. Atlanta’s landlord effective rent dropped by 35.1% to $3.65 and Chicago’s landlord effective rent fell by 35.2% to $4.09.

Some landlords agreed to lease terms that worked out to negative cash fl ow in initial years.The SERI index only tracks direct transactions, but the fl ood of sublet space and the highly favorable terms granted by many sub-lessors set a new standard for how low rents could go, putting signifi cant pressure on all property owners to follow suit. Many leases signed for quality sublet space included high-end installations and a lengthy remaining term. Some sub-lessors, many in the fi nancial sector, adopted a lease-at-all-costs approach to unloading space. Landlords with the capacity to take a cut in their bottom line made aggressive moves, while others were handcuffed by fi nancial obligations, pro forma rent goals or depleted reserves that prevented them from lowering rents or extending competitive concession packages. Other property owners signed shorter-term leases, hoping to fi ll the space for a while and then sign for more profi table terms once the market recovers in two to three years.


SERI2010

Landlord Effective Rent: Year-on-Year Change by Market

-6.0%

-7.2%

-10.5%

-10.9%

-11.0%

-13.0%

-23.7%

-24.3%

-35.1%

-35.2%

-38.0%

-39.9%

-46.1%

-50.8%

-58.1%

-62.7%

-70% -60% -50% -40% -30% -20% -10% 0%

Denver

Philadelphia

Tampa Bay

Downtown LA

San Francisco

New Jersey

Houston

Washington, DC

Atlanta

Chicago

Dallas

West LA

Miami

San Diego

Manhattan (DT)

Manhattan (MT)


Total Rent ComponentsBase Rents Plummet

Total (or gross) rent consists of four components: net (or base) rent, operating expenses, real estate taxes and electricity. Of these four components, net rent as a percentage of total rent plummeted from 64.8% in 2008 to 57.0% in 2009. This was the fi rst time since the SERI index started in 1995 that net rent’s share fell below 60.0%. With the steep decline in net rent, the proportionate share of other components of total rent increased. Operating expenses rose from a 15.6% share in 2008 to 19.1% in 2009. Real estate taxes surged to a new peak, increasing to 18.7%. Electricity as a percentage of total rent hit its highest mark as well, rising to 5.2% and surpassing the prior peak of 4.9% in 1996.

Rent Components - 2009

Net (Base) Rent57.0%

Op. Ex19.1%

Taxes18.7%

Elec.5.2%

Rent Components - 2008Elec.4.3%

Taxes15.3%

Op. Ex15.6%

Net (Base) Rent64.8%

National Rent Components ElectricityReal EstateTaxes

OperatingExpenses

NetRent


SERI2010

Net Rent as a Percentage of Total Rent

Net (or base) rent is the largest and most critical component of total rent. At its peak in 2000 just before the dotcom bust, net rent represented nearly 72.0% of total (gross) rent. This level decreased to 57.0% in 2009.

The cost of operating a property accounted for more than 40% of the initial year’s gross rent. In short, even before concessions are factored in, operating margins for properties contracted sharply during 2009.

Net Rent as a Percentage of Total Rent

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Net Rent 67.7% 71.6% 68.9% 62.9% 60.8% 60.0% 60.9% 64.1% 67.3% 64.8% 57.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


Total Rent Components

40%

50%

60%

70%

80%

2008 70.8% 68.1% 64.1% 63.0% 69.2% 58.5% 60.0% 58.3% 59.9% 66.2% 55.0% 63.6% 61.4% 68.6% 51.3% 60.3%2009 69.1% 66.0% 63.1% 62.7% 59.3% 59.1% 58.5% 58.5% 57.8% 56.7% 53.6% 53.0% 52.0% 51.8% 49.5% 47.4%

HOU SANFRAN ATL DEN WLA WDC NJ TAMP DTLA SDO PHI DAL MIA MTNY CHI DTNY

Net Rent Trimmed

The nation’s most expensive markets posted the sharpest declines in net rent’s share of total rent. Net rent’s share in Downtown Manhattan was the lowest in the nation, plummeting from 60.3% a year ago to 47.4% in 2009. Other markets with net rent shares well below the national average included Chicago (49.5%, down from 51.3%) and Midtown Manhattan (51.8%, down from 68.6% a year ago). Tampa Bay and Washington, DC were the exceptions to the rule posting meager increases of 0.2 pp (to 58.5%) and 0.6 pp (to 59.1%), respectively.

Net Rent as Percentage of Total Rent 20092008


SERI2010

Net Rent Dives to 2005 Levels

The National Net Rent index declined by 26.9%, falling from $40.34 in 2008 to $29.51. Net rent ended 2009 just above its 2005 level ($28.43). Net rent fell in all markets except Washington, DC and Denver. The sharpest declines occurred in markets that attained record rents in 2007. Net rent in Midtown Manhattan plummeted by 48.9% from $66.47 to $33.95, followed closely by Downtown Manhattan (-38.5% to $21.26), San Diego (-33.1% to $19.23) and Dallas (-26.1% to $16.50). In both Washington, DC and Denver, several new properties, plus the effort by landlords to extend generous concessions rather than lowering rents, contributed to modest increases in net rent of 2.6% and 2.8%, respectively.

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

2008 $38.00 $39.34 $66.47 $28.65 $35.89 $34.55 $22.00 $19.93 $28.75 $20.00 $19.80 $27.00 $17.99 $22.33 $16.13 $15.75

2009 $39.00 $36.20 $33.95 $25.82 $23.92 $21.26 $20.50 $19.25 $19.23 $18.90 $18.65 $18.60 $18.50 $16.50 $15.50 $15.50

WDC SANFRAN MTNY HOU WLA DTNY DTLA ATL SDO CHI NJ MIA DEN DAL PHI TAM

Net Rent Comparison 20092008National Median



Moderate Up-tick in Operating Expenses

Of the three expense indexes, the National Operating Expense Index registered the smallest annual increase in 2009, posting a modest 1.5% rise from $9.72 to $9.86.

Most markets recorded minor up-ticks in operating expenses. Chicago and Philadelphia both registered increases of 1.2%, for example, and Downtown Los Angeles’ operating expenses rose by 1.6%.

Miami (down by 11.6%) was the only market to register a large decline. In contrast, operating expenses rose signifi cantly in Houston (+6.6%).

Operating expenses should moderate further in 2010. $0

$2

$4

$6

$8

$10

$12

$14

2008 $11.76 $10.85 $9.44 $9.15 $8.90 $9.00 $10.00 $8.32 $8.25 $8.10 $7.55 $8.10 $6.57 $6.07 $5.43 $5.50

2009 $11.95 $11.10 $9.42 $9.30 $9.16 $9.00 $8.84 $8.38 $8.35 $8.20 $7.75 $7.00 $6.75 $6.30 $5.79 $5.50

MTNY DTNY SANFRAN DTLA WLA WDC MIA NJ CHI PHI DAL SDO DEN ATL HOU TAM

Operating Expense Comparison 2008 2009National Median


SERI2010

Real Estate Taxes Continue Ascent

Real estate taxes once again posted the largest annual jump among the expense indexes, rising by 3.8% to $9.67. The year-on-year increase was slightly higher than in 2008, when taxes jumped by 3.4%.

Real estate taxes increased by 3.1% in Dallas and spiked by 19.1% in Miami. Tampa Bay (-7.7%) and Houston (-14.4%) posted the only notable declines.

