Office Outlook. Despite continued tightening, clouds begin to form over various pockets of the U.S. office sector. United States.

Transcription

1 Office United States. Q Despite continued tightening, clouds begin to form over various pockets of the U.S. office sector The U.S. offi ce sector continued to notch tightening conditions for the fourth consecutive quarter. However, eroding confi dence has started to form a cloud over various segments of the offi ce market. The lack of job creation in recent months and plummeting confi dence levels have correlated almost perfectly with leasing activity declines over the past two quarters. Although offi ce employment levels remain positive and higher than overall employment growth rates, confi dence measures have declined in recent weeks, meaning near-term hiring (excluding the tech and energy industries) is likely to be limited and offi ce demand is likely to be lower in As a result, we expect the fourth quarter to have positive momentum and close the year ahead of 2010; however, we predict demand and, thus, rent levels across many market segments will remain quite level over the short term due to this heightened state of uncertainty.

2 The Western half of the country, specifically Texas, Denver and the West Coast techheavy markets, continue to dominate gains in the market based on the strong regional economies driven by energy and technology. Although overall leasing activity nationally was down 26 percent in third-quarter 2011 versus third-quarter 2010, the energy and technology market segments accounted for approximately 42.5 percent of occupancy gains despite the fact that these pockets comprise just 20.7 percent of supply.

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4 4 Jones Lang LaSalle United States Offi ce Q In this report This report provides an overview of supply and demand conditions, as well as detailed statistics, rankings and brief analyses of major offi ce markets in the United States. Our research department is dedicated to producing information and insights that help our clients understand dynamic real estate market trends and guide critical decision making for investors and occupiers. Seattle Minneapolis Sacramento Oakland - East Bay San Francisco Silicon Valley Denver Detroit Chicago Boston Cleveland Westchester County Fairfield County Pittsburgh New York City Columbus New Jersey Philadelphia Indianapolis Cincinnati Baltimore St. Louis Washington, D.C. Richmond Hampton Roads Los Angeles Orange County San Diego B Phoenix Dallas/Fort Worth Atlanta Raleigh / Durham Charlotte Austin Houston Jacksonville San Antonio Tampa Orlando Palm Beach Fort Lauderdale Miami

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6 6 Jones Lang LaSalle United States Offi ce Q Table of contents United States economy 7 United States employment snapshot 9 United States offi ce market 10 United States offi ce clock 13 United States capital markets 14 United States local offi ce markets 17 Atlanta 17 Austin Baltimore 18 Boston Charlotte 19 Chicago Cincinnati 20 Cleveland Dallas 21 Denver Detroit 22 Fairfi eld County Fort Lauderdale 23 Hampton Roads Houston 24 Indianapolis Jacksonville 25 Los Angeles Miami 26 Minneapolis New Jersey 27 New York Oakland - East Bay 28 Orange County Orlando 29 Philadelphia Phoenix 30 Pittsburgh Raleigh / Durham 31 Richmond Sacramento 32 San Antonio San Diego 33 San Francisco San Francisco Peninsula 34 Seattle Silicon Valley 35 St. Louis Tampa 36 Washington, DC Westchester County 37 West Palm Beach Appendix 38 United States offi ce statistics 39 United States rankings 40

7 Jones Lang LaSalle United States Offi ce Q United States economy The U.S. economy continued its tepid recovery, reporting modest growth by the end of the second quarter. However, more headwinds arrived as hiring is still anemic and too low to bring down unemployment, fear over the European debt crisis escalated and political uncertainty domestically continues to weigh on investors and businesses. The risk of another recession is still uncomfortably high for many businesses to make longterm decisions as consumer confi dence and spending continued to dip. However, corporate profi ts continued to escalate and growing metro economies related to high-tech and energy industries provided some positive news for a recovery that is stubbornly weak. National employment continues to disappoint The third quarter employment picture showed improvement by the end of the quarter. From July to September, 287,000 jobs were added and 103,000 of those jobs were added in September. Although still too weak to bring down the unemployment rate, which held stable at 9.1 percent for the last three months, the September report was above many economists expectations. Local governments were the largest contributors to job losses, shedding 54,000 jobs from July through September, while the federal government cut 9,000 jobs mostly due to cutbacks at the postal service. Private sector hiring improves by end of Q3 Change in '000s jobs Professional and business services leads hiring, 378,000 year-to-date Professional and Business Services Education and Health Services Trade, Transportation Manufacturing Leisure and Hospitality Retail Trade Wholesale Trade Construction Other Services Utilities Financial Activities Federal Government Information State Government Local Government 183 Regional employment remains uneven Regionally, the Pacifi c Northwest and Texas economies saw the largest percentage increase in jobs over the last year due to strong gains in high-tech industries and energy-related industries. San Jose expanded by the widest margin, increasing employment by 3.3 percent followed by Houston and Seattle. Meanwhile, consumer-based economies, as well as government-fueled economies like Atlanta, Philadelphia, Denver and Washington, DC all saw employment contract over the last year. On the offi ce-using side, Houston expanded employment by a whopping 8.8 percent (13,100 jobs) from August 2010 to August 2011, while Seattle expanded by 4.8 percent (19,400 jobs) and San Jose added 3.4 percent (8,200 jobs). -51 Source: Bureau of Labor Statistics, Jones Lang LaSalle Key office job sectors Job growth YTD (thousands) Private Sector Public Sector -1, Source: Bureau of Labor Statistics, Jones Lang LaSalle Office employment growing in high-tech and energy-based economies % 12 month change (office employment) 10.00% 8.00% 6.00% % change from August 2010 August 2011 The private sector showed a more promising picture over the last three months, adding a total of 352,000 new jobs. Professional and business services outperformed the overall economy, in particular, accounting for 125,000 of those new jobs. However, cuts in the fi nancial and information sectors left quarterly offi ce employment growth lower at 97,000 jobs. Surprisingly, construction added 29,000 jobs in the third quarter, due to an increase in employment for nonresidential construction. 4.00% 2.00% 0.00% -2.00% -4.00% Atlanta Indianapolis Oakland San Antonio St. Louis Sacramento Orlando Denver Richmond Phoenix Chicago Cincinnati New York Los Angeles Philadelphia South Florida Charlotte Boston San Francisco Washington, DC Cleveland Austin Minneapolis Tampa Baltimore San Diego Detroit Raleigh--Durham Pittsburgh Dallas San Jose Seattle Houston Source: Global Insight, Jones Lang LaSalle

8 Q Jones Lang LaSalle United States Offi ce Q Gross domestic product (GDP) estimates further downgraded for 2012 GDP growth remained positive, albeit weak, for the fi rst half of the year. The most recent data available showed the economy expanding by 1.3 percent in the second quarter. This growth is up from 0.4 percent in the fi rst quarter, yet signifi cantly down from economists expectations at the beginning of the year. The economic growth picture remained mixed and further weakened with external variables primarily led by the European debt crisis, yet coupled with earthquake in Japan and rising gasoline prices, which all helped to undermine business and consumer confi dence. That reduced confi dence, coupled with weak job gains, all resulted in tepid growth. Corporate profits continue to climb, but appear to be peaking $ billions SAAR Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q The largest drag on GDP during the second quarter was a decline in motor vehicle and parts spending, shaving 0.74 off growth, while state and local governments shed 0.34 off growth. Conversely, consumer spending on services added 0.87 to GDP and gross private domestic investment added Third quarter estimates for growth range from 1.9 to 2.4 percent, with private domestic investment serving as the bright spot, while the European debt crisis, volatility of the stock market and uncertainty surrounding federal defi cit and spending have dampened the outlook. GDP growth expected to be modest for rest of the year Quarterly percent change 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Q Q Q Q Q Source: Bureau of Economic Analysis, Global Insight forecasts, Jones Lang LaSalle Q Corporate profits continue to uptick, but peaking ahead Corporate profi ts hit another high by the end of the second quarter reaching $1.9 trillion, yet signs pointed to these levels peaking as growth estimates were further downgraded for the remainder of 2011 and into Despite sluggish growth in the U.S. economy and weak consumer spending, U.S. corporate profi ts have continued to climb to record highs. A growing share of U.S. companies saw a greater share of profi ts come from countries outside the U.S., such as India, China and Brazil. Similarly, growing effi ciency in corporate structures, decreased payrolls (in the U.S. and Europe) and stagnant wages have kept corporate balance sheets positive. The shock of the fi nancial crisis, continued turmoil in Europe and unstable stock market have kept businesses more conservative with spending and hiring, which will continue to undermine a more robust expansion in the U.S. Q Q Q Q Q Q Source: Bureau of Economic Analysis, Jones Lang LaSalle Consumer spending / confidence levels dip Consumer confi dence fell sharply in August, yet remained stable in September. Falling 24.0 percent from July to August, consumer confi dence reached near-recession levels, which was mostly due to political debate over the debt ceiling weighing on the minds of consumers. By September, the confi dence index had leveled off at 45.4, but still remained low. Fluctuations in consumer spending during the third quarter didn t match with such a low confi dence level, however. Chain store sales were up 2.0 percent from July to August and 1.5 percent from August to September, although the growth was largely contributable to back to school shopping. Similarly the outlook for holiday spending appeared weak with one survey reporting that 38.5 percent of consumers are planning to spend less this holiday season. The boost the economy needs from consumer spending seems less likely as falling equity and home prices, combined with fl at wage growth, continue to shrink household wealth. Moving forward The battered fi nancial position of consumers and the U.S. government, combined with severe external headwinds, create a tepid growth outlook for the second half of 2011, 2012 and beyond. The medium-term picture will stay cloudy thanks to 2012 elections. Government spending, usually a fairly stable portion of the economy, is more than ever a fl uid variable. But the likely scenario calls for slow and uneven growth below the longterm trend of 3.0 percent. Growth will be uneven across geographies and across time. This means persistent high unemployment and an elevated chance of recession. This recovery is and will continue to be fundamentally different than past recoveries. Even with government stimulus, job growth has not kept up with population growth. With governments retrenching, the prospects for robust employment gains become dimmer. And while temporary factors that hurt GDP in the fi rst half of 2011 (e.g., extreme winter weather, oil supply disruptions and natural disasters) will abate in the coming quarters, there will always be a new crisis from some corner of the world. For the time being, the economy remains fragile and vulnerable to outside shocks.

9 Jones Lang LaSalle United States Offi ce Q United States employment snapshot MSA Total nonfarm jobs 12-month net change (000's) Total nonfarm jobs 12-month percent change Offi ce jobs* 12 month net change (000's) Offi ce jobs* 12 month percent change Unemployment rate May 2011 Unemployment rate May month unemployment changes (bps) Atlanta (32.7) -1.4% % 10.4% 10.4% 0 Austin % % 7.3% 7.2% 10 Baltimore % % 7.9% 8.0% -10 Boston % % 6.4% 7.5% -110 Charlotte % % 11.1% 11.4% -30 Chicago % % 10.2% 9.8% 40 Cincinnati % % 8.7% 9.4% -70 Cleveland % % 8.0% 9.4% -140 Dallas % % 8.4% 8.4% 0 Denver (2.8) -0.2% % 8.5% 8.8% -30 Detroit % % 12.9% 13.4% -50 Hampton Roads (2.4) -0.3% % 7.3% 7.4% -10 Hartford % % 9.1% 9.4% -30 Houston % % 8.6% 8.6% 0 Indianapolis (10.3) -1.2% % 8.3% 9.0% -70 Jacksonville % % 10.4% 11.7% -130 Los Angeles % % 11.8% 12.4% -60 Minneapolis % % 6.7% 7.1% -40 New Jersey % % 9.4% 9.3% 10 New York % % 8.3% 8.8% -50 Oakland % % 10.6% 11.5% -90 Orange County % % 9.0% 9.8% -80 Orlando % % 10.3% 11.7% -140 Philadelphia (15.2) -0.6% % 9.1% 9.1% 0 Phoenix % % 8.4% 9.4% -100 Pittsburgh % % 7.8% 7.8% 0 Raleigh/Durham % % 8.8% 8.3% 50 Richmond % % 7.4% 7.8% -40 Sacramento % % 11.9% 12.6% -70 San Antonio % % 7.8% 7.5% 30 San Diego % % 10.2% 10.7% -50 San Francisco % % 9.7% 10.5% -80 San Jose % % 10.0% 11.3% -130 Seattle % % 8.7% 9.0% -30 South Florida % % 11.2% 12.2% -100 St. Louis % % 9.1% 10.1% -100 Stamford (Fairfi eld County) (0.6) -0.2% % 8.3% 8.6% -30 Tampa % % 11.0% 12.4% -140 Washington, DC (4.4) -0.1% % 6.1% 6.1% 0 White Plains (Westchester Co.) % % 8.5% 9.2% -70 Source: Bureau of Labor Statistics, Jones Lang LaSalle * Offi ce jobs include the Professional and Business Service, Information and Financial Activities sectors

