Current Market Conditions in the U.S. Office Real Estate Market A Midyear Update July 15, 2008

Our View of the Office Market Demand for office space has eased considerably consistent with a more sluggish economy – particularly true for markets/submarkets tied to housing or financial services Job growth has weakened in recent quarters which has depressed the office leasing market noticeably Even with a significant drop in demand, rents continue to rise although future increases will be highly market specific and not much more than CPI Office development activity is expected to moderate as the year progresses – very few markets could be described as over built

Q Office - Snapshot National office vacancy rate increased 27 basis points during the quarter to register 13.24% (DT – 11.3%, Sub – 14.2%) Sublease space up 2.0 MSF – now 61.4 MSF Q2 absorption registered -1.4 MSF, (-3.7 in Q1 and 21.2 in Q2 2007) Q2 new construction registered 19.4 MSF (17.3 in Q1 and 18.4 in Q2 2007) Sublease space at 10.6% of vacant space CBD rents up again during Q2 – +1.5% while suburban were down 0.3% (YTD 3.1%/0.1%)

Office Real Estate – Market Fundamentals Both downtown and suburban vacancies up, more so for suburban – further increases anticipated Vacancy in prime Class A office buildings up 160 bps since cyclical low - Class B/C buildings up more modest 100 bps

Nation’s Lowest Office Vacancy Rates - as at Q Downtown 1.Raleigh – 5.8% 2.Bakersfield – 6.7% 3.Las Vegas – 7.3% 4.Washington DC – 7.9% 5.Boise – 8.2% 6.NY Midtown – 8.2% 7.NY Downtown – 8.6% 8.Seattle – 8.6% 9.Boston – 8.8% 10.Portland – 9.2% Suburban 1.Honolulu – 6.4% 2.Bakersfield – 8.4% 3.Nashville – 9.7% 4.Washington DC/MD – 10.7% 5.Miami – 10.9% 6.Seattle – 10.9% 7.Portland – 10.9% 8.Cleveland – 11.1% 9.San Jose – 11/2% 10.Los Angeles – 10.8%

Office Real Estate – Market Fundamentals As expected, a second consecutive quarter of negative absorption – Q3 expected to follow suit Absorption for Class A buildings still positive continuing 22 quarter run, Class B/C building post third negative quarter

Office Real Estate – Market Fundamentals Q2 construction up from Q1 – upward trend expected for Q3 and Q4 and into 2009 Construction levels expected to show sharp declines by year end – 121 MSF under construction at quarter end

Under Construction (Top 10) - as at Q CBD (million SF) 1.Washington – NY Midtown – NY Downtown – Chicago – Seattle – San Francisco – Houston – Miami – Portland – Denver – 1.95 Suburban (million SF) 1.Houston – Dallas – Phoenix – Atlanta – Los Angeles – Seattle – Suburban MD – N. Virginia – Baltimore – Miami – 2.3

Office Real Estate – Market Fundamentals CBD rents again moved higher but definitely slowing, up 9.1% YOY, suburbs down for the quarter, 5.1% YOY – effective rents down (cost of carrying space!) Despite more subdued leasing environment, downtown asking rents continued to rise - not so for suburban markets

Nation’s Highest Growth in Office Rents - year over year, Q to Q2 2008, Downtown 1.Phoenix – 46.6% 2.Denver – 31.9% 3.Boston – 28.4% 4.San Jose – 25.8% 5.San Francisco – 17.8% 6.Houston – 17.4% 7.Miami – 16.3% 8.Seattle – 12.7% 9.NY Downtown – 11.0% 10.Tampa – 10.9% Suburban 1.Chicago – 28.9% 2.Phoenix – 21.9% 3.Bakersfield – 21.2% 4.Houston – 20.0% 5.Los Angeles – 19.6% 6.Boston – 18.0% 7.San Jose – 16.9% 8.Louisville – 16.8% 9.San Fran Peninsula – 16.2% 10.West Palm Beach – 14.7%

Investment Sales Market Office investment market now characterized by significantly less volume (down 67% in 1 st half), apprehensive buyers, longer due diligence periods Values down by approx % But……..considerable variation exists Significant upward pressure on cap rates Lending standards tightening Still very tough lending environment – no more leverage buyers Ample equity capital, no so much debt capital But deals still getting done!

Office Real Estate – Capital Market Fundamentals Q numbers through to May only, but trend is clear with sales volume just a fraction of 2007 and 2006 levels Cap rates rose as expected with softening market conditions but “sampling bias” definitely exists!

Themes for the balance of 2008 Most markets characterized by tepid leasing conditions and apprehensive tenants Recession, or recession like conditions in many parts of the country “Wait and see” attitude widespread, lot’s of short term deals Retail/consumer spending, employment down but NOT in free-fall Recent drop in oil/gas prices could act as a much needed boost to the economy – consumer and business confidence should improve Significantly less credit - credit crunch far from over, little improvement expected USD rally should bolster US stocks, help to keep interest rates low

Ross Moore Executive Vice President, Market & Economic Research