Taxes should start to lose some momentum, and in fact decline, in many markets during 2010 as they are fi nally impacted by reduced property values. This period of declining assessments could be brief, though – commercial property will be a tempting target as many municipalities deal with revenue shortfalls in the coming years.

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2008 $15.23 $15.00 $9.25 $8.66 $6.23 $4.50 $4.95 $3.90 $3.59 $3.59 $4.03 $3.25 $3.10 $3.25 $2.55 $2.38

2009 $16.04 $15.00 $9.35 $9.05 $6.28 $5.36 $5.09 $4.40 $3.65 $3.48 $3.45 $3.14 $3.10 $3.00 $2.63 $2.55

MTNY WDC CHI DTNY SANFRAN MIA WLA SDO DTLA ATL HOU NJ PHI TAM DAL DEN

Real Estate Tax Comparison 20092008National Median



Electricity Costs Inch Up

Tenant electricity registered a smaller increase than in prior years, growing by 2.4% from $2.63 to $2.69. Tenant electricity was fl at or rose minimally in most markets, inching up by 3.3% in Chicago and 4.4% in Midtown Manhattan. Miami, where the rate jumped by 18.0%, registered the largest increase. Dallas and Houston posted the largest declines (-6.4% and -13.1%, respectively).

Reduced demand and relatively stable fuel costs prevailed in 2009 and should continue in 2010.

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

2008 $3.40 $3.25 $3.00 $2.79 $2.50 $2.67 $2.67 $2.50 $2.13 $2.00 $2.37 $1.99 $1.63 $1.60 $1.50 $1.50

2009 $3.55 $3.40 $3.00 $2.96 $2.95 $2.75 $2.50 $2.50 $2.19 $2.10 $2.06 $1.99 $1.71 $1.70 $1.55 $1.50

MTNY DTNY WDC SANFRAN MIA SDO DAL TAM WLA PHI HOU DTLA NJ DEN CHI ATL

Electricity Cost Comparison 2008 2009National Median


SERI2010

Record Decline in Total Rent

Total (gross) rent dropped by 16.7% in 2009, decreasing from $62.24 during the prior year to $51.73.

It fell in every market with the exception of Washington, DC (+1.5%) and Denver (+3.4%). New construction and stronger demand in both of these markets were key factors in the small increase in total rents.

Of note, gross rent in Washington, DC ($66.00) nudged just past the rate of $65.49 in Midtown Manhattan as the $30 gap between Midtown Manhattan and Washington, DC that had prevailed in 2007 and 2008 evaporated in 2009.

$0$5

$10$15$20$25$30$35$40$45$50$55$60$65$70$75$80$85$90$95

$100$105$110

2008 $65.00 $96.86 $57.80 $57.31 $51.87 $39.00 $40.48 $44.00 $36.73 $43.42 $33.00 $31.09 $28.54 $35.10 $29.33 $27.00

2009 $66.00 $65.49 $54.86 $44.81 $40.36 $38.15 $37.12 $35.75 $35.44 $33.38 $31.88 $30.53 $29.50 $29.38 $28.90 $26.50

WDC MTNY SANFRAN DTNY WLA CHI HOU MIA DTLA SDO NJ ATL DEN DAL PHI TAM

Total Rent Market Comparison 2008 2009National Median


Declines in Nearly Every Market

In 2008, total rents fell in about half of the major CBDs and rose slightly in the other half. Total rents posted minor increases in two markets during 2009 and fell in all others.

Total rent dropped by more than 20% in four markets as landords were forced to extend more generous concessions while lowering net rents. A decline of nearly 30% in net rent offset minor increases in operating expenses and tenant electric as well as continued growth in real estate taxes.

3.4%

1.5%

-1.5%

-1.8%

-1.9%

-2.2%

-3.4%

-3.5%

-5.1%

-8.3%

-16.3%

-18.8%

-21.8%

-22.2%

-23.1%

-32.4%

-35% -30% -25% -20% -15% -10% -5% 0% 5%

Denver

Washington, DC

Philadelphia

Atlanta

Tampa Bay

Chicago

New Jersey

Downtown LA

San Francisco

Houston

Dallas

Miami

Manhattan (DT)

West LA

San Diego

Manhattan (MT)

Total Rent: Year-on-Year Change by Market



SERI2010

Growth In Taxes Outpaces Other Expenses

With the exception of real estate taxes,

all expenses registered more moderate

increases than in the prior year. The

order of annual increase among the

expense indexes followed the pattern

established in 2008; real estate taxes

recorded the steepest rise (up by 3.8%

in 2009, compared to 3.4% in 2008),

followed by tenant electricity (up by 2.4%

in 2009, compared to 4.3% in 2008), and

operating expenses (up by only 1.5%

in 2009, compared to 3.2% in 2008).

Over the last ten years, real estate taxes

have increased at a faster rate (5.6%)

than electricity (4.5%) and operating

expenses (3.8%).

Expense and Occupancy Cost Trends Real Estate Taxes ElectricityOperating

Expenses

‐4.0

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Operating Expenses (3.8%) 1.0 3.4 3.7 3.8 3.9 3.8 1.1 4.6 9.6 3.2 1.4

Real Estate Taxes (5.6%) ‐2.2 1.7 2.0 10.2 5.0 7.3 8.5 3.2 11.4 3.4 3.8

Electricity (4.5%) ‐0.8 6.7 1.5 2.3 1.4 3.2 9.7 6.0 8.1 4.3 2.4

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Taxes 10-Year Average: +5.6%

Elec 10-Year Average: +4.5%

Op. Ex 10-Year Average: +3.8%


CBD Rent TrendsAtlanta

Atlanta Rent Trends TotalRent

TenantEffective

LandlordEffective

ChicagoChicago Rent Trends Total

RentTenant

EffectiveLandlordEffective

24.0126.05 26.79

25.58 24.94 24.04

27.7429.35 29.90

31.09 30.53

20.3122.35 22.35 21.88

20.7919.60

21.0822.69

20.28

17.9416.04

10.2912.01 11.95 11.57

10.48 9.91 10.81 11.25

8.23

5.623.65

$0

$5

$10

$15

$20

$25

$30

$35

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

35.35

23.52

4.29

37.50 38.25

32.00

26.5023.50 22.47

24.92

28.66

37.39 37.73 37.05 37.3835.63 35.15

22.70 21.38

17.20

13.1816.10 15.07

17.52

22.00

31.47 31.8129.65

27.6124.53 24.05

8.336.26

1.33

(3.19)(0.27) (1.47)

0.73

4.97

14.21 14.2111.73

9.36

6.03 5.28

($10)

($5)

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

37.73 37.05 37.3835.63 35.15 35.35 36.10

38.59

42.11

39.00 38.15

31.8129.65

27.61

24.53 24.05 23.52 22.7825.27

30.27

25.6823.66

15.7113.26

10.89

7.56 6.84 5.854.22

6.22

10.86

6.314.09

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

For the fi rst time in fi ve years, total rent fell.The 1.8% decline to $30.53 can be attributed to decreases in both real estate taxes (-3.1%) and net rent (-3.4%). On a yearly comparison, concession package values soared by 18.2% to $105.00. Tenant effective rent continued to drop, falling by 10.6% to $16.04. Landlord effective rent plummeted by a staggering 35.1% from 2009 to $3.65.