10 10 Jones Lang LaSalle United States Offi ce Q United States office market An apparent lag is beginning to develop between quarterly offi ce market performance and the surrounding economic environment. While the U.S. offi ce sector continues to tighten, quarter after quarter, with respect to increased absorption, lowered vacancy and marginally increased rents, the macro-environment surrounding the economy appears to be worsening, or at best stagnating. For the sixth consecutive quarter, absorption remained in the positive, with occupancy gains nearly equaling the increases posted in the second quarter of The majority of occupancy gains being realized, however, have stemmed from expansion deals completed in the latter part of 2010 and early part of 2011 with those tenants now moving into that space. Nine to 12 months ago, the economy was growing at a faster pace and 150,000 jobs were being created each month, on average, ahead of the averages now being established. These recent occupancy increases have pushed vacancy lower and, across most major CBDs, have left larger tenants with few options to consider in the marketplace. However, in the summer months, as the Eurozone debt situation worsened and the domestic long-term debt and defi cit issues were temporarily pushed down the road, confi dence measures of both consumers and corporate executives plummeted. These spiraling measures contributed to lower transaction volume and tour velocity for the second consecutive quarter as many companies took a wait and see approach to any long-term capital decision. Summer super-slowdown Defl ated confi dence levels have defi nitely affected both the velocity of closed leases over the past two quarters, as well as active touring in the market by tenants. Many tenants have opted to stall or push longer term real estate decisions down the road due to uncertain business prospects for their own business. As a result, leasing velocity declined for the third consecutive quarter. Although fi rst quarter activity levels are usually the slowest of the year (explaining that one quarter decline), second and third quarter leasing levels were defi nitely curtailed by the current economic headwinds surfacing both domestically here in the U.S. and abroad. Leasing velocity levels, which declined by just 1.4 percent from the fi rst quarter to the second quarter, declined 12.8 percent from the levels established in the second quarter of YTD 2011 leasing activity levels down 26.0 percent from first three quarters of 2010 YTD ,000, ,000, ,000, ,000, ,000, ,000,000 Source: Jones Lang LaSalle 5-year average total leasing (first 3 quarters of the year Further, third quarter 2011 leasing levels dipped 25.5 percent from the same levels established in the third quarter of Finally, year-todate through the fi rst three quarters of 2011 compared to the fi rst three quarters of 2010, leasing momentum slid by 11.5 percent. In all, the enhanced economic certainties have started to shine not necessarily in the still-robust absorption levels, but more so in the activity levels we are currently seeing in the marketplace. The largest two markets in the country, New York and Washington, D.C., displayed telling numbers with respect to activity. New York saw a quarterly decline in leasing activity of more than 40.0 percent from the second quarter 2011 levels, whereas the Washington, D.C., region saw year-over-year third quarter activity plummet nearly 25.0 percent. With so much of the economy based around the fi nancial markets and the government agenda, these numbers could slowly start to affect the tenant mindset in other markets down the road. Despite a general lull in activity, expansions did continue in some market segments with a good deal of those expansions stemming from the technology and energy sectors. From the technology side, Electronic Arts grew in Austin, while Microsoft increased its occupancy in Northern Virginia and Google busted at the seams in Silicon Valley, among numerous other deals. On the energy side, Talisman Energy is continuing to add space in Pittsburgh, while BP, GE and Nexen are growing in Houston and EOG Resources and Gold Fields Exploration are expanding in Denver.

11 Jones Lang LaSalle United States Offi ce Q Absorption rates eclipse 2010 levels by more than 87.0 percent Absorption gains continued to fuel market tightening despite the global economic slowdown on the horizon. In the third quarter of 2011, the U.S. offi ce sector posted 9.3 million square feet of absorption, shifting the year-to-date total gains to more than 24.6 million square feet (0.7 percent of total supply). In comparison, in all of 2010, the offi ce sector absorbed just 13.1 million square feet. Occupancy increases across the U.S. offi ce market will by far double the gains realized in 2010, but when looking into the numbers, a few markets are truly driving these year-over-year increases. Energy and tech-related markets truly driving majority of gains where the greater market could be headed in 2012 with respect to future demand (although still forecast to be positive) potentially dipping from current levels and feeling psychologically like a slowdown. Four largest markets, constituting nearly a third of the U.S. office sector, seeing increasingly slow growth YTD 2011 net absorption as percent of inventory 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% YTD 2011 net absorption as percent of inventory 3.0% 2.5% 0.0% New York Washington, DC Chicago Los Angeles U.S. 2.0% Source: Jones Lang LaSalle 1.5% 1.0% 0.5% 0.0% Silicon Valley San Francisco Peninsula Source: Jones Lang LaSalle Austin Seattle Houston San Francisco Denver Dallas U.S. Vacancy levels fall below 18.0 percent Increased rates of absorption have pushed vacancy to new near-term lows. For the fi rst time in more than two years, vacancy levels dipped below the 18.0 percent market, fi nishing the quarter at 17.8 percent, a decline of 30 basis points from the second quarter of 2011 and a decrease of 90 basis points from the third quarter of The western half of the country, specifi cally Texas, Denver and the West Coast tech-heavy markets, continue to dominate gains in the market based on the strong regional economies driven by energy and technology. The energy and technology market segments accounted for approximately 51.8 percent of occupancy gains despite the fact that these pockets comprise just 20.7 percent of supply. In total, Austin, Dallas, Houston, Denver, Seattle, Silicon Valley, San Francisco and San Francisco Peninsula accumulated nearly 4.8 million square feet of absorption throughout the course of the quarter and, through the fi rst three quarters of 2011, have tallied up 9.8 million square feet of absorption increases. In contrast, the four largest offi ce markets around the country (Manhattan, Washington, D.C., Chicago and Los Angeles, respectively) have demonstrated slower leasing volumes and fewer absorption gains in recent quarters. As the economic environment continues to stagnate, and with the future recovery increasingly in question, leasing velocity in these markets, which account for approximately a third of the U.S. offi ce sector, has stalled. Although the markets have stalled for different reasons (partisanship in D.C.; banking uncertainties in NYC; no real recovery in L.A., etc.), they present a potentially stagnant forecast of The CBD and suburbs performed at nearly equal levels throughout the summer with each market displaying a gradual decline in vacancy. The CBD market vacancy levels nationally shed approximately 30 basis points, falling to 14.7 percent. CBDs demonstrating the tightest conditions at the end of the third quarter included Midtown South (6.6 percent), which has been recently fueled by the high-tech sector in Manhattan, and the revitalized downtown areas of Raleigh / Durham and Pittsburgh at 7.1 percent and 10.0 percent, respectively. In contrast, CBDs that offered the greatest leverage for tenants included Detroit, Dallas and Stamford, CT. Stamford recently caught a break with UBS deciding to stay put rather than move operations to New York due to incentives offered by Connecticut. Suburban vacancy levels also fell during the quarter, dropping from 20.0 percent to 19.8 percent. Although there are smaller suburban submarkets posting sub-10.0 percent vacancy, no regional cluster has been able to display single-digit vacancy at the end of the third quarter. Despite that, markets where fundamentals remain tightest included the Lehigh Valley area of Philadelphia and the suburbs of Pittsburgh, seeing increased demand due to the Marcellus Shale; the Richmond suburbs, experiencing renewed activity from the fi nancial services

12 12 Jones Lang LaSalle United States Offi ce Q sector; and some corporate relocations in Cambridge and Boston, which have seen activity levels among tech and biotech companies begin to gain traction. In contrast, supply and demand fundamentals within the suburbs of Detroit, Phoenix and West Palm Beach remain unaligned, offering tenants the greatest options and leverage against landlords. Asking rents increasing, yet concessions going back up, leading to stable net effective rents Asking rents continued to uptick driven largely by the aforementioned demand drivers across the energy and technology markets. In total, the average asking rent nationally jumped 1.2 percent in the quarter alone and was up nearly 3.0 percent from cyclical lows posted in Despite asking rent increases, concessions inched up in Q3 as activity levels declined Months Average rent abatement (months) Average tenant improvement allowance $ PSF $35.00 $28.00 $21.00 $14.00 $7.00 Market will continue to see growth into Q4 and 2012, but forecasts for 2012 growth will slow as economic climate remains uncertain A lack of confi dence has started to form a cloud over various segments of the offi ce market. Although offi ce employment levels remain positive and higher than overall employment growth rates, business and CEO confi dence measures have declined in recent weeks, meaning near-term hiring (excluding the tech and energy industries) is likely to be limited and offi ce demand is likely to be lower in As a result, we expect the fourth quarter of 2011 to have positive momentum and to close the year ahead of 2010; however, we predict demand and, thus, rent levels across many segments of the market will remain quite stagnant due to this heightened state of uncertainty over the short-term. Across the vast majority of geographies, ownerships will likely have minimal opportunity over the next six to nine months to raise rents or decrease concessions based on tepid tenant demand and still heightened availability. However, as signs of a turnaround in the global macro economic environment begin to resurface, landlords will quickly become aggressive with pricing due to the lack of a new construction market for the foreseeable future. As a result of this, we advise companies that can take advantage in the market recovery pause to do so and explore their real estate needs sooner rather than later when the environment tightens Q Q Source: Jones Lang LaSalle $0.00 Very limited construction over the next three years could lead to quick recovery when economy returns Under construction SF 6,000,000 The San Francisco Peninsula and San Francisco markets saw the biggest upticks quarter-over-quarter with growth of 4.8 percent and 3.7 percent, respectively. Further, San Francisco has seen rents jump 22.0 percent overall year-over-year, far outpacing any other market around the country during that time frame. Austin, New York, Seattle, Philadelphia and Minneapolis were other markets posting quarterly rent appreciation in excess of 1.0 percent. Most other markets nationally saw minimal movement in pricing from quarter-to-quarter despite sitting near the bottom of the pricing perspective. 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Richmond St. Louis Cincinnati San Francisco Tampa Bay Fairfield County Denver Westchester County Phoenix Hampton Roads Dallas Miami Pittsburgh Philadelphia Seattle Silicon Valley Los Angeles Cleveland New Jersey Houston Baltimore San Antonio New York Washington, DC Source: Jones Lang LaSalle In a sign that landlords are increasingly trying to lure tenants to their product, concessions increased for the fi rst time in several years nationally. As a result, despite the jump in asking rents, effective rents have generally remained stable. Tenant improvement allowances grew 4.1 percent nationally, while rent abatement inched up to 5.0 months nationally after both had seen gradual decreases over the past 2.5 years. Although these increases were quite small, it is a trend worth noting and paying attention to, especially as activity levels lag previous quarters and landlords try to create future demand.

