1. GLOBAL RESEARCH AND CONSULTING THE ECONOMY AND REAL ESTATE GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014

2. 2 GLOBAL RESEARCH AND CONSULTING TOPICS COVERED U.S. Economy Southern California Economy Mega-Trend: Workplace Strategy Mega-Trend: E-Commerce U.S. Property Market Fundamentals Los Angeles Market Fundamentals

3. GLOBAL RESEARCH AND CONSULTING U.S. ECONOMY

4. 4 GLOBAL RESEARCH AND CONSULTING U.S. ECONOMY  Economic growth will strengthen in 2014  Jobs are everything  Industrial indicators are solid  Resurgent housing market

5. 5 GLOBAL RESEARCH AND CONSULTING FORECAST U.S. ECONOMIC EXPANSION OUTLOOK Annual % Change Source: HIS Global Insight

6. 6 GLOBAL RESEARCH AND CONSULTING FORECAST U.S. JOB GROWTH SLOW AND STEADY U.S. Total Nonfarm Payroll, Annual Net Jobs (1000s) Source: U.S. Bureau of Labor Statistics, Moody’s Analytics

7. 7 GLOBAL RESEARCH AND CONSULTING FORECAST RETURN TO PREVIOUS PEAK IN EARLY 2014 U.S. Total Nonfarm Payroll, (Millions of Jobs) Source: U.S. Bureau of Labor Statistics, Moody’s Analytics

8. 8 GLOBAL RESEARCH AND CONSULTING RECOVERY TRAILS PAST CYCLES Monthly Job Growth Index (Business Cycle Peak=100) Source: U.S. Bureau of Labor Statistics

9. 9 GLOBAL RESEARCH AND CONSULTING GROWTH RATE VARIES BY REGION Monthly Job Growth Index (Dec 2007=100) Source: U.S. Bureau of Labor Statistics

10. 10 GLOBAL RESEARCH AND CONSULTING TECH & ENERGY MARKETS LEADING Office-Using Employment Outlook, CAGR 2013-2018 Source: U.S. Bureau of Labor Statistics (BLS): Current Employment Statistics (CES), Quarterly Census of Employment and Wages (QCEW); Moody's Analytics (ECCA) Estimates

11. 11 GLOBAL RESEARCH AND CONSULTING U.S. INDUSTRIAL PRODUCTION Industrial production is just shy of pre-recession levels Source: Federal Reserve

12. 12 GLOBAL RESEARCH AND CONSULTING U.S. IMPORTS & EXPORTS Imports are stronger than they appear once oil is excluded Source: U.S. Census Bureau

13. 13 GLOBAL RESEARCH AND CONSULTING HOUSING PRICES CONTINUE TO GROW S&P/Case-Shiller Home Price Index Source: S&P Case-Shiller Index

14. 14 GLOBAL RESEARCH AND CONSULTING RETAIL SALES Housing Recovery Boosts Retail Sales Source: U.S. Census Bureau

15. GLOBAL RESEARCH AND CONSULTING SOUTHERN CALIFORNIA ECONOMY

16. 16 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com POSITIVE BUT LACKLUSTER JOB GROWTH Southern California: Year-Over-Year Employment Growth FORECAST

17. 17 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com SOUTHERN CALIFORNIA ECONOMY Total Employment Forecast (in Millions) 90+ MONTHS TO REACH PREVIOUS PEAK WE ARE ONLY HALF WAY THERE

18. 18 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com SOUTHERN CALIFORNIA ECONOMY Hospitality & leisure, construction, education & health services, professional & business services & technology will lead the way

19. GLOBAL RESEARCH AND CONSULTING MEGA-TRENDS: WORKPLACE STRATEGY & E-COMMERCE

20. 20 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Moody’s Analytics MEGA-TREND: WORKPLACE STRATEGY Underutilized space and modern design slow occupancy growth

21. 21 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Moody’s Analytics MEGA-TREND: E-COMMERCE E-commerce will drive demand for industrial space and continue to reshape the retail market