Total rent slipped for the second consecutive year, falling by 2.2% to $38.15. Net rent dropped by 5.5%. In contrast, real estate taxes (+1.1%), operating expenses (+1.2%) and electricity (+3.3%) all recorded gains. The value of concession packages rose by 16.7% to $105.00. Tenant effective rent decreased by 7.9% to $23.66. Landlord effective rent posted a dramatic decline of 35.2% to $4.09.


SERI2010

DallasDallas Rent Trends Total

RentTenant


DenverDenver Rent Trends Total

RentTenant


29.38

35.10

31.69

27.5226.5026.00

24.7525.6726.1027.0026.25

22.30

28.59

25.7724.19

22.8022.3020.61

21.9723.8824.7824.03

10.10

16.3014.39

11.2111.1610.9210.1111.28

13.4814.8114.26

$0

$5

$10

$15

$20

$25

$30

$35

$40

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

27.5829.35 28.54

23.16 23.12 24.08 25.00

27.56

31.75

28.54 29.50

22.1923.95 22.97

14.40 14.6916.71

18.25

21.35

24.55

19.74 19.50

14.6315.89

14.44

5.87 6.517.78 8.69

11.54

14.54

9.73 9.15

$0

$5

$10

$15

$20

$25

$30

$35

$40

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent plummeted during 2009, falling by 16.3% to $29.38. Electricity decreased by 6.4% for the year, while net rent plunged by 26.1%. On the other hand, operating expenses increased by 2.6% and real estate taxes rose by 3.1%. The value of concession packages continued trending up, rising by 16.7% to $51.34. Tenant effective rent recorded a signifi cant drop of 22.0% to $22.30. Landlord effective rent declined even more substantially, by 38.0% to $10.10.

Total rent grew from $28.54 to $29.50, an increase of 3.4%. All components of total rent rose for the year – operating expenses by 2.7%, net rent by 2.8%, electricity by 6.2% and real estate taxes by 7.1%. The value of concession packages soared by 15.4% to $62.04. Tenant effective rent fell for the second straight year, decreasing by 1.2% to $19.50. Landlord effective rent also declined, by 6.0% to $9.15.


CBD Rent TrendsHouston

Houston Rent Trends TotalRent

TenantEffective

LandlordEffective

Downtown Los AngelesDowntown Los Angeles Rent Trends Total

RentTenant


37.12

40.4839.75

25.62

20.3721.0020.7523.10

25.6527.27

25.53

29.04

34.9335.43

20.68

15.1915.8216.31

19.40

22.6925.42

23.31

17.70

23.1923.72

11.67

5.526.156.91

9.95

13.24

16.8015.21

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

26.83 27.56 28.4129.65

31.15 31.76 32.2534.18

35.4736.73

35.44

19.88 20.90 21.7522.99

24.49 24.95 25.3027.23

28.52 29.3327.85

10.51 11.33 11.79 11.8913.12 13.45 13.53 14.54 14.99 15.03

13.40

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent recorded a decline for the fi rst time since 2005, falling by 8.3% to $37.12. Net rent, real estate taxes and electricity decreased by 9.9%, 14.4% and 13.1%, respectively. In contrast, operating expenses increased for the third straight year (+6.6%). The value of concession packages, $58.56, surged by 56.2%. Tenant effective rent dropped by 16.9% to $29.04. Landlord effective rent fell even more markedly, by 23.7% to $17.70.

Total rent fell for the fi rst time in more than a decade, slipping by 3.5% to $35.44. Net rent declined by 6.8%. Operating expenses increased by 1.6% and real estate taxes grew by 1.7%. Tenant electric was unchanged. The value of concession packages continued to rise, by 10.0% to $55.00. Reversing an upward trend, tenant effective rent decreased by 5.1% to $27.85. Landlord effective rent plunged by 10.9% to $13.40, likewise reversing its trend.


40.36

51.8748.12

42.43

36.00

32.1731.2032.4034.20

37.1337.78

33.46

45.2142.20

36.81

30.38

25.0723.8025.0027.99

31.2131.86

17.49

29.1226.55

23.09

18.67

13.8712.9814.50

17.4220.5921.28

$0

$10

$20

$30

$40

$50

$60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SERI2010

West Los AngelesWest Los Angeles Rent Trends Total

RentTenant


MiamiMiami Rent Trends Total

RentTenant


31.2534.00 34.75

32.50 33.00 34.0035.50

40.50

45.00 44.00

35.75

28.4431.04 30.76

26.58 25.6028.82

30.32

35.32

39.4537.71

26.01

17.8919.59 19.01

14.72 14.2117.37 18.78

22.0025.36

22.72

12.25

$0

$10

$20

$30

$40

$50

$60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Following fi ve consecutive years of increase, total rent dropped by 22.2% to $40.36. Net rent registered a sharp decline of 33.4%. Real estate taxes grew by 2.8%, electricity by 2.8% and operating expenses by 2.9%. The value of concession packages continued to rise, by 11.1% to $50.00. Reversing an upward trend, tenant effective rent decreased by 26.0% to $33.46. Landlord effective rent plunged by 39.9% to $17.49, likewise reversing its trend.

Total rent fell for the second straight year, dropping to $35.75. The 18.8% decline can be attributed to decreases in operating expenses (-11.6%) and particularly net rent (-31.1%). On a yearly comparison, concession package values soared by 54.9% to $65.85. Tenant effective rent continued to drop, falling by 31.0% to $26.01. Landlord effective rent plummeted by a staggering 46.1% to $12.25.


CBD Rent TrendsManhattan (Downtown) Manhattan (Downtown) Rent Trends Total

RentTenant


Manhattan (Midtown)Manhattan (Midtown) Rent Trends Total

RentTenant


41.34

50.04

43.76 42.5039.17 40.60 40.95

51.95

61.5557.31

44.81

32.76

42.65

35.7732.37

29.78 28.95 29.85

40.85

50.31

45.77

32.00

16.88

25.96

18.90

14.3511.58 10.59 10.99

20.70

28.93

23.83

9.99

$0

$10

$20

$30

$40

$50

$60

$70

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

60.26

74.00 74.54

64.00 63.1066.27

75.42

90.05

104.5596.86

65.49

51.38

66.61 65.66

53.72 51.2655.17

65.06

80.06

94.34

82.95

49.62

31.76

45.88 44.38

30.8626.44 28.78

37.33

51.26

64.06

52.44

19.57

$0

$20

$40

$60

$80

$100

$120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent recorded a second year of decline (-21.8% to 44.81), primarily due to a 38.5% drop in net rent. Operating expenses (+2.3%), real estate taxes (+4.5%) and electricity (+4.6%) all rose during 2009. The value of concession packages rose for the fourth consecutive year, increasing by 19.0% to $92.84.Tenant effective rent, $32.00, fell by 30.1% year-on-year. Landlord effective rent plummeted, by 58.1% to $9.99.

Total rent recorded a second year of decline (-32.4% to 65.49). This decrease is attributable to a 48.9% drop in net rent. Operating expenses (+1.6%), electricity (+4.4%) and real estate taxes (+5.3%) all rose for the year. The value of concession packages posted a fourth year of growth, increasing by 22.3% to $115.00. Tenant effective rent, $49.62, fell by 40.2% year-on-year. Landlord effective rent decreased even more dramatically, by 62.7% to $19.57.