13 Jones Lang LaSalle United States Offi ce Q United States office clock Peaking market Falling market Rising market Bottoming market San Francisco New York, Pittsburgh, Silicon Valley Austin, Houston Boston, Washington, DC Baltimore, Dallas, Denver, San Francisco Peninsula Detroit Cincinnati, Cleveland, Sacramento, West Palm Beach, Westchester County Fort Lauderdale, Hampton Roads, Jacksonville, New Jersey, Orlando, Phoenix Charlotte, Fairfield County, Los Angeles, Miami, San Diego, St. Louis, Tampa Chicago, Orange County, Raleigh-Durham Atlanta, Indianapolis, Minneapolis, Oakland-East Bay, Philadelphia, Richmond, San Antonio, Seattle, United States Reading the clock The Jones Lang LaSalle offi ce clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock, with markets on the left side of the clock generally landlord-favorable and markets on the right side of the clock generally tenant-favorable. After shifting to the 6:00 position at the midway point of 2011, the U.S. remained at the 6:00 position at the end of the third quarter 2011 as well. Future economic uncertainties both inside and outside the country s borders caused leasing activity levels to dip, which, in turn, propelled most landlords to keep rents steady over the course of the summer and into the early fall. Overall, across the U.S., rents remained stable over the course of the quarter, inching up approximately 30 cents per square foot to $27.74 per square foot. The pricing growth realized during the quarter was largely driven by more substantial rent increases in only a few markets rather than movement across all markets. The San Francisco Peninsula, San Francisco, San Antonio, Miami, New York, Philadelphia, and Austin markets displayed the largest rental increases quarter-over-quarter with the San Francisco Peninsula and San Francisco markets commanding premiums greater than 3.0 percent compared to the second quarter 2011 averages due to continued increase in technology demand. The Philadelphia CBD experienced growth of 1.8 percent over the quarter as quality, large blocks have disappeared from the market based on several quarters of positive absorption and several buildings in the CBD selling, which has helped to reset rates upward. Miami, on the other hand, is the one market in the group that does not necessarily fi t with the other markets. The main reason for Miami s jump in rents, which occurred in the CBD, was the delivery of Brickell World Plaza. The new Trophy adds nearly 600,000 square feet of vacancy to the already-high vacancy submarket of Brickell with the new Trophy building marketing rents in the upper-$40 s full service. In contrast, the industrial Midwest markets of Detroit, Cleveland and Cincinnati, along with the Sunbelt markets of Phoenix, Jacksonville and Tampa Bay, displayed the largest declines over the quarter. Each market demonstrated rents moving downward at rates greater than 1.0 percent for the quarter. An erosion of confi dence has started to form a cloud over various segments of the offi ce market. Although offi ce employment levels remain positive and higher than overall employment growth rates, business and CEO confi dence measures have plummeted in recent weeks, meaning near-term hiring (withstanding the tech and energy industries) is likely to be limited, causing diminished demand in the offi ce market for As a result, we expect rent levels across many segments of the market to remain quite stable and expect minimal movement in offi ce clock positions over the short term due to this heighted state of uncertainty.

14 14 Jones Lang LaSalle United States Offi ce Q United States capital markets Asset class holds its own during summer of discontent The U.S. capital markets for the offi ce sector soldiered on during the third quarter even as a wall of worry in global fi nancial markets grew signifi cantly higher in the face of a downgraded economic outlook and fears that the ongoing Eurozone debt crisis may spiral out of control and infect the broader fi nancial system in a highly unpredictable manner. The national investment market did make progress in climbing this worrisome wall, as basic underlying sources of support for market demand largely remains in place. However, the seemingly continuous fi nancial turmoil in the latter-half of the quarter, combined with an already vigorless economic recovery losing several of the few remaining speckles of luster it had managed to hold onto, is exerting some clear negative infl uence on the property investment market. Estimated office volume of over $15 billion in Q3, up slightly quarter-over-quarter Total U.S. office volume $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Q Q Q CBD Q Q Source: Jones Lang LaSalle, Real Capital Analytics Suburban The preliminary estimate for total U.S. offi ce volume during the third quarter was approximately $15.6 billion, representing a slight increase of 5.0 percent over second quarter activity. On a year-over-year basis, transaction activity still grew at a very strong pace at 55.0 percent. This pace of year-on-year growth has decelerated substantially from the triple-digit percentage gains over the four-quarter period that ended in the fi rst quarter of It is set to decelerate signifi cantly further in the fourth quarter. Investor sentiment pivots back toward risk-off in property Throughout this offi ce investment recovery, investors have shown an indisputably strong preference for product of perceived lower risk levels. Assets distinguishable by higher occupancy rates, quality of tenancies, minimum near-term lease rollover, primary market and desirable Q Q Q Q Q Q submarket location and generally more modern, Class A space have garnered the most demand. Although over the last couple quarters, some tentative signs have pointed to investor demand beginning to expand on the risk scale. That scale has spread to more secondary markets, lesser-quality submarkets and more assets of average-to-lower quality. A preponderance of evidence on display in the third quarter mainly revealed that superior asset and location quality, as well as safety of income, remain on the majority of investors must-have lists. In the third quarter, the market share of offi ce dollar volume invested in central business districts, already at a more than 10-year high, increased further still, to over 65.0 percent. This is likely a refl ection, at least in part, of investors realization of the increasingly entrenched trend of CBD market fundamentals having signifi cantly outperformed those in suburban districts throughout this recovery cycle. New York office investment surges; primary markets continue to garner lion s share of investor interest Office volume ($mil.) $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Manhattan Washington, DC Boston Los Angeles San Francisco Houston Chicago Source: Jones Lang LaSalle, Real Capital Analytics Seattle Phoenix Silicon Valley Dallas Northern New Jersey Denver Q1-Q Q1-Q Q1-Q Further, investors continued to have a strong preference for primary markets during the third quarter. These markets, perhaps most notably New York and Washington, DC, but also including a further handful of leading investment destinations, combined to also reach a more than decade-long high in market share of all offi ce investment volume, at approximately 69.0 percent. Finally, an analysis of traded offi ce volume by asset occupancy level yields largely consistent fi ndings. In the third quarter, the dollar-weighted average occupancy rate of offi ce product transacted was approximately Atlanta Orange County

15 Jones Lang LaSalle United States Offi ce Q percent, an increase from the second quarter s 83.0 percent level. Although a somewhat volatile data series, this measure s spread over the average U.S. occupancy rate for all offi ce properties Jones Lang LaSalle tracks was 630 basis points in the third quarter. This is 90 basis points higher than the quarterly average spread since the early stages of the capital markets recovery beginning in the fi rst quarter of 2010 and indicative of continued strong investor focus on lower-risk investments. Market shift toward more value-add investment to be short-circuited? Percent of multi-tenant office building transactions in given occupancy rate range by dollar volume 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 Source: Jones Lang LaSalle, Real Capital Analytics 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 < 65% 65-75% 75-85% 85-95% > 95% Initial yields bounce, but only ephemeral Pricing trends in offi ce product in the third quarter differed from that experienced in the other three main property sectors in that cap rates expanded modestly, while the other product types cyclical compression remained fi rmly intact. Preliminary data reveal dollar-weighted average cap rates for all U.S. offi ce product closed in the third quarter increased 30 basis points to 6.4 percent. Despite the increase, this average initial yield is still 250 basis points lower than the cyclical peak yield at the overall investment market trough in Critically, this is likely not suggestive of a pricing trend reversal, but rather similar to the fi rst quarter s upward oscillation and simply refl ective of the inherent volatility in the data series due to an ever-shifting mix of specifi c assets traded. Office cap rates jogged modestly upward in Q3, bucking trend in the other major sectors 10.0% 9.0% Apartment Industrial Office Retail Office - high quality* 2010Q1 2010Q3 2011Q1 2011Q3* approximated by the lowest-quartile of cap rates recorded during the period, also exhibited this buoyancy in weighted average initial yield, to 5.4 percent from the second quarter s undersized 4.7 percent. The same lack of conviction with regard to a newfound trend reversal applies to the higher-quality offi ce product as just as it does the sector overall. In fact, based on more subjective assessments of investor sentiment and anecdotal evidence of product on the market, estimated yields for prime assets in gateway and leading secondary markets experienced further minor cap rate compression, on average, in the third quarter. The most plausible scenario as 2011 comes to a close is likely that yields for new offi ce investments will once again encounter compression, and this cyclical trend will remain intact over the near term. A major factor in this judgment is the recently widened spread on offer in the sector, particularly as risk-free government bond yields plummeted in the third quarter. Global investors rushed toward the safety of U.S. Treasuries, pushing the yield on the 10-year note to its lowest level in more than 60 years during the period. Indeed, the 10-year yielded less than 2.0 percent for much of the month of September. In this context, should core offi ce yields compress even considerably further still, the asset class will appear quite attractive to a broad array of investors, and demand for the highest-quality assets may even strengthen. This outcome remains likely despite the materially weaker macroeconomic outlook and potential for softer market fundamentals over the short term than believed to be the case as recently as early summer. U.S. office spreads widened in Q3; mostly a result of plunge in risk-free rates during the quarter Office property/treasury yield 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% Office - Ten -Yr Treasury Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Average cap rate 8.0% 7.0% 6.0% Source: Jones Lang LaSalle, Moody s Analytics, Real Capital Analytics 5.0% CMBS in downshift, portfolio lenders still like core 4.0% Q Q Q Q Q Q Q Q Q Q Q Source: Jones Lang LaSalle, Real Capital Analytics Q Q Q Q Q Q Q Q Q Q Q One area of the capital markets that has been impacted by the combination of the surge in fi nancial market volatility and reduced economic expectations is the market for debt fi nancing. One primary key to the anticipated broadening of investor interest into more

16 16 Jones Lang LaSalle United States Offi ce Q geographic markets, product types and commodity-quality assets has been the resurgence commenced late in 2010 of the CMBS market. Securitized loans play a pivotal role in secondary and tertiary markets, as well as Class B properties. Improving market sentiment, on the back of a sluggish, but still expanding economy, had allowed CMBS lenders to begin to place loans in earnest in the fi rst half of 2011, and investment banks responded in kind with renewed strength in bond offering activity. Indeed, with the conduit loans made through early-tomid summer, CMBS issuance continued apace in the third quarter, with nearly $10 billion issued, pushing the total issuance for 2011 to-date to approximately $27 billion. This level is already more than double the total bond issuance in all of However, perhaps somewhat anticipating the market turmoil that was to appear later in the summer months, existing CMBS spreads began to widen, and became more choppy, in June and July. By August existing bond spreads surged further, especially in light of the increased market nervousness around the Eurozone s debt crisis. Further compounding the securitization market s challenges is that CMBS lenders are not especially competitive in the current environment with the major balance sheet lenders on loan pricing being offered, as life insurers and national banks can offer considerably lower interest rates on core and coreplus assets. Given the still-current aversion to risk, these assets are overwhelmingly those in which the portfolio lenders are focusing their current origination efforts. As a result, CMBS issuance will likely decline over at least the next few months. For 2011, full-year issuance for all sectors combined appears likely to settle in the $30 to $33 billion range, compared with some reasonable projections earlier in the year that ranged as high as $45 to 50 billion. secondary markets nationally. The net impact of these trends is that there is somewhat less overall debt fi nancing available heading into the end of 2011 than appeared likely to be the case as recently as three months ago. This will be felt more acutely the further one moves out on the risk spectrum. Fast shifts a certainty in today s capital markets As has been the case throughout this capital markets recovery, the best assets will, by far, continue to attract the greatest raw amount and selection of choices as far as capital both debt and equity. The shakiest assets in inferior locations will enjoy the least of both worlds. However, throughout this early expansion, one lesson learned has been just how rapidly the capital markets, both in property and at-large, can shift trajectory and speed. This is true both on the downside, as well as the up. Wise is the investor that acknowledges this, as well as that for all we do not know about tomorrow s market, we know that in at least some ways, it will not be like the market of today. But for now, prime assets continue to reign supreme. Many secondary markets, tertiary markets and Class B properties have still a bit longer to wait. Whereas in the fi rst half of 2011, CMBS lending accounted for 24 percent of all offi ce mortgage originations, this proportion is likely to be markedly lower in the second half of the year, and into the opening months of Insurance companies originated the greatest percentage of offi ce loan volume in the fi rst half of 2011, at 29.0 percent. As insurers near their planned allocations to property in 2011, this could potentially prompt this lender group to move at a more deliberate pace in the fourth quarter and perhaps be even more selective. Anecdotally, major national balance sheet lenders as a group have pulled back their activity in the wake of the market turmoil and lowered economic fundamental expectations. However, this has been, on balance, a modest shift in sentiment and largely not one that impacts Trophy product, as well as most well-located and occupied Class A/ core assets. This is particularly true in gateway and the more desirable