22. GLOBAL RESEARCH AND CONSULTING U.S. PROPERTY MARKET FUNDAMENTALS

23. 23 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors PROPERTY SECTOR TRAJECTORY 2013 Q4 Past Cyclic High “Natural Rate” Year Back to "Natural Rate" Office Vacancy Rate15.016.8 / 2010 13 to 15 2013 Industrial Availability Rate11.514.5 / 2010 9 to 10 2015 Retail Availability Rate12.013.2 / 2011 9 to 10 2016 Multifamily Vacancy Rate5.37.4 / 2009 5 to 6 2010

24. 24 GLOBAL RESEARCH AND CONSULTING PROPERTY SECTOR TRENDS  OFFICE Urbanization & densification Impact of workplace strategy Investor interest in suburban, non-gateway markets Tech markets leading the way  INDUSTRIAL Supply chain efficiencies Peak manufacturing productivity Impact of e-commerce More speculative construction but still in check  RETAIL High-street retail still strong E-commerce growing impact Omni channel strategies Shrinking retail footprints

25. 25 GLOBAL RESEARCH AND CONSULTING S L M N A C D D L P P S W A B D N S H San Diego Orange County O Atlanta Dallas (Suburban) Boston Seattle U.S. OFFICE RENT CYCLE Q4 2013 Source: CBRE Research

26. 26 GLOBAL RESEARCH AND CONSULTING RENT GROWTH LED BY TECH MARKETS 5-Year Annualized Rent Growth (%), Largest 20 Office Markets Source: CBRE Econometric Advisors

27. 27 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Completions, Net Absorption & Vacancy Rate OFFICE OUTLOOK FORECAST

28. 28 GLOBAL RESEARCH AND CONSULTING Completions, Net Absorption & Availability Rate FORECAST INDUSTRIAL OUTLOOK Source: CBRE Research, CBRE Econometric Advisors

29. 29 GLOBAL RESEARCH AND CONSULTING Completions, Net Absorption & Availability Rate FORECAST RETAIL OUTLOOK Source: CBRE Research, CBRE Econometric Advisors

30. 30 GLOBAL RESEARCH AND CONSULTING REAL ESTATE INVESTMENT TRENDS  Increased global interest in U.S. markets  2013 saw the beginning of interest rate increases. In 2014, look for the end of cap rate compression and a new era of NOI growth.  Expect improved economic performance to correspond with interest rate increase  Expect spreads to between primary & secondary markets to compress

31. 31 GLOBAL RESEARCH AND CONSULTING Sales Volume ($ Billions) NATIONAL INVESTMENT SALES Source: Real Capital Analytics

32. 32 GLOBAL RESEARCH AND CONSULTING U.S. Ten Year Treasury Bonds INTEREST RATE Source: Federal Reserve FORECAST

33. 33 GLOBAL RESEARCH AND CONSULTING Q2 Survey of economists places the 10-year treasury at 3.5% at the end of 2014 A RANGE OF OPINIONS

34. 34 GLOBAL RESEARCH AND CONSULTING Average CAP rates in all product types will remain flat in the near term FORECAST CAP RATE FORECAST Source: CBRE Econometric Advisors, NCREIF

35. GLOBAL RESEARCH AND CONSULTING LOS ANGELES MARKET FUNDAMENTALS

36. 36 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Vacancy Rate & Avg Asking Lease Rate LOS ANGELES OFFICE OUTLOOK FORECAST

37. 37 GLOBAL RESEARCH AND CONSULTING LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research

38. 38 GLOBAL RESEARCH AND CONSULTING LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research

39. 39 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Availability Rate & Avg Asking Lease Rate LOS ANGELES INDUSTRIAL OUTLOOK FORECAST

40. 40 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Availability Rate & Avg Asking Lease Rate LOS ANGELES RETAIL OUTLOOK FORECAST

41. GLOBAL RESEARCH AND CONSULTING THE ECONOMY AND REAL ESTATE GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014