1. OVERALL MARKET OFFICE INDUSTRIAL RETAIL LAND INVESTMENT

2. VACANCY RATES (Includes Sublease Space)
11.5%
11.6%
8.8%

3. AVERAGE NNN ASKING RENTS
12.33
10.20
6.63

4. 2003 COMMERCIAL CONSTRUCTION COMPLETED
OFFICE
INDUSTRIAL
RETAIL
# OF BUILDINGS 22 28 7
TOTAL SQ. FT.
268,536
300,426
1,119,943
VACANT
SQ. FT.
33,296
26,924
125,707
AVERAGE VACANCY RATE
12.4%
9.0%
11.2%

5. 2004 PIPELINE UNDER CONSTRUCTION
OFFICE
INDUSTRIAL
RETAIL
# OF BUILDINGS 12 11 6
TOTAL SQ. FT.
586,802
157,363
237,533
VACANT SQ. FT.
88,740
7,245
28,842
AVERAGE VACANCY
15.1%
4.6%
12.1%

6. REGIONAL OFFICE VACANCY RATES

7. US Leasing Activity
*CoStar

8. OFFICE BUILDINGS LEASING AND ABSORPTION

9. OFFICE SPACE SUBLEASE IMPACT

10. OFFICE INVENTORY BY AGE
Year Built
Percentage
Before 1970
15%
1970 – 1979
15.3%
1980 – 1989
33.4%
1990 – 1994
7.7%
After 1994
28.6%

11. OFFICE BUILDINGS VACANCY RATE BY AGE
Year Built
Vacancy Rate
Before 1970
5.3%
1970 – 1979
8.7%
1980 – 1989
15.7%
1990 – 1994
2.4%
After 1994
6.6%

12. OFFICE BUILDINGS AVERAGE ASKING RENT BY AGE
Year Built
Base Rent
Before 1970
$9.10
1970 – 1979
$8.80
1980 – 1989
$9.90
1990 – 1994
$13.90
After 1994
$13.55

13. OFFICE LARGE BLOCKS STUDY

14. CBD OFFICE BUILDINGS
LEASING & ABSORPTION
VACANCY RATES
AVERAGE ASKING

15. OFFICE FORECAST Downtown North I-25 Southeast
Single Story New Construction

16. OFFICE FORECAST Rental Rates will Stabilize Slight Positive Absorption
Another Year of Renewals
Same as Yesterday

17. BASE CLOSURE REALIGNMENT COMMISSION
February ’04
Evaluation Criteria Released
March ’04 – May -05
Department of Defense reviews study & President appoints BRAC
May ’05
Secretary of Defense presents list of bases to close to BRAC
September ’05
BRAC forwards final decisions to President
October ’05
Congressional Approval
December 22, ’05
Plan in place
Deadline for Congress to veto list
*Department of Defense

18. INDUSTRIAL BUILDINGS LEASING AND ABSORPTION

19. US Industrial Market

20. INDUSTRIAL INVENTORY BY AGE
Year Built
Percentage
Before 1970
16.1%
1970 – 1979
21.4%
1980 – 1989
37.9%
1990 – 1994
3.5%
After 1994
21%

21. INDUSTRIAL BUILDINGS VACANCY RATE BY AGE
Year Built
Vacancy Rate
Before 1970
6.0%
1970 – 1979
14.2%
1980 – 1989
10.6%
1990 – 1994
2.7%
After 1994
11.2%

22. Warehouse-Dist. Asking Rates*
* Average warehouse-distribution $/SF/Year Triple Net

23. INDUSTRIAL BUILDINGS AVERAGE ASKING RENT BY AGE
Year Built
Base Rent
Before 1970
$6.08
1970 – 1979
$5.77
1980 – 1989
$6.93
1990 – 1994
$8.80
After 1994
$7.05

24. INDUSTRIAL LARGE BLOCKS STUDY
* TCR/Grubb & Ellis

25. INDUSTRIAL FORECAST Large Blocks High Cube Distribution 2000 SF Bays
Office/Warehouse
No Less Space Occupied by Year-End
Discount Rents close deals

26. RETAIL BUILDINGS LEASING AND ABSORPTION

27. RETAIL INVENTORY BY AGE
Year Built
Percentage
Before 1970
13.8%
1970 – 1979
15.7%
1980 – 1989
37.6%
1990 – 1994
2.0%
After 1994
32.5%

28. RETAIL BUILDINGS VACANCY RATE BY AGE
Year Built
Vacancy Rate
Before 1970
8.8%
1970 – 1979
9.7%
1980 – 1989
11.1%
1990 – 1994
8.4%
After 1994
4.4%

29. RETAIL BUILDINGS AVERAGE ASKING RENT BY AGE
Year Built
Base Rent
Before 1970
$10.15
1970 – 1979
$10.60
1980 – 1989
$10.65
1990 – 1994
$11.05
After 1994
$20.75