17 Jones Lang LaSalle United States Offi ce Q United States local office markets Atlanta Atlanta s unemployment rate has fl uctuated only slightly in recent months, and in August went up to 10.4 percent due to more job losses in construction, trade, administrative / support services and accommodation / food services. Even three years removed from the so-called Great Recession, the Atlanta economy is still weak and no job gains have been sustained. Unemployment and commercial vacancies are painfully high, and the steady stream of bad economic news has little indication of letting up. The forces that led to our economic collapse have not been dealt with entirely. The bursting of the real estate bubble decimated Atlanta s labor market and the balance sheets of too many of its homeowners and recovery will not be swift. Overall demand for Atlanta has been positive in 2011 and third quarter saw the largest gains, absorbing 318,000 square feet. With 656,000 cumulative square feet absorbed so far this year, the metro has already recorded eight times the demand seen in all of Much of this still-modest growth has stemmed from small expansions in the business services sector and a handful of net new relocations to the city from other markets. For the second consecutive quarter, positive absorption was spread throughout a mix of urban and suburban submarkets, although the bulk of activity is still in Buckhead. Total suburban demand was negatively impacted, however, by AT&T vacating the entirety of the 376,350-square-foot Cobalt Center in Alpharetta in a consolidation to their intown campuses at Lindbergh Center and Lenox Park. Considering that 21.6 percent of Atlanta s inventory was still vacant at quarter s end, the market-wide fundamentals have essentially just shifted from fi rst to second gear. With so much of the inventory still vacant, pricing has been stuck around $20.00 per square foot and third quarter clocked in at $19.91 per square foot. Although 2011 s positive demand helped chip away at some of the empty offi ce space, 21.6 percent of the inventory is still vacant and there are not enough known deals coming out of the pipeline to bring the vacancy rate substantially down in the coming quarters. Third quarter also saw the debt-ceiling crisis, Standard & Poor s credit rating downgrade of U.S. government bonds and a still unresolved Eurozone sovereign debt crisis raise anew uncertainty for many in the state of the economic recovery. Wavering confi dence could translate into a longer stint with the market needle pointed in the tenant s favor than was originally expected at the outset of the year. Austin Adding over 8,600 civilians to its labor force since May of this year, Austin s economy continues to grow 66.3 percent of this increase (or 5,700 civilians) came from just the 30-day period between the end of July and the end of August. After ticking up to 7.6 percent for the months of June and July, at the end of August, the unemployment rate settled back down to where it started the year 7.3 percent. To highlight a few sectors of the Austin economy: mining, logging, and construction increased by 900 jobs (2.3 percent) from the end of July to the end of August; leisure and hospitality has added a total of 8,100 employees since January, a 10.0 percent increase; and the government has cut 5,500 positions since the beginning of the year. While the latter summer months, as they historically do, accounted for less leasing activity than other months of the year, landlords continued to push rates across Austin s tightening suburban markets. In just one quarter, average direct rental rates across Class A and B property in suburban Austin have increased 45 cents to a full service rate of $24.50 per square foot per annum. To put this in perspective, one should consider the typical 50 cent contractual annual rental increases exhibited in leases across the suburban market. While this increase of 50 cents only occurs every year in the lease itself, the most recent turn in the market has caused landlords to bring about such an increase in their average direct marketed rates in just three months a quarter of the time it would normally take for the market to cause such action. Notwithstanding Austin s seeming insulation from the global economic woes, there has been a reduction in optimism over the second half of the year. We anticipate most developers and tenants alike will adopt more of a wait and see attitude over the immediate future. However, with year-to-date net absorption at almost 750,000 square feet and a number of pending occupancies, Austin will most likely end the year with over one million square feet of positive net absorption. This would be the fi rst time since 2006 that Austin will have recorded net absorption of greater than one million square feet. With consistent leasing activity and net absorption and occupancy on the rise, this begs the question: When will the next offi ce building be constructed? While developers are reluctant to move forward with speculative product, they are beginning to dust off the plans in preparation of being shovel-ready for that next big tenant to kick off a project.

18 18 Jones Lang LaSalle United States Offi ce Q Baltimore In a trend seen nationally, the unemployment rate in the Baltimore region jumped in the third quarter, indicating that volatility and uncertainty will likely persist over the coming year. At the close of August, the latest month of employment data available for the region, the unemployment rate fi nished at 7.9 percent, a rise of 90 basis points since April. Declines in payrolls and an increasing number of homeowners behind in their mortgage payments are anticipated to weigh on the economy for the foreseeable future. While Maryland saw an unexpected surplus of $195 million in the state budget for 2011, offi cials cautioned that economic growth state-wide to slow to 2.8 percent in Employment gains related to the U.S. Department of Defense installations at Fort Meade and Aberdeen Proving Ground moved year-over-year net changes for federal government payrolls into positive territory as local and state governments continued to cut back. Similarly, the leading offi ce-occupying segment, continued to post strong gains as professional and business services (PBS) payrolls rose 4.2 percent due to increased contractor presence around those bases. Yet, while the region saw a gain in federal government employment and PBS employment overall, regions removed from Base Realignment and Closure (BRAC) activity saw a decline, specifi cally in Baltimore City, where federal payrolls dropped by 1,100 compared to same period last year. As contractors and the federal government took occupancy near Fort Meade and Aberdeen Proving Ground, vacancies fell sharply in addition to modest rental rate growth, especially in the BWI/Anne Arundel and Columbia South submarkets. The activity centered on recently delivered Class A properties, while lower segments of the market posted negative net absorption for the quarter. As overall leasing activity decreased from prior quarters, Baltimore s CBD did not see a banner transaction in the third quarter. Leasing activity in neighboring Harbor East broke up blocks of availability, notably at 1000 Lancaster Street, where 70,000 square feet of space was leased. The transactions cut the number of blocks of available vacant space in the city greater than 100,000 square feet to just three. As government contractors continue to relocate to the Fort Meade and Aberdeen Proving Ground, submarkets in close proximity to the military installations should continue to see positive net absorption. However, areas removed from BRAC and federal employment / contractor growth will likely experience stable fundamental as offi ce occupying segments of workforce continue to post somewhat stagnant conditions. Boston Strength in healthcare, education, science and technology continues to spur Boston s year-over-year job growth of 2.5 percent in the private sector, exceeding the national rate by a wide margin. Despite the overall strength, job growth has slowed in professional services and fi nance, and employment has declined slightly in the legal services sector, all critical drivers for the offi ce market. Economic growth is expected to remain slow through year-end as corporations await a clearer picture of business prospects, with technology remaining a positive outlier. The slowdown in offi ce-using sectors, weakening leasing activity and some large new space availabilities in the suburbs contributed to the market s fi rst quarter of negative net absorption in a year-and-a-half. Rents remained stable quarterover-quarter regionally with the most in-demand spaces and submarkets seeing some additional appreciation, while many secondary and Class B submarkets experienced additional rental declines. Boston s Seaport ( Innovation ) District continued to lead the way. Vacancy dropped 3.1 percentage points from the previous quarter with Class A asking rents up 3.0 percent to a level on par with both the Back Bay and neighboring Financial District. The positive net absorption seen in the Seaport was offset by AIG/Lexington Insurance listing 250,000 square feet for sublease in the Financial District, contributing to occupancy fl attening overall for Downtown Boston. Cambridge remained active as both occupancy and average asking rents have continued to climb since mid-2009, increasing 3.8 and 17.9 percent, respectively. Occupancy gains look likely to continue with Biogen IDEC announcing plans to relocate its headquarters back to Kendall Square in Cambridge after only a short period in the suburbs. The suburbs, meanwhile, exhibited the largest market slowdown, recording negative net absorption of 985,599 square feet, most of which can be attributed to available space listed that is currently occupied by Biogen IDEC, Raytheon, and the Shaw Group. After a fairly robust recovery in 2010 and early in 2011, leasing activity and absorption will likely remain fl at through year-end, as uncertainty about the business outlook and indecision among tenants dampens prospects for occupancy and rent growth. A diverse industry base and the lack of new construction will help cushion Boston from a slow growth period. The landscape will remain uneven, with select submarkets such as Cambridge and the Seaport District very competitive, while options remain abundant and could even increase over the near term in other submarkets.

19 Jones Lang LaSalle United States Offi ce Q Charlotte Charlotte continued to battle a high unemployment rate during the summer of August s rate of 11.1 percent, while dropping from the 11.3 percent peak reported a month previously, was noticeably infl ated as many industries continued to struggle. Year-over-year, the information and hospitality sectors have reported the most growth, while government agencies, construction and professional services fi rms were either fl at or declining. The metro area saw a return to negative absorption during third quarter 2011 with more than 172,000 square feet of occupancy returning to the market, breaking the four-quarter trend of signifi cant net gains. Leasing activity however appears to be on par with historical volume levels, so barring any large moveouts, Charlotte could expect to see a rebound during the year s fi nal quarter. Rents have been teetering on the $21.00-per-square-foot mark this calendar year, but in the last three months, average asking prices dipped a quarter to $20.76 per square foot. The market can likely expect to see rents decline even further before truly bottoming out, although a swift return to positive absorption could help temper this trend. At quarter s end, no new construction was underway in Charlotte for the fi rst time in over a decade. With the vacancy rate still high at 18.5 percent, this news bodes well for a market in recovery mode. With additional time to absorb existing, empty space, Charlotte could be well-positioned in 2012 to take advantage of any new demand. Chicago The Metro Chicago economy took a step backward during the third quarter as the local unemployment rate erased a year of gains and rose to 10.4 percent. On par with national trends, the pace of growth slowed in most segments of the economy, including manufacturing production and business and consumer spending. As the global and national economic performance shattered confi dence levels during the last several months, employment forecasts have likewise shifted downward. In a mere six months, expectations for 2012 Chicago employment gains have shrunk from 2.0 to 0.2 percent. The third quarter, while typically a slower time of year for transactions, was characterized by a number of sizable deals. Same building transactions were again a dominant theme throughout the CBD market, but most especially among the largest deals, two of which were larger than 200,000 square feet. Fifth Third Bank extended its lease and expanded its space at 222 S Riverside for a combined total of 253,000 square feet and the American Bar Association completed an extension at 321 N Clark for 201,000 square feet. This is a stark contrast when compared to the third quarter of 2010 when the two largest deals of the quarter were just 60,000 square feet. The suburban market is no stranger to summer slowdowns, but this year was keenly felt as the global economic upheaval shook confi dence yet again and gave pause to market activity. Close to home, rising unemployment levels and the tenuous economy saddled real estate decision makers, many of whom applied the breaks on projects once again. Touring activity was especially quiet during the summer months, with a routine blip appearing after the Labor Day holiday. Leasing transactions included several relocations and a handful of shortterm renewals as tenants continued to watch costs and consolidate where possible. Sentiment from both sides of the table agree that near-term market conditions will continue to be slower than average and size dependant. Pressure in the larger size range will garner the lion s share of activity, while the small- to midsized subset remains less active. Not unlike last year, the fourth quarter should see many decisions drawn out or tabled as the expectation of better economic conditions pushes action to next year.