31.8833.0032.6632.4931.7831.6030.50

33.6034.5035.94

33.50

23.9525.60

27.4828.0527.3427.9026.80

30.6431.5432.98

30.54

10.1611.68

14.1914.9014.8815.5414.63

19.1320.0721.40

19.23

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SERI2010

New JerseyNew Jersey Total

RentTenant


PhiladelphiaPhiladelphia Rent Trends Total

RentTenant


28.9029.3330.50

28.92

26.5027.35

30.9531.1131.0529.10

28.15

22.6923.1223.1021.52

19.8421.14

24.7425.9326.24

24.6624.28

7.688.288.537.60

6.297.24

10.5212.0512.6711.8111.42

$0

$5

$10

$15

$20

$25

$30

$35

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent fell by 3.4% to $31.88. This decrease is attributable to a 3.4% decline in real estate taxes and a 5.8% drop in net rent. Operating expenses (+0.7%) and electricity (+4.9%) increased for the year. The value of concession packages posted a third year of growth, increasing by 15.0% to $57.50. Tenant effective rent, $23.95, fell by 6.5% year-on-year. Landlord effective rent decreased even more dramatically, by 13.0% to $10.16.

Total rent declined by 1.5% to $28.90. Operating expenses increased by 1.2% and tenant electric rose by 5.0%. In contrast, real estate taxes were unchanged and net rent dropped by 3.9%. The value of concession packages increased by 7.1% to $45.00. Tenant effective rent dipped by 1.8% to $22.69. Landlord effective rent registered an even more substantial decline of 7.2% to $7.68.


CBD Rent Trends

San DiegoSan Diego Rent Trends Total

RentTenant


San FranciscoSan Francisco Rent Trends Total

RentTenant


30.8632.95

36.76 37.13

43.89 43.42

33.38

29.1631.24

35.06 35.09

39.6337.71

24.54

19.61 19.7722.79 22.27

26.1323.88

11.76

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

2003 2004 2005 2006 2007 2008 2009

54.8657.8059.72

42.38

36.2134.9533.9533.95

55.45

77.60

57.15

46.0649.79

53.06

35.26

29.6227.8326.8326.83

51.00

74.93

53.59

28.6032.12

35.48

20.0614.9513.1812.6812.68

37.35

61.83

40.85

$0

$10

$20

$30

$40

$50

$60

$70

$80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent registered a decrease of 21.9% to $33.38. Operating expenses declined by 13.6%, but real estate taxes and electricity increased, rising by 3.0% and 12.8%, respectively. The value of concession packages surged by 62.1% to $47.00. Tenant effective rent continued to drop, by 34.9% to $24.54. Landlord effective rent plunged by 50.8% to $11.76.

Total rent fell by 5.1%, dropping to $54.86 in response to rising space availability. Net rent decreased by 8.0%. Operating expenses declined by 0.2%. In contrast, real estate taxes and tenant electric rose by 0.8% and 6.1%, respectively. The value of concession packages, $57.04, surged by 26.8%. Tenant effective rent declined by 7.5% to $46.06. Landlord effective rent decreased even more markedly, by 11.0% to $28.60.


SERI2010

Tampa BayTampa Bay Rent Trends Total

RentTenant


21.25 22.0023.00

25.0026.75 27.00 26.50

16.00 16.67 16.93

20.5621.57

18.7317.65

6.05 6.40 5.81

11.18 10.75

7.396.61

$0

$5

$10

$15

$20

$25

$30

2003 2004 2005 2006 2007 2008 2009

Washington, DCWashington, DC Rent Trends Total

RentTenant


42.6046.00 46.40

49.35 51.25 53.0055.50

58.50

64.00 65.00 66.00

35.2038.60 38.56

41.21 43.11 44.8648.10 49.99

55.12 54.64

47.92

21.8824.62 24.56 25.84 27.41 27.33 28.22 29.00

31.3827.85

21.09

$0

$10

$20

$30

$40

$50

$60

$70

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent fell for the fi rst time in several years, declining by 1.9% to $26.50. Real estate taxes also decreased, falling by 7.7%. Operating expenses and electricity remained unchanged year-on-year, while net rent fell by 1.6%. The value of concession packages, $64.12, surged by 14.7%. Tenant effective rent declined by 5.8% to $17.65. Landlord effective rent decreased even more markedly, by 10.5% to $6.61.

Contrary to the national trend, total rent has been increasing for more than a decade. In 2009, it rose by 1.5% to $66.00, a new high. Real estate taxes, which had jumped substantially during 2008, remained unchanged in 2009. Similarly, tenant electric and operating expenses were stable. The value of concession packages climbed for the fourth straight year, soaring by 87.1% to $131.00. Tenant effective rent dropped by 12.3% to $47.92. Landlord effective rent registered a sharp decline, falling by 24.3% to $21.09.


Suburban Rent Trends

Fort LauderdaleFort Lauderdale Rent Trends Total

RentTenant


Orange CountyOrange County Rent Trends Total

RentTenant


33.5034.70

38.2536.50

33.0031.50

28.0827.4228.2325.67

28.49

32.3330.58

27.0825.58

22.1623.72

25.27

12.1014.35

16.6416.4815.69

10.789.9912.25

14.19

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2001 2002 2003 2004 2005 2006 2007 2008 2009

28.80

33.60

36.9139.00

31.8029.40

28.2027.52

31.20

21.21

27.68

32.4734.86

27.36

24.5223.0222.63

26.76

11.26

17.15

21.8224.51

17.8815.46

14.1013.56

17.73

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2001 2002 2003 2004 2005 2006 2007 2008 2009

Total rent fell year-on-year by 3.5% to $33.50. Net rent dropped by 5.0%, and operating expenses decreased by 6.1%, but tenant electric spiked by 10.8%. The value of concession packages grew by 35.1% to $56.75, well above historic norms. Tenant effective rent declined (-9.9% to $25.67). Landlord effective rent registered a drop of 15.7% to $12.10.

Continuing its downward trend, total rent declined by 14.3% to $28.80. Operating expenses fell by 5.6% and net rent plummeted by 21.5%. In contrast, real estate taxes and electricity rose by 1.3% and 6.6%, respectively. The value of concession packages, $55.00, surged by 37.5%. Tenant effective rent decreased for the third straight year, sliding by 23.4% to $21.21. Landlord effective rent posted an even steeper drop (-34.3% to $11.26).


Silicon Valley Silicon Valley Rent Trends TotalRent

TenantEffective

LandlordEffective

Northern VirginiaNorthern Virginia Rent Trends Total

RentTenant


64.10

34.8033.00

29.5027.50

31.7534.25 34.25 34.25

59.19

29.0727.27

21.31 20.95

25.2027.70 27.54 27.37

50.21

19.6017.83

11.82 11.1514.04 15.51 15.35 15.18

$0

$10

$20

$30

$40

$50

$60

$70

2001 2002 2003 2004 2005 2006 2007 2008 2009

29.50

25.00 24.50

28.75 29.50

33.50

36.25 36.40 35.68

25.06

21.30 20.43

22.83 23.58

26.10 25.8924.56 23.86

16.91

13.6712.58

13.99 14.4516.64 15.72

13.95 13.30

$0

$5

$10

$15

$20

$25

$30

$35

$40

2001 2002 2003 2004 2005 2006 2007 2008 2009

All components of total rent remained stable year-on-year. In consequence, total rent was unchanged at $34.25. The value of concession packages rose by 2.4% to $42.00. Tenant effective rent posted a minimal decrease of 0.6% to $27.37. Landlord effective rent also recorded a modest decline (-1.1% to $15.18).