30. RETAIL FORECAST Central/South Academy Blvd. Powers Corridor
Monument/Falcon
Interquest/Northgate
Fountain/Downtown

31. LAND – ACRES SOLD EL PASO COUNTY

32. LAND ABSORPTION 1/00 Through 9/03
RETAIL
OFFICE
INDUSTRIAL
Permitted Sq. Ft.
2,074,270
1,816,345
1,101,503
Acres of Land
284
262
178
Total Land Price
$82,006,855
$43,705,901
$14,164,640
Average
Price/Sq. Ft.
$6.63
$3.83
$1.83
*TCR

33. LAND FORECAST
Office Land
Speculator Land
Industrial Land
Retail Land

34. AVERAGE SALE PRICES
*El Paso County

35. INVESTMENT FORECAST Institutional Sales Single Tenant Properties
Turn Around Properties

37. Denver Leasing Activity
LEASING ACTIVITY. Like net absorption, leasing activity is another measure of demand. It is a summation of all the lease comps that are transacted during a given period. Unlike net absorption, there is no netting out to account for the movement of tenants within the market. It is a measure of total activity, not of expansion in the market.
Comment. Leasing activity has continued to drift lower in the third quarter. Anecdotal evidence suggests that tenant inquiries, as opposed to signed leases, have picked up from their lows. Tenants who postponed space decisions over the past few years probably are responding to improving economic reports and low rental rates to assess their options, perhaps as they prepare their 2004 budgets. Look for leasing activity to gain momentum in 2004 as the increased pace of inquiries translates into signed documents. A recent survey of Grubb & Ellis brokers supports this conclusion, with 42% expecting leasing activity to increase in the first half of 2004, while 35% of the respondents look for stronger activity in the second half of next year. One form of leasing activity that has already picked up is lease renewals. This reflects aggressive offers by landlords who are anxious to retain tenants in a down market, and the desire of tenants to take advantage of those offers and to avoid moving costs, particularly IT costs. Lease extensions also have moved higher as a percentage of the total, representing a desire on the part of tenants to keep their long-term options open until their business prospects improve.
Next release date: 2/1/2004
For more information: Grubb & Ellis reports on eNet
CoStar

38. Office Class A Asking Rates*
LEASING ACTIVITY. Like net absorption, leasing activity is another measure of demand. It is a summation of all the lease comps that are transacted during a given period. Unlike net absorption, there is no netting out to account for the movement of tenants within the market. It is a measure of total activity, not of expansion in the market.
Comment. Leasing activity has continued to drift lower in the third quarter. Anecdotal evidence suggests that tenant inquiries, as opposed to signed leases, have picked up from their lows. Tenants who postponed space decisions over the past few years probably are responding to improving economic reports and low rental rates to assess their options, perhaps as they prepare their 2004 budgets. Look for leasing activity to gain momentum in 2004 as the increased pace of inquiries translates into signed documents. A recent survey of Grubb & Ellis brokers supports this conclusion, with 42% expecting leasing activity to increase in the first half of 2004, while 35% of the respondents look for stronger activity in the second half of next year. One form of leasing activity that has already picked up is lease renewals. This reflects aggressive offers by landlords who are anxious to retain tenants in a down market, and the desire of tenants to take advantage of those offers and to avoid moving costs, particularly IT costs. Lease extensions also have moved higher as a percentage of the total, representing a desire on the part of tenants to keep their long-term options open until their business prospects improve.
Next release date: 2/1/2004
For more information: Grubb & Ellis reports on eNet
* Average Class A $/SF/Year Full Service Gross

39. US Office Market Profile
US OFFICE MARKET PROFILE. The vacancy rate is the amount of space that is physically unoccupied divided by the total inventory at the end of a given period, usually quarterly or annually. In markets where it is infeasible to track vacant space – most often large industrial markets where it’s impractical to track the comings and goings of tenants – Grubb & Ellis quotes availability rates instead. The key indicator of demand is net absorption, or, as our friends at Knight Frank insist on calling it, take-up of space. It is the net change in occupied space during a given period. Completions is the amount of space completed during a given period. It is different from space under construction at the period, which is a another commonly mentioned indicator.
Bottom Line: Demand, as measured by net absorption, outpaced new supply, as measured by space completions, for seven of the eight years from 1993 through During this period, developers built to the level of tenant demand, unlike the early 1990s when capital flooded into the pockets of developers, who then severely overbuilt the market. But much of the demand in the late 1990s and 2000 rested on the unstable shoulders of technology and telecom companies, and when these companies downsized or disappeared, the impact on the office market – higher vacancy rates and lower rents – was no different than it was 10 years ago. Adding to the problem is the fact that companies were much quicker than in the early 1990s to lay off employees and throw space onto the sublease market. The combined impact of these trends drove net absorption sharply into the red beginning in 2001, a phenomenon that did not occur in the early 1990s when some markets and industry sectors continued to absorb space. The run-up in rents during the late 1990s did not occur in the late 1980s, perhaps another reason why tenants have been particularly anxious to give back space in the current economic climate. Plunging absorption combined with a full construction pipeline pushed the vacancy rate higher by an average of one percentage point per quarter from late 2000 through 2002 compared to a decline of one percentage point per year during the 1990s.
Next release date: 2/1/2004
For more information: Grubb & Ellis reports on eNet