20 20 Jones Lang LaSalle United States Offi ce Q Cincinnati The Cincinnati economy continued to experience sluggish growth through the third quarter of Data released for the month of July by the Bureau of Labor Statistics showed that total nonfarm employment increased by 0.1 percent month-over-month, while year-over-year total nonfarm employment increased by 0.9 percent. The unemployment rate increased 0.2 percent month-over-month to 8.9 percent, while the year-over-year unemployment rate decreased by 0.8 percent. The Cincinnati leading indicator index declined 0.1 percent in July, suggesting a stagnant economy through the fourth quarter of Leasing velocity increased signifi cantly in the third quarter of 2011, resulting in a positive total net absorption of more than 380,000 square feet. Five leasing transactions of 75,000 square feet and above were signed as tenants looked to lock-in favorable rates on large blocks of space. An exceptional amount of leasing activity involved relocations as tenants looked to position themselves in prominent Class A space. Touring activity continued to increase through the third quarter of With the market remaining tenant-favorable, offi ce occupiers are evaluating all options before signing lease agreements. Although an infl ux of large leasing transactions transpired in the third quarter, several tenants remain in the market with large requirements including Chiquita, the Nielson Company, Seapine Software, and the Mercy Health System. Capital markets remained tight in the third quarter, resulting in a limited number of sales despite the amount of offi ce product, which is currently on the market. Only two notable transactions were recorded in the third quarter totaling 163,000 square feet. Economic conditions in Cincinnati are expected to remain moderate through the fi rst half of Touring velocity and leasing activity is expected to remain stable with over 350,000 square feet of active requirements on the market. Capital markets activity, however, is expected to remain sluggish through the fi rst half of 2012 due to limited access to capital and conservative investors. Cleveland The Cleveland economy continued to experience modest growth through the third quarter of Data released for the month of July by the Bureau of Labor Statistics showed that total nonfarm employment increased by 0.1 percent month-over-month, while year-over-year total nonfarm employment increased by 0.7 percent. The unemployment rate decreased 0.1 percent month-over-month to 8.2 percent, while the year-overyear unemployment rate decreased by 1.0 percent. The Cleveland leading indicator index declined 0.5 percent in July, suggesting a contracting economy through the fourth quarter of Leasing velocity decreased in the third quarter resulting in a positive total net absorption of only 20,000 square feet. The majority of leasing transactions were renewals of 15,000 square feet or less. There were two notable lease transactions including 114,000 square feet by Progressive Insurance and 32,000 square feet by Vorys. Tour activity increased in the third quarter. Several large tenants with lease expirations approaching are in the market including Kaiser Permanente, Oswald Companies, and BrandMuscle. Other tenants with early lease termination options are also in the market evaluating if this is the time to lock into new contracts or wait for their current lease agreements to expire. Capital markets activity increased in the third quarter as investors looked to acquire bargain properties. A total of fi ve properties (including three properties as part of a portfolio) were sold equaling 785,000 square feet. All of the properties purchased were lender-owned after the previous owners handed back the keys. In each case, the purchasers were able to acquire the distressed properties at reduced prices. Economic conditions in Cleveland are expected to remain sluggish through the fi rst half of Touring velocity and leasing activity is expected to remain stable with over 450,000 square feet of active requirements on the market. Capital markets activity, however, is expected to idle through the fi rst half of 2012 due to limited access to capital and conservative investors.

21 Jones Lang LaSalle United States Offi ce Q Dallas The unemployment rate, which has been trending downward for most of 2011, increased some in August and currently stands at 8.4 percent. This is still far below the national unemployment rate of 9.1 percent. The latest employment fi gures show that Dallas has added 50,200 jobs on a year-over-year basis, making it a top metro area for job creation. The increase in jobs is a combination of organic growth from existing local companies and from corporate relocations and expansions from other parts of the country. The offi ce market recovery continues with six of the nine submarkets reporting positive net absorption in the third quarter of The total vacancy rate was largely fl at for the quarter at 22.7 percent, but this is much tighter than one year ago when it stood at 24.2 percent. Demand for space remained strong as yearto-date net absorption has totaled 1.5 million square feet. This healthy demand has pushed rates in the higher occupancy submarkets enough that overall asking rates increased for the fi rst time this cycle, rising fi ve cents to $20.32 per square foot (full service). Rates had already begun to rise in a few submarkets earlier in the year, but overall rates were fl at. After six consecutive quarters of tightening market fundamentals, overall average asking rates have begun to rise. Rates were fl at or rose in fi ve of the nine submarkets in the third quarter and look for rates to rise further in those at year-end. Class A properties are expected to outpace Class B properties as the market recovery continues. Far North Dallas, Uptown and Preston Center have led the recovery to date, with Las Colinas, Central Expressway and Richardson/ Plano following. Outside of asking rates increasing, landlords have become less aggressive with incentives and overall conditions are shifting from a strongly tenant-favorable to more neutral conditions for most submarkets. Corporate relocations and expansions to the market remain a positive catalyst for Dallas with several companies announcing plans to move headquarters and other signifi cant offi ce operations to the market due to a combination of lower costs, business-friendly environment and strong diversifi ed workforce. Most of the announced relocations are from California, but other relocations from other parts of the country are not uncommon. This trend is expected to continue for the foreseeable future. All current economic indicators (positive job growth, strong population growth, healthy corporate profi ts) point to a much more robust Dallas offi ce market in the late 2011 and beyond. Denver The local economy reported an all-time high unemployment rate during the fi rst quarter, and although the rate has decreased, it has hovered around 8.5 percent for the past three months and has very minimally improved since last year. As labor markets remain unstable, some employers are again reevaluating their operations and taking the necessary steps to cut costs. There are also a handful of companies who are looking to expand their operations locally. The majority of employers, however, are focused on the status quo and do not have plans to cut or add jobs during the rest of Amongst stagnant job growth, there still remain positive signs of improvement in Denver. With patience, will come more noticeable evidence of a recovering economy over the mid-term. Market activity remained dynamic during the third quarter; however, one year ago, in the third quarter of 2010, activity was 33 percent higher. This year s slowdown can be attributed to a lack of pent-up activity from 2009 and the government leasing temporary space in 2010, while their building was being renovated. There continued to be a great deal of lateral relocations and renewals across the market, yet several expansions and large new deals occurred. Net absorption in the third quarter was positive throughout all classes, and brought the year-to-date absorption to over one million square feet. The CBD had the largest absorption year-to-date with over 600,000 square feet of space occupied and remains the most highly desired submarket due to its central location and vast amenities. Suburban submarkets did not lag too far behind, ending the third quarter with close to 500,000 square feet of positive net absorption. Large and contiguous blocks of space are sparse in the CBD, where increased demand has tightened up the market. The majority of suburban submarkets, however, remained relatively soft and can offer more options to prospects with large space requirements. Rental rates remained relatively consistent in the third quarter, however increasing very slightly. A clearer increase will be seen in 2012 as landlords gain favor in the market. The lack of construction in the Denver Metro will help landlords in the coming years with stable levels of supply and the ability to push rents and lower concessions. The only projects currently occurring are the Union Station redevelopment and two build-to-suit projects: the DaVita Headquarters at th Street, and the IMA Financial Group Headquarters located at 18th and Wynkoop Streets. All three of these projects are not expected to affect the offi ce market in the near future. Leasing activity will maintain acceleration in the last quarter of the year, and net absorption will remain positive, with the CBD upholding the majority of activity. Although the market is not landlord-favorable quite yet, it will begin shifting from tenant-favorable to neutral near the end of 2011 and into 2012 across the majority of submarkets. Rental rates are expected to begin increasing, and effective rates will raise and continue to become more attractive to building owners. This will be especially evident in the CBD where tenants will see lower leasing concessions and less free rent. Although job growth has yet to take hold, the commercial real estate market in Denver has provided stability and will hold on until the rest of the economy catches up.

22 22 Jones Lang LaSalle United States Offi ce Q Detroit Michigan s economy grew at a rate of 2.9 percent during 2010, the state s best economic growth since Despite the positive news, Michigan ends its recession having lost approximately 800,000 jobs over the past decade. The biggest contributor to Michigan s recovery is strong growth in manufacturing as General Motors, Chrysler and Ford continue to bounce back and stimulate the automotive sector. Deal volume throughout metropolitan Detroit has increased over the past two quarters. Despite this activity, companies continue to be reluctant to make noncritical real estate decisions. As a result, completed transactions are in limited quantity. In addition, new development and construction are relatively nonexistent. Commercial property owners continue to struggle as mortgages become due, vacancies remain high and lease rates realize little growth. With the leasing market in a state of disarray and creditors looming in the background, property owners are offering aggressive incentives to spur activity. Downtown Detroit specifi cally has experienced recent gains from companies moving from the suburbs. The Compuware Building has welcomed 700 Quicken Loans employees and another 2,000 workers are expected from Quicken and several other companies owned by Daniel Gilbert. Additionally, Blue Cross Blue Shield of Michigan has begun relocating nearly 3,000 employees to the Renaissance Center after absorbing approximately 450,000 square feet of vacant space. Looking forward, the region is hoping that the automotive sector will continue to grow and the governor s commitment to reducing taxes for all businesses will boost local economic conditions and produce positive momentum for a region that has been struggling for several years. Fairfi eld County Fairfi eld County s nonfarm payrolls improved, but offi ce-using employment is losing some traction. During the last 12 months through September 2011, total nonfarm payrolls increased by 0.7 percent. Offi ce-using sectors increased employment by 1.5 percent since September While offi ce-using employment accounted for 78.0 percent of additional payrolls in the second quarter, that level decreased to 64.0 percent through the third quarter. Total payrolls grew by roughly 2,300 jobs during the fi rst nine months of the year, with offi ce-using employment growing by more than 1,400 jobs. Leasing activity during the third quarter decreased signifi cantly as transaction volume was less than half compared to second quarter. Following a 57.8 percent decrease in leasing activity, net absorption for the quarter was negative. However, the Fairfi eld County offi ce market maintained positive year-to-date net absorption of 350,951 square feet through the third quarter. Despite the drastic change in leasing activity, market indicators have only somewhat weakened. While the Fairfi eld County offi ce market saw some signs of a recovery through the fi rst half of the year, the past three months have been a step backward. The overall vacancy rate for Fairfi eld County increased slightly to 22.0 percent compared with 21.9 percent one quarter earlier. The Class A vacancy rate increased to 21.7 percent from 21.5 percent during the same period. Asking rents were lower, as landlords responded to anemic demand. The overall average asking rent dropped fi ve cents to $32.14 per square foot during the third quarter. Meanwhile, the Class A average asking rent declined at higher rate to $35.34 per square foot from $35.53 three months earlier. It appears that some companies are putting their future real estate needs on hold, by delaying the decision-making process until they are more certain of economic conditions and their own requirements. The announcement that UBS was going to keep 2,000 jobs in Connecticut in an agreement with the state was good news for the Fairfi eld County offi ce market. For the remainder of the year, however, it is unlikely that conditions will improve much. Offi ce-using employment is not anticipated to grow substantially until 2013 and new tenant demand is rather weak.

23 Jones Lang LaSalle United States Offi ce Q Fort Lauderdale The signifi cant job growth that was recorded mid-year disappeared in third quarter as nearly all offi ce-utilizing sectors experienced losses. The continued free fall of construction jobs, as well as government layoffs, played a signifi cant role in the quarter s 5.0 percent increase in unemployment. At 9.5 percent, Broward County s unemployment rate remains 1.0 percent lower than it was in the third quarter of While looming foreclosures and political uncertainties are stifl ing economic growth, Broward County made signifi cant strides in the third quarter to bring jobs to the area. First, Broward received approval to move forward with the development of an intermodal transportation hub. This facility will drastically increase cargo traffi c and allow the county to compete as a major trade port. Second, Broward amended its job growth program to make job growth incentives available to small and mid-sized businesses. Despite modest occupancy growth and an overall increase in leasing activity, economic uncertainties continued to cause more user consolidations and stalled decision making in the third quarter. Tenants continued to seek cost-cutting solutions and map out long-term lease strategies that minimize short-term risk and leave fl exibility for potential future growth. A prime example was the Sun Sentinel executing a new lease for 30,000 square feet in the CBD. The media company will downsize by 45,000 square feet and relocate to less expensive space within the submarket. Contrary to previous quarters, positive absorption within the CBD s Class A sector helped mitigate occupancy losses in the suburban submarkets. The expansions of existing users helped reduce the downtown s vacancy rate 60 basis points. While leasing activity within the suburban markets increased in the third quarter, nearly every submarket recorded losses. Cypress Creek continued to suffer substantial losses as large corporate users, such as AT&T, Liberty Mutual and Microsoft, gave back space in an effort to consolidate. Building sales continued to reshape the landscape in the third quarter. In the CBD, two distressed asset sales occurred as well as the record setting sale of Bank of America Centre, a premier Trophy Asset on Las Olas Boulevard. Equally signifi cant was Broward College s purchase of a 60,000-square-foot vacant Class B asset in Cypress Creek. This sale was largely responsible for the third quarter occupancy gains within Broward s Class B sector. Expect effective rents to continue to decrease over the next six months as the new owners of distressed assets utilize their lower cost basis and aggressively compete to restore occupancy. Leverage will remain in the hands of tenants throughout the county, however, expect tightening within core assets as user demand and occupancy continue to rise. Hampton Roads Bloomberg Businessweek ranked Virginia Beach as the 8th best place to live in the United States, and Chesapeake was ranked 21st. Unemployment in the Hampton Roads area ticked up approximately 30 basis points to 7.3 during the last three months, but is still down 10 basis points from 12 months ago. The contraction in employment is largely attributable to a loss of approximately 3,100 jobs in the professional and business-services sector, which had previously been an area of job growth for the region. As the shutdown of the United States Joint Forces Command (USJFCOM) commenced in August, the third quarter brought further clarity surrounding the potential consequences for the Hampton Roads region. Naval offi cers reassured the public that the shutdown will not spell doom for the region. After the shutdown is complete, about 1,900 jobs are expected to stay in Hampton Roads and report to other military commands. While fears have been alleviated for some in the region, others remain skeptical and only time will show the full impact. Recent news of the Panama Canal expansion has brought a unique possibility to fuel future economic growth in the Hampton Roads market. The Ports of Virginia have a signifi cant competitive advantage because they are currently the only ports that can handle the larger vessels and also benefi ts from two existing major rail lines with double-stack rail routes to the major East Coast and Midwest cities. The existing infrastructure has the potential to make Hampton Roads a major distribution hub in the next three to four years. The lack of positive activity in the market during the third quarter can be largely attributed to decline in confi dence in the market, paired with risk-averse companies who are holding on to capital in fear of prolonged economic hardship. The majority of tenants are still waiting to see what happens to the economy in Hampton Roads during the remainder of 2011, especially those businesses that may have continued exposure to the recent disestablishment of USJFCOM. Largely a result of changes surrounding USJFCOM, the Hampton Roads market encountered negative absorption and a slight increase in vacancy to 14.9 percent. Year-over-year vacancy is up 0.5 percent, and Class A vacancy jumped up this quarter to 15.3 percent, still approximately 25 basis points lower than it was 12 months ago. Despite the negative absorption and slight rise in vacancy during the third quarter, year-to-date leasing activity in the market has already surpassed total activity during 2010, and brokers have noted that some of the space left vacant this quarter is already set to be backfi lled. Average rents have bottomed across the board and are expected to remain fl at for the foreseeable future. As landlords continue to compete for the limited number of tenants in the marketplace, attractive rent concessions have become commonplace. Growth in nongovernment sectors of the Hampton Roads economy will be essential to the long-term performance of the offi ce market.