Reversing its upward trend, total rent dropped by 2.0% to $35.68. Operating expenses were unchanged for the year, but all other components of total rent declined – real estate taxes by 0.6%, electricity by 0.7% and net rent by 2.7%. The value of concession packages posted a fourth consecutive year of growth, jumping by 7.1% to $85.67. Tenant effective rent continued to decrease (-2.9% to $23.86). Landlord effective rent dropped even more notably, by 4.6% to $13.30.

SERI2010


6.9%

-4.4%-7.8%-7.8%

-9.9%-12.7%

-16.4%-21.7%

-23.2%-23.4%

-24.1%-31.4%

-2.9%-1.0%-0.8%-0.6%

-35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15%

Westchester, NYSilicon Valley, CA

Fairfield County, CTMain Line/Conshohocken, PA

Northern VirginiaWest Palm Beach, FLNorth Dallas Corridor

Long Island, NYFort Lauderdale, FL

Cook County, ILCentral Perimeter, GA

West Loop/Galleria, TXSoutheast, CO

Orange County, CADuPage County, IL

Lake County, IL

-1.1%

-4.6%

-6.8%

-8.0%

-9.3%

-15.7%

-18.9%

-34.3%

-38.4%

-38.5%

-42.8%

-51.9%

-53.0%

-55.1%

-75.6%

-81.6%

-90% -80% -70% -60% -50% -40% -30% -20% -10% 0%

Silicon Valley, CANorthern Virginia

Main Line/Conshohocken, PAWest Palm Beach, FL

Long Island, NYFort Lauderdale, FL

North Dallas CorridorOrange County, CA

Southeast, COWest Loop/Galleria, TXCentral Perimeter, GA

Fairfield County, CTCook County, IL

Westchester, NYDuPage County, IL

Lake County, IL

Suburban Rent Trends

Suburban Tenant and Landlord Effective Rent

Suburban Tenant Effective Rent Comparison: Percentage Change 2008 - 2009

Suburban Landlord Effective Rent Comparison: Percentage Change 2008 - 2009

Tenant effective rent rose year-on-year only in Westchester, New York (+6.9%).The rate fell in all other markets, with the most signifi cant decreases occurring in Orange County, California (-23.4%), DuPage County, Illinois (-24.1%) and Lake County, Illinois (-31.4%). The highest tenant effective rents were recorded in West Loop/Galleria, Texas ($31.68), Fairfi eld County, Connecticut ($35.30) and West Palm Beach ($38.00). Lake County ($11.87), DuPage County ($12.40) and Central Perimeter, Georgia ($13.49) posted the lowest rates.

All suburban markets registered declines in landlord effective rents, the greatest of which took place in Westchester (-55.1%), DuPage County (-75.6%) and Lake County (-81.6%). Landlord effective rents were highest in Silicon Valley, California ($15.18), Main Line/Conshohocken, Pennsylvania ($15.45) and West Palm Beach ($19.66). In contrast, the rates were lowest in Lake County ($1.24), DuPage County ($1.29) and Cook

County, Illinois ($2.03).


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Suburban Landlord Effective Rent 2008 2009Suburban Tenant Effective Rent 2008 2009

$19.

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20092008

SERI2010


Statistical Summary

CBD Markets 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009Atlanta (ATL) 19.93 19.25 6.07 6.30 3.59 3.48 1.50 1.50 31.09 30.53 88.86 105.00 17.94 16.04 5.62 3.65Chicago (CHI) 20.00 18.90 8.25 8.35 9.25 9.35 1.50 1.55 39.00 38.15 90.00 105.00 25.68 23.66 6.31 4.09Dallas (DAL) 22.33 16.50 7.55 7.75 2.55 2.63 2.67 2.50 35.10 29.38 44.00 51.34 28.59 22.30 16.30 10.10Denver (DEN) 17.99 18.50 6.57 6.75 2.38 2.55 1.60 1.70 28.54 29.50 53.75 62.04 19.74 19.50 9.73 9.15Manhattan- Downtown (DTNY) 34.55 21.26 10.85 11.10 8.66 9.05 3.25 3.40 57.31 44.81 78.00 92.84 45.77 32.00 23.83 9.99Houston (HOU) 28.65 25.82 5.43 5.79 4.03 3.45 2.37 2.06 40.48 37.12 37.50 58.56 34.93 29.04 23.19 17.70Downtown Los Angeles (DTLA) 22.00 20.50 9.15 9.30 3.59 3.65 1.99 1.99 36.73 35.44 50.00 55.00 29.33 27.85 15.03 13.40West Los Angeles (WLA) 35.89 23.92 8.90 9.16 4.95 5.09 2.13 2.19 51.87 40.36 45.00 50.00 45.21 33.46 29.12 17.49Miami (MIA) 27.00 18.60 10.00 8.84 4.50 5.36 2.50 2.95 44.00 35.75 42.50 65.85 37.71 26.01 22.72 12.25Manhattan - Midtown (MTNY) 66.47 33.95 11.76 11.95 15.23 16.04 3.40 3.55 96.86 65.49 94.00 115.00 82.95 49.62 52.44 19.57New Jersey (NJ) 19.80 18.65 8.32 8.38 3.25 3.14 1.63 1.71 33.00 31.88 50.00 57.50 25.60 23.95 11.68 10.16Philadelphia (PHI) 16.13 15.50 8.10 8.20 3.10 3.10 2.00 2.10 29.33 28.90 42.00 45.00 23.12 22.69 8.28 7.68San Diego (SDO) 28.75 19.23 8.10 7.00 3.90 4.40 2.67 2.75 43.42 33.38 29.00 47.00 37.71 24.54 23.88 11.76San Francisco (SAN FRAN) 39.34 36.20 9.44 9.42 6.23 6.28 2.79 2.96 57.80 54.86 45.00 57.04 49.79 46.06 32.12 28.60Tampa Bay (TAM) 15.75 15.50 5.50 5.50 3.25 3.00 2.50 2.50 27.00 26.50 55.88 64.12 18.73 17.65 7.39 6.61Washington, DC (WDC) 38.00 39.00 9.00 9.00 15.00 15.00 3.00 3.00 65.00 66.00 70.00 131.00 54.64 47.92 27.85 21.09

