Commercial_Forecast_2008 - December 2007 CONTENTS PAGE 3 4...

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CONTENTS The Office Sector: Investment transactions soar to over $174 billion despite modest up-tick in vacancy .... With jobs still being created in most regions, the demand for office space continues to be positive. The office sector is experiencing new supply, which is for the most part build-to-suit or with a significant pre-lease in place. The problem with new supply is that there is often a lag time for older vacated space to be leased- up. NAR FORECAST: Investment grade office properties with solid income streams will be in most demand by institutional, equity funds and foreign investors. The demand for office space will be positive and new supply will be slowing somewhat. By the end of 2008 the office vacancy rate will be just over 13%, up from the current 12.9%. ¯¯¯¯¯¯¯¯¯¯¯¯¯¯ The Industrial Market: Weaker dollar fuels increase in exports, but a noticeable decline in port distribution hub leasing activity … In recent years the US economy has been importing more that it has been exporting. While this is still true, the weakening US dollar has made US goods more attractive to foreign buyers. While port and distribution markets are still active industrial real estate centers, the vacancy rate in these markets have been edging up slowly in recent months. Solid fundamentals despite noticeably slower real estate investment activity since August… Three trends in commercial real estate have dominated the last quarter. First, the credit crunch that is still impacting the residential sector began to influence the ability of many commercial property investors to get funding. Second, while investment activity has fallen off noticeably since August of this year, the fundamentals have remained relatively healthy. Third, both the Commercial Leading indicator (CLI) and the SIOR Index clearly point to a general slowing in the pace of commercial real estate activity. While the pace of investment has fallen since August/September, first and second quarter activity was brisk. By the end of October, a record $325 billion worth of commercial real estate had traded hands nationwide, with over half involving office properties. As a comparison, $306.8 billion worth of commercial properties traded hands in all of 2006, and $267.6 billion was traded in 2005 – both yearly totals surpassing the $150 billion that traded hands in 2004. NAR FORECAST: Tighter credit conditions will most likely limit the number of investment transactions. Institutional and foreign investors can only take-up some of the slack and they tend to be primarily interested in properties valued in excess of $5.0 million. Cap rates will slowly begin to rise as prices fall. The era of rapid price escalation may be coming to an end. 1 December 2007 MARKET SECTOR (Q3 to Q4) Multi-Family Rent Growth Multi-Family New Completions Multi-Family Net Absorption Multi-Family Vacancy Retail Rent Growth ± Retail New Completions ± Retail Net Absorption Retail Vacancy ± Industrial Rent Growth Industrial New Completions ± Industrial Net Absorption
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