24 24 Jones Lang LaSalle United States Offi ce Q Houston Houston s job growth during the economic recovery has garnered the attention of the country as the Texas Workforce Commission (TWC) reports that Houston added 65,600 jobs between August 2010 and August To put that in a broader context, Houston has been responsible for one out of every 20 jobs created in the U.S. during the recovery. The majority of this job growth has been in high-paying industries such as the oil and gas sector. U.S. rig count fi gures have increased by more than 300 from this time last year, and oil prices are at a level that promotes exploration. Economic growth has driven tightening in the offi ce market of late as well. The Houston offi ce market is among the strongest in the nation and has been shifting toward a landlord-favorable setting; total leasing activity and overall asking rents have increased since this time last year, and sales activity is on the rise. Vacancy rates are declining and construction is on the rise. We continue to see a notable increase in leasing activity citywide with tenants proceeding in a cautious, yet optimistic manner. Houston witnessed approximately 1.5 million square feet of direct positive absorption during the third quarter of 2011, mainly a result of activity in the Central Business District (CBD), Greenway Plaza, Katy Freeway (Energy Corridor), Westchase, and the Woodlands. The CBD accounted for the majority of this absorption with approximately 914,000 square feet of occupancy gains. This was mainly a result of expansions in the oil and gas sector, as Hess Corporation took an additional approximate 500,000 square feet when moving into Hess Tower (1501 McKinney Street). BG Group Place (811 Main Place) also accounted for a majority of the positive occupancy as BG Group among other tenants have expanded into this new Trophy building. Sales activity is among the strongest in the nation as several institutionalgrade investors are eyeing the marketplace. JP Morgan Asset Management is purchasing the remaining interest in a majority of the Houston-Crescent Real Estate portfolio (consisting of approximately 5.5 million square feet of Class A Trophy offi ce space in the CBD and West Loop [Galleria] submarkets). Brookfi eld Offi ce Properties is also rumored to be purchasing Crescent s Greenway Plaza portfolio, consisting of four million square feet of Class A and B offi ce space. Indianapolis Despite shocks to the national and global economies, the Indianapolis economy stayed on positive ground in the third quarter. The August 2011 unemployment rate for the Indianapolis metropolitan area was 8.3 percent, compared to 9.0 percent in August It also compares favorably to the national unemployment rate of 9.1 percent. It is expected that moderate job growth will continue through the end of the year in the area. Signifi cant leasing activity in the third quarter resulted in the strongest year-todate absorption numbers and lowest overall vacancy rate in the Indianapolis market in four years. Year-to-date absorption for the market totaled over 275,000 square feet, and the overall vacancy rate dropped to 21.7 percent. Leasing activity in the suburban markets was particularly strong with the Keystone, Northwest and Northeast submarkets all registering their strongest absorption numbers in several years. Particularly noteworthy is the leasing that occurred in Keystone at the Crossing this quarter. With over 130,000 square feet of leases signed in the third quarter, the occupancy rate for the Park will reach 90.0 percent early next year the highest occupancy rate in more than seven years. While the CBD has historically enjoyed stronger absorption vacancy numbers than the suburban markets, the year-to-date absorption for the CBD submarket is negative 75,000 square feet with a vacancy rate of 21.0 percent. The disparity between the activity in the CBD versus the suburban markets this year is due in large part to tenants seeking attractive economic terms and high parking ratios. As corporations continue to consolidate and become more effi cient in their space use, many requirements now have above-standard parking ratios, making it diffi cult for these users to consider downtown options. While fourth quarter leasing activity is not expected to be at the levels recorded in the third quarter, 2011 is expected to end on a very positive note for the Indianapolis offi ce market with continued tightening across most market fundamentals and thus the continuation of a stable recovery across the local offi ce market. Tenants remain active and continue to canvass the Houston market for high quality spaces. Until new buildings are delivered, and as quality availabilities diminish, concessions will continue to dry up and effective rates will increase in our strongest submarkets.

25 Jones Lang LaSalle United States Offi ce Q Jacksonville Jacksonville s labor market experienced its typical seasonal decline in the third quarter, which drove the unemployment rate up to 10.4 percent; a 70-basis-point increase from the second quarter. While nearly all offi ce-using sectors posted job losses in recent months, the year-over-year unemployment rate has decreased 1.3 percent over the last 12 months and has returned to 2009 levels. Despite recent setbacks, key sectors have experienced steady growth throughout Professional services and education and health services, Jacksonville s largest offi ce-using sectors, have recorded 2.3 percent increases over the last 12 months. Jacksonville s bustling trade, transportation and manufacturing sectors have also posted consistent job gains throughout Contrary to most Florida markets, modest job growth has also occurred within the construction sector. CSX Transportation fully vacated AT&T Tower in the third quarter and fi nalized their relocation/downsize to 550 Water Street; a Class B asset in the CBD. Because the company moved laterally within the submarket, the consolidation did not have as signifi cant of an impact on the downtown s total year-to date absorption, however, it was responsible for increasing Class A vacancy in the CBD from 18.4 percent to 22.6 percent. Equally signifi cant was AT&T s downsize in the tower, which added 64,000 square feet to the inventory of available sublease space. While the CBD continued to struggle with occupancy losses, the suburban markets continued to experience overall gains. Nearly 2.0 percent of the total suburban vacant inventory has been absorbed in 2011 and Class A suburban vacancy has reached pre-recessionary levels. This can be attributed to the general fl ight to quality of opportunistic tenants, as well as the recent trend of users defl ecting from the CBD to the Butler Boulevard. Suburban market growth has helped mitigate continued losses from users downsizing and consolidating space in the CBD and is primarily responsible for reducing Jacksonville s overall market vacancy 1.6 percent over the last 12 months. Overall, market activity remained relatively stagnant in the third quarter. Demand for space continued to be driven by opportunistic tenants that seek to lock in long-term leases with favorable terms. Landlords continued to compete aggressively for the shallow pool of lateral moving prospects, particularly within the CBD. Los Angeles Los Angeles unemployment rate in August remained stubbornly high at 13.2 percent, virtually unchanged from 13.4 percent recorded a year ago, and clearly higher than the national rate of 9.1 percent average. Local government budget woes led to 23,500 jobs eliminated from a year ago. On a positive note, a weaker dollar helped prop-up Los Angeles tourism payrolls, which added 12,000 jobs. Additionally, the education and health services industry increased by 9,900 jobs. Technology and media companies remained on an expansionary mode, particularly on the Westside. Entertainment continues to improve with the number of fi lm production days up over the last 12 months. Overall market conditions showed some tightening with nearly half-a-million square feet of positive net absorption. Although the amount of vacant space has leveled off and rental rates stabilized, Los Angeles still remains at the bottom of the cycle with no real quarter-over-quarter growth. Leasing velocity improved through the third quarter driven mostly by renewals and some new transactions. Two large renewals totaling approximately 231,000 square feet were executed in the CBD, bringing stability to the market. Demand from media and technology fi rms continues to be robust on the Westside. As a result, many large blocks of space have been rapidly absorbed in recent months. Current projections point to sector specifi c job growth, with the regional economy remaining fragile. In an effort to increase business activity and to stimulate job growth, the City of Los Angeles has begun reforming its burdensome gross receipts tax system, which has deterred businesses from coming to Los Angeles, and led some corporations to relocate to more business-friendly cities. According to the Business Tax Advisory Committee, a complete elimination of the tax could lead to 131,000 new jobs. The general consensus is that most of the major corporate downsizing has already occurred in the Los Angeles market, thus paving the way for renewed occupancy gains. Baring any major economic setbacks, we expect the Los Angeles to growth to mirror that of the nation. Although Jacksonville experienced setbacks in the third quarter, signifi cant-sized users are currently touring in the market. The outcome could potentially remove the larger blocks of available vacant space and tighten CBD and Suburban occupancy over the next 12 months. In the meantime, Jacksonville s economic recovery will continue at a slow pace, causing leverage to remain in the hands of tenants. s of tenants.

26 26 Jones Lang LaSalle United States Offi ce Q Miami While mixed indicators have and will inevitably result in revised forecasts, mostly on the downside, the U.S. as a whole is still anticipated to post growth, albeit small. Likewise, Florida and many of her major markets have also received a variety of performance rankings. On the unemployment front, the Fed expects the nation to see a ± 9.0 range through year-end. Florida, where the recession lasted longer than the nation, held its rate at 10.7 percent, but did rank third nationally for job creation for the fi rst half of the year. Further evidencing the state s beleaguered housing market, Florida lost the most construction jobs in the nation over the last year. Within the South Florida region, Miami retained its lead with the highest unemployment at 13.0 percent. Following national and state trends, Miami s largest cuts were in the government sector, while job gains were recorded in the professional, hospitality and healthcare/education industries. Correspondingly, many of the offi ce tenants within these industries have been at the forefront of leasing and expansion activity year-to-date. Miami s urban core continues to remain in the limelight. The year s fi rst new Trophy tower delivered this quarter. Brickell World Plaza s 615,000 square feet increased the CBD s Class A inventory by 7.0 percent. With only one offi ce fl oor leased at present, Class A vacancy within the Brickell sector of the CBD jumped over 7.0 percentage points from the beginning of the year and nearly reached a 31.0 percent overall vacancy rate. As of this writing, the delivery marks the last of the CBD s under construction product. All of Miami s current construction activity is now located in the suburbs, with the majority of new product to be delivered in Coral Gables where Class A overall vacancy is nearly 21.0 percent. The next wave of foreseeable offi ce development, however, is located just north of the Miami CBD s competitive offi ce market where, fortunately, proposed offi ce development as of this writing includes only one, 100,000-square-foot building. While not as extensive as last quarter, this quarter s sales activity encompassed a variety of transactions in both the CBD and suburban sectors, which included a deed in lieu of foreclosure. New to the market for sale is the 345,000-square-foot West Building portfolio on behalf of MetLife in the suburban airport s Waterford offi ce park. Minneapolis The Minneapolis economy grew slightly in the third quarter, with notable increases in consumer spending, tourism and manufacturing. Reports from the labor markets include a mix of hiring and layoffs. During a 20-day state government shutdown in July, 22,000 government employees were laid off. Ripple effects of the shutdown also idled many construction projects across the state. However, during July alone, the private sector gained 8,200 jobs, off-setting some of the effects of the shutdown. Employment conditions improved as the quarter progressed, with unemployment falling from 7.1 percent in July back down to pre-shutdown conditions of 6.7 percent one of the lowest unemployment rates in the county. Offi ce market conditions remained relatively fl at through the summer, but picked up toward the end of the third quarter. Vacancy has been decreasing through the fi rst three quarters of 2011, a trend expected to continue through the close of the year. At fi rst, in part to pent-up demand at the start of the year, market activity has continued to be consistent through the third quarter with offi ce expansions and relocations. The Class A market has seen the majority of leasing activity, where net absorption remained positive in the third quarter. The Class B and C markets continued trends of slower leasing activity and negative absorption. Rental rates are expected to remain stable through the end of the year. Landlords continued to offer incentives to both existing and potential new tenants; however, we will likely see a decline in free rent and tenant improvements near the beginning of The Minneapolis CBD remains the tightest of all the submarkets, offering only fi ve blocks of space over 100,000 contiguous square feet of space. The West and Southwest submarkets are the tightest of the suburban submarkets, with vacancies of 14.0 and 18.5 percent, respectively. Conversely, the Northwest and Northeast submarkets are continuing to feel the pressures of the overall economy. Rental rates continued to be driven downward on the heels of high vacancy rates of over 25 percent and slow demand in both markets. The broad economic base and diversifi ed economy in Minneapolis will continue to support growth, albeit slow, in the market. The local market should end the year on a positive note, as the metro is on track for at least 1,000,000 square feet of positive absorption in As markets such as the West and Southwest continue to tighten, landlords will begin to gain more favor toward a balanced market.