Suburban MarketsCentral Perimeter, GA 16.33 13.65 4.70 5.11 2.72 2.81 1.50 1.50 25.25 23.07 61.56 64.73 16.14 13.49 7.02 4.02Cook County, IL 14.39 11.50 6.43 6.46 5.43 5.45 1.65 1.69 27.90 25.10 69.05 70.00 17.68 15.44 4.32 2.03DuPage County, IL 13.63 10.00 7.11 7.15 2.43 2.46 1.25 1.28 24.42 20.89 54.54 61.50 16.35 12.40 5.31 1.29Fairfield County, CT 22.65 20.85 9.70 11.00 3.90 4.40 2.75 2.75 39.00 39.00 23.00 25.00 35.60 35.30 14.52 6.99Fort Lauderdale, FL 20.00 19.00 7.70 7.23 4.50 4.50 2.50 2.77 34.70 33.50 42.00 56.75 28.49 25.67 14.35 12.10Lake County, IL 15.84 11.00 6.18 6.22 2.87 2.91 1.65 1.68 26.54 21.81 62.38 72.00 17.31 11.87 6.76 1.24Long Island, NY 17.50 17.50 7.95 7.95 6.75 6.75 3.25 3.25 35.45 35.45 35.00 35.00 30.27 30.27 10.29 10.29Main Line/Conshohocken, PA 19.31 19.01 6.58 7.00 2.29 2.68 2.65 2.60 30.83 31.29 25.00 30.00 27.13 26.85 16.57 15.45North Dallas Corridor, TX 13.44 11.50 7.95 8.05 4.01 4.04 3.12 3.18 28.52 26.77 38.00 35.00 23.34 21.53 9.67 7.84Northern Virginia 25.00 24.32 5.50 5.50 3.10 3.08 2.80 2.78 36.40 35.68 80.00 85.67 24.56 23.86 13.95 13.30Orange County, CA 21.55 16.92 6.92 6.53 2.23 2.26 2.90 3.09 33.60 28.80 40.00 55.00 27.68 21.21 17.15 11.26Silicon Valley, CA 19.50 19.50 8.25 8.25 3.50 3.50 3.00 3.00 34.25 34.25 41.00 42.00 27.54 27.37 15.35 15.18Southeast, CO 13.20 12.75 4.89 3.70 3.78 3.78 1.65 1.65 23.52 21.88 31.00 49.87 18.88 14.50 9.86 6.07West Loop/Galleria, TX 24.46 21.38 12.52 12.68 4.55 4.16 3.05 1.98 44.58 40.20 28.00 28.00 40.44 31.68 21.81 13.40West Palm Beach, FL 30.00 33.00 10.00 9.93 5.00 7.43 2.50 2.90 47.50 53.26 52.50 58.33 39.73 44.63 21.36 23.49Westchester, NY 14.75 15.00 8.25 9.70 6.00 6.30 3.00 3.00 32.00 34.00 20.00 20.00 29.04 31.04 8.74 3.93

Net (Base) RentTenant

Effective RentLandlord

Effective RentOperatingExpenses

Real Estate Taxes Tenant Electric

Total (Gross) Rent Concessions


Glossary

Net Rent (Base Rent) The gross rental rate exclusive of the tenant’s proportionate share of real estate taxes, operating expenses and tenant electricity.

Operating Expenses Includes (1) heating, ventilation and air conditioning (HVAC); (2) maintenance; (3) common area utilities and electricity; (4) cleaning; and (5) all other non-capital costs associated with the operation of a building.

Real Estate Taxes Local real estate taxes exclusive of special assessments and other one-time charges.

Tenant Electricity Payments made by the tenant, whether to the landlord or public utility, or by the landlord, as a general building expense, for the electrical power utilized within a tenant’s premises, exclusive of building HVAC.

Total Rent (Gross Rent) The sum of the four rental rate components: net rent, operating expenses, real estate taxes and electricity.

Concessions Includes tenant improvements, free rent and other non-rent incentives that a tenant may receive as part of the lease terms.

The dollar value of the concession package is calculated as the total value of free rent and tenant improvements.

Tenant Effective Rent An estimate of the actual cost of occupancy for the tenant.

The calculation is the total rent minus lease concessions, which are amortized over the average lease term in the market, using an 8.0% interest rate and beginning-of-period payments.

Landlord Effective Rent An estimate of rent received from a tenant less related expenses.

The calculation is the total rent less operating expenses, real estate taxes, concessions and commissions. [This estimated rent is determined without consideration of a landlord’s debt service obligation, if any, since fi nancing structures are complex and involve far too many variables to be factorable.]

SERI2010


2009 – From a Free Fall to a Slow Crawl

One of the most disconcerting features of this recession has been the lack of a safe haven for investors – lenders, companies and consumers all retreated in late 2008 and early 2009, spurring a sharp drop in demand for goods and services as well as a dramatic decline in values across multiple asset classes. Commercial real estate was no exception, as demand for offi ce space collapsed and markets were fl ooded with sublet space. More fl uid commodities and assets such as oil and REIT stocks have rebounded of late, but commercial real estate has a much longer road to recovery.

A self-sustaining expansion is not anticipated until late 2010 or early 2011

Supplementary Info

Collapse in Values Across Multiple Asset Classes

-60.0%

-30.0%

0.0%

30.0%

60.0%

90.0%

120.0%

150.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

West Texas Oil Case-Shiller Home Prices

Dow Jones REIT Index SERI Tenant Effective


*

in most markets. Consequently, rents are not likely to gain momentum until 2011. In the last recession, tenant effective rents started their ascent nearly at the same time as employment began increasing. Even so, in most markets it took two to three years for effective rents to fully regain their prior peak. Rents in Chicago, New Jersey, Philadelphia and San Francisco never fully recovered.

Rents will likely take longer to rebound in this cycle; availability in this recession is signifi cantly higher in fi ve of the markets, and slightly higher in another fi ve. Only Houston, Downtown Los Angeles and Downtown Manhattan thus far have lower availability rates in this downturn.

Measuring Trough to Recovery - Last Recession

Trough(Employment) - Last Recession

Trough (Tenant Effective) - Last

Recession

Return to Peak (Tenant Effective) -

Last RecessionAvailability (At

Trough)Availability(4Q09)^^

ATL 1Q04 2004 2006 21.9% 31.4%CHI 2Q03 2005 95% in 2007^ 18.5% 19.3%DFW 3Q03 2003 2007 20.3% 29.4%DEN 3Q03 2003 2007 19.8% 21.1%HOU 1Q04 2005 2007 23.4% 12.2%DTLA 4Q03 N/AP* N/AP* 19.2% 17.2%WLA 4Q03 2003 2006 19.4% 21.6%MIA 3Q03 2003 2006 13.0% 26.8%NJ 2Q03 2003 85% in 2006^ 15.9% 17.8%DTNY 1Q04 2004 2007 16.7% 7.6%MTNY 1Q04 2003 2006 10.6% 14.7%PHI 1Q04 2005 88% in 2008^ 13.7% 14.4%SAN FRAN 1Q04 2002 71% in 2007^ 17.8% 17.6%WDC 1Q03 N/AP* N/AP* 7.0% 18.5%

Recovery time for tenant effective rents from trough to prior peak ranged from two to three years.

*Effective rents in Downtown LA and Washington, DC continued to increase during the last recession.^Effective rents in Chicago, New Jersey, Philadelphia and San Francisco never returned to their prior peak levels.

^^Much higher availability rate ^^Moderately higher availability rate

SERI2010


NJ (1st Half), 57.1%

NJ (2nd Half), 136.1%

20%

40%

60%

80%

100%

120%

140%

160%

NJDF

WNO

VA NYC

PHI (

CBD)

MD

(SUB

)DN

VPH

I (SU

B)U.

S. OC HOUTA

M ATLCH

ISA

N FR

AN SDO

WDC

SOFL

AL.A

.SV

AL

1st Half 2009 2nd Half 2009

Above Historical Average

Downturn Losing Momentum

Three real estate indicators suggest that the downturn is moderating, with some markets already showing signs of recovery: a) leasing activity is showing tentative signs of returning to full strength; b) the fl ow of sublet space is ebbing; and c) the decline in asking rents is leveling off.