40. Denver
Absorption in ‘03
Office: -77K
Industrial: -325K
Office at bottom, but rents will continue to slide in ’04
NW & SES post highest 30 & 25%
Ind poised to recover
2M SF sold to owner-users thru ’03-q3
US OFFICE MARKET PROFILE SINCE This graph displays the same three variables as the previous graph – vacancy, absorption and completions -- but by quarter instead of by year so that the most recent trends are visible.
Comment: For the second consecutive quarter, the U.S. office market shows signs of stabilizing. The market absorbed 529,000 SF, its first positive net absorption since 2000-Q4. Class A absorption at nearly 2 MSF was positive for the second consecutive quarter, while absorption of Class B and C space remained in the red. Twenty-four of the 45 markets tracked posted positive absorption, led by Chicago and Washington, DC. Both markets absorbed around 1.2 MSF, far outpacing the rest of the pack. Four markets posted between -500,000 and -1 MSF of negative absorption: Philadelphia, Houston, Boston and New York. Although new supply delivered in the second quarter continued to exceed net absorption, the gap appears to be narrowing. As a result, the vacancy rate ended the second quarter at 17.63%, up by a miniscule 5 basis points from 17.58% at the end of Q1. A little under half of all markets tracked posted vacancy declines, including three markets where vacancy fell by more than one percentage point (100 basis points): Riverside-San Bernardino, Omaha and Westchester County. At the other extreme, Nashville and Boston posted vacancy increases of more than one percentage point. Overall, suburban vacancy fell slightly to 19.12% from 19.31% in the prior quarter on the strength of positive absorption and declining construction. Central business district vacancies rose to 14.90% from 14.60% in the previous quarter due to negative absorption and a lingering pipeline of new construction.

41. Years Supply of Office Space*
* Years to reach 1997-Q4 vacancy w/average annual absorption =

42. Office Sublease (SF in millions)
SUBLEASE SPACE. Ignored when times are flush, this variable takes on added significance when the market becomes oversupplied as it is now. Sublease space that is vacant (about three-quarters of all sublease space on the market) is included in Grubb & Ellis’s vacancy rate calculations.
Comment. The backlog of available sublease space continued its slow descent thanks to a combination of positive absorption and lease expirations. Sublease space offered on the market totaled 127M SF at the end of Q3, down from a peak of 146M SF in 2002-Q1 but still three times above normal. Dallas and New York saw huge declines in their sublease inventories during the quarter, around 2M SF in both markets, but the primary cause was lease expirations, not absorption.
Next release date: 2/1/2004
For more information: Grubb & Ellis reports on eNet

43. 10-Year Note Goldman Sachs, Blue Chip Economic Indicators
INTEREST RATES AND INFLATION. For all you need to know about interest rates, ask FRED -- Federal Reserve Economic Data – on the Web site of the St. Louis Federal Reserve. Many other economic variables are available on this site, too. Of the numerous interest-baring instruments issued by public entities, the rates most often used in the commercial real estate industry are the prime rate, the 10-year treasury rate and the six-month LIBOR (London Inter-bank Offer Rate). The Federal Funds Rate is the primary tool available to the Federal Reserve to make sure the economy is not breaking the speed limit and tipping into an inflationary spiral as occurred in the early 1980s. It is the rate at which banks lend to one another overnight, and it tends to influence – but not dictate – other interest rate indexes that have a wider influence on the speed of economic growth – such as 10-year Treasuries. The Bureau of Labor Statistics measures inflation using several indicators. One of the most widely quoted is CPI-U, or the Consumer Price Index for All Urban Consumers.
Commercial Real Estate Impact. Low interest rates generate more investment sales, leasing transactions and activity of all kinds. High interest rates dampen economic activity, including real estate development, leasing and investment. Rising inflation can provoke the Federal Reserve into raising interest rates, which negatively impacts real estate markets. In the early 1980s, when inflation and interest rates were very high, it was considered more beneficial to hold hard assets such as commercial real estate, which appreciated along with inflation, than financial assets such as stocks and bonds whose values were eroded by inflation. When the economy gets to that point, however, it is unhealthy and not good for real estate in the long run. Another angle on the CPI is that companies want to locate in areas where the cost of living is reasonable (lower CPI measures for various goods and services) so their employees can enjoy a good quality of life on a lower pay scale.
Bottom Line: The big news in the real estate capital markets of late has been the dramatic backup in interest rates. The 10-Year Note, which bottomed at 3.13 percent on June 13th after some tough talk by the Federal Reserve on fighting deflation, soared above 4.60 percent by mid-August.
For more information: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics,
Goldman Sachs, Blue Chip Economic Indicators