27 Jones Lang LaSalle United States Offi ce Q New Jersey With uncertainty in the national economy, growth in New Jersey employment is expected to be minimal in the coming year. However, there has been some growth in 2011, mostly in the private sector. Since last year, there have been 28,400 jobs created in the state within the private sector. The state s unemployment rate remained above the national average, higher by 0.3 percentage points at 9.4 percent. While some signs of tightening were seen in certain market segments, most of New Jersey has remained relatively fl at in terms of asking rents and available space. In areas such as Princeton, Route 78, Central Bergen, and Route 24, an up-tick in leasing offset space dispositions. In turn, net absorption for New Jersey recorded its highest quarterly total since the third quarter of The majority of absorbed space occurred within higher quality Class A buildings. This marked three consecutive quarters of positive absorption for the Garden State, the fi rst time that has happened since However, many submarkets in New Jersey experienced minimal improvements in recent months. Leasing activity outpaced the previous quarter s total; however, much of the activity was limited to the Princeton and Route 78 submarkets. There were three more transactions signed in excess of 100,000 square feet during the third quarter, bringing the year-to-date total to 13. Of those, eight consisted of renewals. Of the three large deals signed this quarter, two were by pharmaceutical/life sciences fi rms, who drove leasing in recent months. Yearto-date, they have made up almost one third of leasing, while fi nancial services, manufacturing, and communications fi rms also helped propel 2011 transaction volume thus far. Many fi rms have remained reluctant to move from their current addresses or expand their footprints. So far in 2011, over 40.0 percent of activity consisted of tenants renewing in place. Throughout the market, there continued to be a fl ight-to-quality for most fi rms seeking space, as Class A leasing easily outpaced transaction volume within Class B properties. The overall average asking rental rate remained fl at in the last three months with only a handful of submarkets experiencing notable changes in asking rents. Within Class A buildings, the average asking rental rate edged higher during the summer. With minimal white collar job growth expected in the next year, the New Jersey offi ce market will likely see slow growth in both occupancy and asking rates in most areas. However, as a fl ight to quality continues for tenants, Class A buildings will continue to outperform Class B assets. New York The global and national economic picture continues to weigh on the recovery of the New York offi ce market. Growing concern over the debt crisis in Europe has led to further instability in the U.S. fi nancial markets, while employment growth has remained weak. Recent forecasts have been revised downward as fears of another recession have resurfaced. Sustained job gains are not anticipated until late next year. Previously it was widely expected that the labor market would strengthen earlier in After reaching a trough in fall 2009, Manhattan has gained nearly 24,000 jobs. Prerecessionary job levels are not likely to be reached until mid Deep cuts to the workforce, however, are not expected. Coming off a robust second quarter, market indicators in the third quarter pointed to a period of fl attening. Vacancy rates slowly improved and absorption, while positive, was off considerably from the second quarter. In Midtown the vacancy rate for Class A space dropped 50 basis points from 11.7 percent in June to 11.2 percent at the end of September. While the rate is lower, the pace of decline has slowed. Average asking rents moved higher amid a slowdown in activity. Wide disparities in rents exist within the market depending on geographical location and position within a building. The escalation in pricing is mainly a function of higher prices for view-space in trophy assets. With a vacancy rate near 4.0 percent, tower fl oors are commanding a signifi cant premium over the broader market. In fact, 69.0 percent of transactions with starting rents north of $ per square foot have occurred in tower fl oors. Pricing among Midtown s trophy set is up by more than 13.0 percent since the end of The larger Midtown market has seen some price appreciation but not on the same magnitude. For Class A space in Midtown average rental rates are up only 5.5 percent since the end of 2010, while Class B rates are actually down nearly 3.0 percent. In Downtown, Class A rates rose during the quarter to $41.89 per square foot up from $41.66 per square foot in June. The fourth quarter is usually the most active in the offi ce market as tenants try to fi nalize transactions prior to the end of the year. While the level of activity will be higher than third quarter, it may not be as active as previous years. With uncertainty over the direction of the fi nancial markets and the economy, the market could remain fl at for a prolonged period. Growth in asking and taking rents is likely to stall until the stock market has stabilized, but a decline in asking rents is unlikely. The Downtown market could experience both higher vacancy rates and higher rents in the near term as quality space is anticipated to come to market.

28 28 Jones Lang LaSalle United States Offi ce Q Oakland - East Bay Sluggish economic growth continues to plague Alameda and Contra Costa Counties, with unemployment at 10.6 percent in August and nonfarm payrolls increasing by just 500 jobs in the past 12 months. The construction and fi nancial activities sectors recorded the greatest employment declines, refl ecting weak housing market conditions. Wholesale trade activity, on the other hand, recorded strong employment gains on the heels of increasing volumes through the Port of Oakland. The bottom has been reached, and economic fundamentals should continue to slightly improve over the next 12 months. Activity in Oakland and Emeryville continued at a healthy pace, driven by technology and professional services demand. Some tenants are looking to these submarkets as lower-cost options to San Francisco and the Silicon Valley. City Center in Oakland and the Powell Street area in Emeryville have been most active in terms of touring and leasing activity. The East Bay suburbs showed improvement as large corporate users grew more active, securing space in anticipation of future hiring. The most active submarkets in this respect have been San Ramon, Concord and Dublin, and activity has stemmed from a variety of industries. Throughout the Oakland-East Bay market, landlords began to push rents more aggressively and reduce tenant improvement allowances, although free rent concessions remained in place to attract tenants. While smaller fi rms remain cautious about future growth plans and are hesitant to make any moves, larger fi rms are taking advantage of favorable market rates to consolidate operations or trade-up space. This ongoing activity may soon remove key large space blocks from the market and prompt landlords to more broadly increase rental rates. The Oakland-East Bay market appears to be at a turning point. While leasing activity has picked up, it has not increased enough to impact fundamentals. The wave of high-tech demand washing over San Francisco and Silicon Valley has not overfl owed to the East Bay to a signifi cant degree, but this could be a viable source of demand in the next two years as space options diminish in those markets. Sustainable offi ce market demand is dependent on a signifi cant jobs recovery, and until that happens, the offi ce market as a whole will remain tenant-favorable. Although some submarkets are moving forward, weak economic fundamentals are preventing any large-scale improvement. However, lack of new supply should provide the market ample time to absorb the excess. As the economy slowly improves, expect diminished availabilities and reduced concessions in the next 12 to 18 months. Orange County The most recent report places the Orange County unemployment rate at 9.0 percent, where it has fl uctuated between 9.0 and 10.0 percent for most of the past two years. The unemployment rate decreased slightly from 9.3 percent in July, but is up from the 8.5 percent rate reported at the end of the second quarter. The county has added 11,700 jobs since this time in 2010, however, the third quarter was plagued by a historically volatile stock market and disappointing national economic statistics. With so much economic uncertainty, many businesses are refraining from pursuing growth strategies such as hiring more employees and renting more offi ce space. With positive net absorption across all fi ve submarkets, the overall Orange County Class A and B offi ce market has displayed nearly 1.4 million square feet of occupancy gains through the fi rst three quarters of This is positive news considering the market had nearly 500,000 square feet of negative net absorption at this time last year. Consecutive quarters of positive absorption have translated into the overall vacancy rate tightening to 18.2 percent. Despite the positive net absorption and steadily decreasing vacancy fi gures, rental rates have yet to show much upward movement. Several consecutive quarters of fl at asking rents indicate that the Orange County offi ce market continues to bounce along the bottom and will remain there until the availability of space continues to decrease. The pace of this recovery process heavily relies on job growth, which is not expected to drastically improve in the next couple of quarters. Several large tenants remain in the market for offi ce space and the industries that are driving most of the current activity are technology and life sciences fi rms with some government and professional services beginning to become more active. South County, which attracts many of these large technology companies, has benefi tted the most from this tenant trend and has posted consistently high numbers for four consecutive quarters. With steady leasing activity, the Orange County market should close the year in similar fashion to the previous three quarters. Technology companies will continue to drive the leasing activity, but look for more activity from government, medical technology companies, and professional services in the balance of 2011 and into Lethargic job growth will continue to weigh down the pace of the offi ce market recovery; however, Orange County is on pace to fi nish with more encouraging numbers than 2010 and will continue on that steady momentum in 2012.

29 Jones Lang LaSalle United States Offi ce Q Orlando The Orlando economy is showing signs of stalling once again. While the Orlando- Kissimmee Metropolitan Statistical Area witnessed the unemployment rate drop to 10.3 percent in August, a year-overyear decline of 12.0 percent, we notice that nearly three-fourths of this decline is due to job seekers leaving the labor force, rather than employment gains. For the MSA, only 4,138 jobs were added in the year ended August 31st, while the leisure and hospitality sector alone added 9,600 jobs. This suggests that the general economy continues to struggle, a point that is further illustrated by noting that only two sectors grew, on a year-over-year basis, in August leisure and hospitality and education and health care. However, we are concerned by the education and health care sector, which has posted year-over-year growth in every month for more than 12 years. In August, the sector saw payrolls increase only 0.1 percent, the lowest margin of growth in the sector since January While the economic situation continues to remain fragile, the current trend for tenants in the market is away from expanding their presence and instead toward renewing current space or rightsizing, while adding term to take advantage of soft market conditions. That being said, there still remain some tenants seeking to expand, and the overall market saw 57,725 square feet of total net absorption, a slowdown from the past four quarters, but still sizeable. We anticipate that conditions will continue to tighten, as we have seen three key indicators that suggest this. One, the past four quarters have seen over 400,000 square feet of total net absorption, which amounts for two-thirds of the space returned to the market in four quarters before that. Furthermore, this has pushed total vacancy down by 5.1 percent, year-over-year. Two, this absorption has removed nearly one quarter of the sublet space available in the third quarter of Furthermore, sublet space as a percentage of total vacant space is at its lowest level since 2005, the period saw the previous market bottom. Three, asking rents are falling at a slower pace, down 2.2 percent year-over-year. Asking rents ended the third quarter at $20.28 per square foot, which is the lowest average asking rate since the fi rst quarter of We anticipate that market conditions will loosen slightly over the next three quarters, but after this second rise in vacancy, we believe the market will begin to tighten quickly. By our projections, we anticipate the labor force for the traditional offi ce-using sectors to increase by 4.9 percent from today s levels by the end of 2014, driving a 3.3 percent increase in space demands and pushing total vacancy to approximately 19.0 percent. This will exert upward pressure on rental rates which we believe still have more room to fall perhaps by as much as 2.0 or 3.0 percent up from the third quarter s average asking rate by approximately 2.0 percent. Philadelphia Driven by the Verizon strike and layoffs in the fi nancial sector, the Philadelphia Metropolitan Statistical Area (MSA) shed 11,200 jobs since August of last year, a 0.4 percent annual job loss. Philadelphia s historically strong employment sectors have helped bolster local employment fi gures. Education and health services gained 5,300 jobs, a 1.0 percent yearover-year gain, and professional and business services added 6,900 jobs. This represents a 1.7 percent change over the previous year and marks the fi fth consecutive quarter of positive growth in this sector. Since peaking at 17.5 percent in the third quarter of 2010, total vacancy has progressively decreased to 15.3 percent, refl ecting Philadelphia s continually tightening offi ce market. In this time period, the CBD has seen considerable improvements in Market Street West and University City, both experiencing total vacancy declines in excess of 230 basis points. Tenant competition for the CBD s remaining Trophy space pushed average Class A asking rents to $27.89 per square foot, 2.0 percent higher than last quarter. The Philadelphia suburbs fi nished the quarter with 499,474 square feet of positive net absorption, bringing year-to-date absorption to positive 917,503 square feet. Compared to the negative 1.1 million square feet of net absorption at this time last year, this represents a signifi cant increase in activity, leading to a 250-basis-point decline in market vacancy to 17.9 percent. In the past year, overall rent rates have increased slightly by one percent to $24.61 per square foot. Janney Montgomery Scott signed the largest lease of the quarter and is relocating to 146,321 square feet at Three Logan Square. Despite few large leases, healthy deal activity from 20,000 to 60,000 square feet is driving the suburban market s recovery. In Conshohocken, for instance, The Academy of Manayunk signed a 61,483 square foot lease, Keystone Foods is expanding to 50,144 square feet and NRG (GSI Commerce) signed a new lease for 35,432 square feet. The fourth quarter of 2011 will see a continuation of absorption gains and increased leasing activity as large tenants in the CBD determine leasing decisions. As a result, decreased availability of contiguous Class A blocks will spur mid-sized tenant activity. Based on 2011 leasing activity, the suburbs will continue to have steady positive absorption through year-end. The steady stream of mid-sized users in the market will drive continued leasing activity and absorption into the fi rst half of 2012.