During the fi rst six months of 2009, leasing activity in nearly every market fell at least 20% below its historical average. New Jersey’s transaction volume, for example, reached only 57.1% of its long-term average. South Florida was the sole market to reach its historical average in the fi rst half of 2009.

Most markets still fell short of their historical averages in the second half of 2009, but more than half registered a slight improvement. Four markets – Manhattan (106.4%), Northern Virginia (124.5%), Dallas/Fort Worth (131.7%) and New Jersey (136.1%) – pushed above their average pace. Even in these markets, though, leasing activity, particularly larger leases, was dominated by renewals, some involving signifi cant downsizing.

Supplementary Info

Leasing Activity as a Percentage of Historical Average (1st & 2nd Half 2009)


Change in Sublet Supply (1st & 2nd Half of 2009)Supply of Sublet Space Falling

The dramatic slowdown in the fl ow of sublet space in late 2009 signaled that the correction was entering its fi nal stages in most markets.

During the fi rst half of 2009, sublet supply increased in every market except San Diego and Orange County, including spikes of more than 50% in Houston and nearly 40% in Manhattan.

In contrast, during the second half of the year, only fi ve markets added sublet space, with smaller increases ranging from 1.5% in Denver to 13.2% in Houston. All other markets posted small reductions in sublet supply ranging from 1.1% in Washington, DC to 5.8% in San Diego. It is likely that these numbers understate the total increase due to shadow space not being actively marketed.

NYC

DFW LAX WAS PHICHI DEN NNJ

SFL

SDO

OC

TAM

HOU, +51.0%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

HOU NYC DFW LAX WAS PHI CHI DEN NNJ SFL TAM SDO OC

Change 1st Half 2009 Change 2nd Half 2009

SERI2010


-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%MTNY SVAL

SANFRAN US OC

SOFLA LA SDO NOVA

SUBMD HOU DEN WDC NJ TAM

PHI(SUB) DAL

PHI(CBD)

Decline 2nd Half 2009Decline 1st Half 2009

Pace of Decline in Rents Slowing

Effective rents, which typically lag asking rents, were still falling at year’s end, but asking rents were starting to stabilize. In most markets, the speed and scale of the decline in rents during the fi rst half of 2009 were the most severe in decades. Corrections of this magnitude occurred in several markets during the early 1990s, but in the last recession were limited to a handful of markets such as San Francisco and Silicon Valley.

Rents are generally quite sticky, but the deluge of sublet supply, combined with the evaporation in demand, forced a rapid adjustment. Rents fell further in the second half of 2009, but the decline lost some of its momentum as some tenants fi nally gained enough confi dence to move forward with leases.

Decline in Face Rents (1st & 2nd Half of 2009)

Supplementary Info


7.0%

8.5%

11.5%

12.1%

15.6%

15.2%

19.2%

17.8%

14.5%

17.4%

19.3%

15.8%

16.4%

16.3%

20.5%

21.1%

21.3%

26.0%

28.3%

28.3%

7.6%

12.2%

14.4%

14.7%

17.2%

17.6%

17.8%

18.2%

18.5%

18.8%

18.9%

19.3%

21.1%

21.6%

24.9%

26.8%

27.5%

28.5%

29.4%

31.4%

0% 5% 10% 15% 20% 25% 30% 35%

Manhattan (Downtown)

Houston

Philadelphia

Manhattan (Midtown)

Downtown LA

San Francisco

Northern New Jersey

Northern Virginia

Washington, DC

National Average

San Diego

Chicago

Denver

West LA

Tampa Bay

Miami

Silicon Valley

Orange County

Dallas

Atlanta

(%)

Availability Comparison National Average 2008

Availability Exceeds 20% in Many Markets

Although the downturn appears to be losing momentum, most markets have several years of available space to work through. Class A availability rates in Atlanta, Dallas and Orange County ended 2009 in the 30% range. Two markets – Northern New Jersey and San Diego – posted slight declines in availability, but supply remains elevated in both markets.

Tenants in nearly every market can select from a wide range of options. In a handful of CBDs (Downtown Manhattan, Houston and Philadelphia), though, while smaller and mid-sized fi rms still have plenty of options, the supply of quality big blocks of space is more limited. In general, however, availability is not likely to change much until a majority of fi rms shift from renewals to more opportunistic leases involving expansions.

CBD Availability shown in all markets except: New Jersey, Orange County, San Diego, Silicon Valley and Tampa Bay

2009

SERI2010


Supplementary Info

Offi ce-Using Employment – A Jobless Recovery?

The trajectory of job growth in 2010 and 2011 will determine whether it takes a couple of years or fi ve years for rents to rebound. Will the approaching expansion parallel the decade-long boom of the 1990s or the shorter and shallow upturn that followed the dotcom bust – or is a double-dip recession around the corner?

The consensus view for most economists is that employment growth will be subpar in 2010 and 2011. Markets such as Miami and Fort Lauderdale, as well as several Southern California markets, face severe challenges in key sectors such as real estate that will inhibit employment growth. Other markets including Chicago and New Jersey face long-term obstacles such as the cost of doing business and population loss.

ATLTAM

DCMIA

OC US

SDO NJCHI NYC

PHILA

FTLAUD

HOUSEA

DENDFW

SAN FRAN

S. Valley ‐ 1990s, +6.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

SVAL ATL TAM DFW SAN FRAN DEN DC MIA SEA FTLAUD HOU OC US SDO NJ CHI NYC PHI LA

1990s 2003-2008

Average Annual Growth Rate in Offi ce-Using Employment


Atla

nta (Se

pt 2

007)

Fort La

uderdale (Ja

n. 2007)

Oran

ge County (O

ct. 2006)

Tampa B

ay (A

ug. 2

006)

Los A

ngeles (M

ar 2007)

Miam

i (Aug. 2

006)

Chicago

(Aug. 2

007)

Unite

d Sta

tes (D

ec. 2

007)

West P

alm Beach(Ja

nuary 2

007)

New Je

rsey (A

ug 2

007)

New York C

ity (July 2

008)

Denver (Fe

b. 2008)

Philadelphia (D

ec. 2

007)

San Fra

ncisco

(Oct. 2

007)

San Diego

(July 2

007)

Silicon Valley (A

pril 2

008)

Seattle

(May 2

008)

Dallas‐Fo

rt Worth

(May 2

008)

Housto

n (Fe

b. 2008)

Washingto

n, D

C M

etro

(Dec. 2

007)

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Cumulative Decline in Offi ce-Using EmploymentMost Severe Decline in Decades

Offi ce-using employment (which includes the information, professional/business services and fi nancial services sectors) is the critical catalyst for offi ce space demand. From peak to trough, U.S. offi ce-using employment has fallen by 8.3%. Four markets were hit with layoffs in offi ce-using sectors that were well above the national average. These were Atlanta (-12.1%); Fort Lauderdale (-11.9%); Orange County (11.6%) and Tampa Bay (11.4%).

At the other end of the spectrum, the two Texas markets, Dallas/Fort Worth (-4.3%) and Houston (-4.1%), as well as Washington, DC (-1.2%), have held up much better than most markets during this downturn.

These percentages will likely increase in all markets once the Bureau of Labor Statistics posts benchmark revisions for metropolitan areas.

SERI2010


Supplementary Info

Layoffs Slowing

Offi ce-using layoffs abated in most markets by summer, and eight of the 18 markets posted net job growth in the last three months. Of note, though, the three largest markets – Chicago (-0.5%), Los Angeles (-0.8%) and Manhattan (-0.9%) seem to be stuck in reverse.

Many of the most severely impacted markets such as Orange County (+0.8%) and West Palm Beach (+1.0%) have registered job growth in the last three months that was well above the national average.

US +0.3%

WPB: +1.0%

NYC: -0.9%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

NYC ATL LA

SAN

FRA

N NJ

CH

IFT

. LA

UD

PHI

DEN

HO

U US

WD

CSV

AL

TAM OC

SDO

DFW MIA

WPB

Change in Offi ce-Using Employment (Last Three Months)


SERI2010

Offi ce-Using Job Losses - Jobs Recovered & Total Gap from Prior PeakSome Recovery Underway

On a positive note, more than half of the markets appear to have pushed past their trough in terms of offi ce-using employment. This is refl ected in markets that have actually recovered a small portion of their job losses.

Offi ce-using employment in Washington, DC, for example, has increased by approximately 3,500 jobs since hitting its trough several months ago - representing a recovery rate of nearly 35.0%. Offi ce-using employment in Los Angeles has increased by nearly 7,800 jobs, but this is just a sliver (about 8.0%) of the total layoffs.

Atlanta, Manhattan and Chicago, in contrast, still may have not hit bottom.

0 20,000 40,000 60,000 80,000 100,000 120,000

LA

CHI

NYC

ATL

NJ

OC

PHI

TAM

DFW

SEA

FT LAUD

MIA

HOU

DEN

SAN FRAN

SDO

WPB

SVAL

WDC

Jobs RecoveredGap From Last Peak


Value of Concessions as a Percentage of Initial Gross RentConcessions

The value of concession packages varied widely from market to market and, to an increasing extent, from landlord to landlord during 2009. In spite of sharp corrections in Midtown Manhattan and West Los Angeles, the value of concession packages (as a percentage of initial year’s gross rent) was about half that in the Chicago suburbs, and well below Suburban Denver and Atlanta’s CBD.

Particular landlords who were constrained by depleted capital reserves or upcoming debt obligations were unable to offer substantial tenant improvement allowances. Some offered longer free rent periods instead.

These numbers likely understate the value of concession packages since they do not include a wide range of unquantifi able incentives tenants were able to negotiate during 2009, such as termination options, lease buyouts and signage. Additionally, the index does not include the value of high-quality installations in subleases.

35.0%

29.1%28.2%

27.5% 26.9%25.4% 25.1%

23.3%22.6%

21.8% 21.3%19.8%

18.1%

13.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

CHI-SUB

DNV-SE ATL-CBD

CHI-CBD

ATL-CP NOVA FAR N.DAL

DAL SANFRAN

DT LA DEN-CBD

WDC NYC(MTNY)

WESTLA

Supplementary Info


Comparing Free Rent Periods

One common component in concession packages is free rent. Once differences in lease term are accounted for, the softer markets such as Chicago and Atlanta are clearly offering more generous terms.

Tenants who delayed space-use decisions during 2008 and then signed in 2009 capitalized on signifi cant savings. The advantages of delaying such decisions throughout 2010 may not be as substantial.

That said, concessions should remain favorable to most tenants during 2010. Concessions could be quite fl uid in markets such as Miami that still have not felt the full impact of new construction. As more companies gain confi dence that their business will improve, the trend toward renewals that prevailed in 2009 should subside. Companies will remain averse to extensive out-of-pocket expenses, so landlords will need to compete with the renewal option by offering generous build-out allowances and turnkey packages.

DNV‐SE, 1.2

CHI‐SUB, 1.1

ATL‐CP, 1.1

SAN FRAN, 1.0

CHI‐CBD, 1.0

DAL, 1.0

FAR N. DAL, 0.9

NYC (MTNY), 0.8

DEN‐CBD, 0.8

ATL ‐CBD, 0.8

WDC, 0.7

WEST LA, 0.7

NOVA, 0.7

DT LA, 0.7

0 0.2 0.4 0.6 0.8 1 1.2 1.4

SERI2010

Months Free Rent/Lease Term


Supplementary Info

Infl ation-Adjusted Rents

Those tenants able to commit to long-term leases during 2009 capitalized on signifi cant savings to occupancy costs as rents declined and the value of concession packages spiked to unprecedented levels.

Infl ation-adjusted rents provide a more accurate measure of real costs as opposed to nominal costs. All totals in the chart to the right are based on unweighted average effective rents and amortized concessions. Adjusted for infl ation, tenant effective rents have fallen to $29.30, just above 2001 and 2005 levels. Landlord effective rents have plummeted even more dramatically, diving to $12.35 – the lowest level yet registered since the SERI index began. This decline is due in part to the cut in net rents, but also to the doubling of amortized concessions since 1999.

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

TER $26.95 $31.02 $28.62 $24.57 $26.35 $26.71 $28.24 $32.51 $37.12 $36.84 $29.30

LER $18.19 $21.79 $18.99 $14.10 $12.88 $12.94 $14.05 $17.58 $21.46 $19.70 $12.35

CONC $4.28 $4.20 $5.03 $5.94 $6.70 $6.53 $6.57 $6.59 $6.98 $8.52 $9.95

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Infl ation-Adjusted Rents and ConcessionsLandlord Effective

Rent

Tenant Effective

Rent

Amortized Concessions


SERI2010Using an index with a base year of 1999, concession packages have more than doubled. Concessions have spiked much more quickly and sharply in this downturn, refl ecting landlords’ response to the collapse in demand during late 2008 and early 2009. In the last recession, after three years of declines, landlord effective rents bottomed out in 2004, falling by 29% compared to its base year level in 1999. Tenant effective rents also hit their low point in 2004 but were essentially even with their 1999 levels in spite of a 53% increase in concessions.

In 2009, landlord effective rents were down by 32% compared to the 1999 base year amount. Tenants were paying about 6% less in infl ation-adjusted terms relative to 1999 totals. Finally, the value of amortized concession packages skyrocketed, increasing by 133.0%.

99

94

68

120

71

153

98

233

60

80

100

120

140

160

180

200

220

240

260

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Effective Rent Indexes (Base Year 1999)Landlord Effective

Rent

Tenant Effective

Rent

Amortized Concessions

2010

675-7070

99 Wood AvenueSuite 305Iselin, NJ 08830(732) 906-1001

15303 Dallas ParkwaySuite 1200Addison, TX 75001(972) 739-2200

Steve Coutts - SVP, National Research(212) [email protected]

1250

Continental Plaza III433 Hackensack Avenue,12th floorHackensack, NJ 07601(201) 556-9700

200 S. Biscayne Boulevard, Suite 1830Miami, F L 33131(305) 423-1919

San DiegoSan Diego12531 High Blu ff Drive, Suite 140San Diego, CA 92130(858)793-8600

150 California Street, 14th FloorSan Francisco, CA 94111(415) 421-5900

577 College Avenue, Suite CPalo Alto, CA 94306

399 Park Avenue

399 Park Avenue

Documents

National Studley Effect Rent Index