30 30 Jones Lang LaSalle United States Offi ce Q Phoenix Arizona s seasonally adjusted unemployment rate currently stands at 9.3 percent, which is down from 9.9 percent one year ago. Recent job growth occurred in both the private sector and government and was mostly seasonal in nature. Ten of the 11 major job sectors experienced job gains. According to the numbers that were recently released by the U.S. Bureau of Labor Statistics, Phoenix is number six in the nation for new job growth, with 31,300 new jobs added between August 2010 and August This represents an annual growth rate of 1.9 percent. As in recent previous quarters, the majority of the leasing activity has taken place within Class A properties, where tenants continue to take advantage of reduced rental rates on prime space and lock into leases with favorable terms. As of the third quarter of 2011, the year-to-date overall absorption registered 601,542 square feet within Class A properties, while Class B and C both experienced negative absorption of (81,303) and (14,687), respectively. For the most part, vacancy levels have remained fl at since the end of 2009, except for Class A space that has slowly declined from 28.5 percent during the fi rst quarter 2010 to the current level of 26.3 percent. The overall vacancy rate dropped by just one point during the third quarter 2011 to 26.9 percent. When taking recent lease transactions into consideration, where the tenants have yet to take occupancy, the overall vacant available rate drops to 25.2 percent. Although there have been recent cases where properties have raised their asking rates, the average asking rental rates continued to decline during the quarter in all class types. The overall Phoenix market asking rate declined by $0.24 per square foot to $21.35 per square foot during the quarter and is $0.87 per square foot lower than one year ago. Class A space declined by $0.34 per square foot during the quarter to $24.28 per square foot, while Class B dropped slightly to $19.32 per square foot. As the market continues to improve over the next 12 months and additional properties begin to increase rates, the overall averages should start to fl atten; however, additional decreases could still be in store among properties considered less desirable. There are currently just 210,202 square feet under construction within the entire Phoenix metropolitan area, which is a single build-to-suit regional headquarters offi ce for the U.S. Federal Bureau of Investigation (FBI). There were no new construction starts during the quarter and only one completion of 273,780 square feet, also a build-to-suit, for the University of Phoenix. While Phoenix appears to have now entered a slow-paced recovery that will most likely take place over the next several years, the offi ce market should experience positive conditions during the foreseeable future. Absorption is expected to remain positive for the balance of the year, helping to bring the vacancy levels down. For the most part, rental rates will remain fl at within the Phoenix market, with Class A and large block space potentially seeing some slight increases. Other than a few build-to-suit projects, construction is expected to be nonexistent for at least the next 12 to 18 months. Pittsburgh The growth of law fi rms, fi nancial and professional services fi rms and the health care industry have the Pittsburgh offi ce market experiencing near-record low vacancy rates. This tightness in occupancy is driving up rental rates and causing a shift to a more landlord-favorable market. PNC Bank announced during the second quarter that it will construct a new, 40-story offi ce building by 2015 for its sole use. Buildings which currently have a sizable PNC presence, such as the U.S. Steel Tower and Allegheny Center, could be affected by any related consolidation. Marcellus Shale-related activity continues to spur economic growth in the region, notably in the Southpointe Park in Washington County. During the third quarter, Horizon Properties announced it will commence its development of Southpointe Town Center. The development plan calls for the 34-acre site to have a main street, on which several offi ce-over-retail buildings will be built. There will also be a 100,000-square-foot speculative offi ce building along with 200 residential apartments, three restaurants, a fi tness center and a town square with a coffee shop and bistro along the street. The project is scheduled to begin construction in The Pittsburgh offi ce market ended the third quarter of 2011 with a vacancy rate of 10.9 percent. Year-to-date net absorption totaled a positive 421,751 square feet. Vacant sublease space totaled 347,166 square feet at the end of the third quarter, a slight decrease from last quarter. As a result of the tightening markets, landlords across most market segments pushed rents with the average rent for Class A and B space increasing to $20.32 per square foot, representing a $0.21 per-square-foot increase from last quarter. Leasing activity for the quarter consisted of Federated Investors Inc. agreeing to an extension of its lease through 2021 at its Downtown headquarters in Federated Investors Tower, which is part of Liberty Center. The mutual fund company will continue to occupy about 250,000 square feet on 14 fl oors in the 27-story offi ce building. Kaplan Career Institute confi rmed it has leased 58,000 square feet at 933 Penn Avenue, an eight-story offi ce building owned by Rugby Realty. Morgan Lewis renewed its lease for 36,126 square feet at One Oxford Center, Downtown. Talisman Energy Inc. reached an agreement with Pennwood Commons to take an additional 22,000 square feet in the 100,000-square-foot fl ex offi ce project s second phase. Occupancy is set for late fourth quarter 2011 or early fi rst quarter MetLife signed a lease for 20,598 square feet of new space in Foster Plaza VI. MAYA Design announced it is moving into 19,000 square feet on the 16th fl oor of 444 Liberty Avenue in Gateway Center, Downtown. Currently, they occupy 13,888 square feet at the SouthSide Works. PricewaterhouseCoopers is expanding its presence at the U.S. Steel Tower by 12,000 square feet. The offi ce vacancy rate was consistent from the second quarter to the third quarter of Going forward, the north and south submarkets will remain tight, with limited availability of quality offi ce space. The limited new construction and increasing demand within these submarkets is projected to drive tenants toward the west submarket, functioning as an outlet valve for these fi rms. Core industries in Pittsburgh such as health care, energy (nuclear, coal and natural gas), and fi nancial services fi rms, continue to thrive and create moderate job growth that supports a sustainable future for the region, resulting in stable market conditions.

31 Jones Lang LaSalle United States Offi ce Q Raleigh / Durham Unemployment in both Raleigh and Durham saw increases during the month of August, reporting 8.8 percent and 8.2 percent, respectively. Declines in the construction and trade industries continue to weigh heavily on the Durham market, while slight year-over-year growth in the fi nancial and business service sectors has been encouraging. Improvements in Raleigh were a bit more noticeable though, as the professional and business services sector reported a 4.1 percent increase from August 2010, and the construction industry showed a 2.1 percent increase during the same time frame. Offi ce-using employment will need to increase in the coming months if both markets expect to see signifi cant reductions in both the jobless and the offi ce vacancy rates. Year-to-date, the Raleigh-Durham offi ce market has reported nearly 230,000 square feet of net absorption with roughly half that coming in third quarter The overall vacancy rate, at 16.7 percent, has declined in recent months and empty sublease space remains less than 1.0 percent of the entire inventory. Rents have responded as well; with a current average of $19.92 per square foot, the pricing market may have reached bottom during second quarter of this year, when a recent low of $19.81 per square foot was reported. Construction activity has been on pause since year-end 2010, which has given the market a little bit of breathing room, but with 21.6 percent of the market s existing inventory available for lease, Raleigh-Durham still has room to improve. As market conditions tighten in the coming quarters and years, the metro area can expect to see rents rise and remain above the $20.00-per-square-foot mark and vacancy continue to slide downward. Future increases in high-tech employment should also benefi t the local economies as well as the overall offi ce market. Richmond Economic conditions are continuing to improve in Richmond, and recent announcements during the second quarter will likely help propel growth in the region through the end of The unemployment rate in Richmond continued to hover at 7.0 percent, marking a considerable year-over-year decline from the 7.8 percent unemployment rate witnessed 12 months ago. Unemployment rates should contract due to a number of companies announcing plans for growth in. Capital One has stated they will hire 700 new employees by the end of 2011, while Mondial Assistance and SnagAJob.com both signed deals this year to occupy new headquarters space, and almost double their current presence in preparation for future growth. Mondial plans to hire more than 100 new employees before the end of 2011, while SnagAJob.com will add approximately 90 new jobs before the year-end. Both companies are integral for growth in Richmond. Other companies such as General Electric and Estes Express acquired additional real estate this year. GE expanded operations in Richmond, and announced plans to hire approximately 200 new employees, while Estes Express, a trucking and transportation giant, purchased 83,000 square feet on West Broad Street to house new divisions. While the past two quarters have shown signs of growth in the Richmond offi ce market, the third quarter of 2011 proved to be the best quarter in the past two years. The surge in leasing activity over the past nine months has fi nally translated into anticipated net absorption, totaling 227,239 square feet in the third quarter alone the largest of any single quarter in four years. Overall vacancy in Richmond dropped to 11.7 percent, representing a year-over-year decline of nearly 100 basis points. The overall Class A market in Richmond continues to perform at a high level, marking a ninth consecutive quarter of positive absorption. More importantly, Class B product in Richmond has fi nally shown signs of recovery, ending the quarter with strong positive absorption, which pushed the vacancy rate down 50 basis points. Another quarter of strong positive absorption in the CBD cut total submarket vacancy to 10.7 percent, while total vacancy in the NWQ has dropped to 12.8 percent. Five consecutive quarters of positive absorption brought Class A vacancy to the lowest rate since the fi rst quarter of 2008, marking a return to pre-recession vacancy rates. are also tightening in the SWQ, which has witnessed positive absorption in all three quarters of Richmond appears to have passed a point of stabilization, and is on the verge of real occupancy and rent growth. Continued velocity is likely to endure at slow, but steady, pace largely due to additional expansions in the regional employment market. As consistent recovery seen in the third quarter continues to generate growth in the Class A markets, momentum in the overall market will rely on a trickle-down effect to Class B space.

32 32 Jones Lang LaSalle United States Offi ce Q Sacramento The Sacramento economy remained relatively fl at during the third quarter of 2011, demonstrating little growth in overall employment and a marginal decline in the region s unemployment rate. Still recovering from the fl urry of layoffs, pay cuts and furloughs for state workers, public sector employment (less state and local education) declined by 3.3 percent over the 12-month period ending in August. Other sectors, however, demonstrated positive growth over the period, including construction and educational and health services, which added 2,000 and 3,200 jobs, respectively. As a result, the unemployment rate dropped slightly in August to 11.9 percent. Despite this decline, Sacramento s MSA continues to lag behind statewide and national averages, indicating the still-long road to recovery ahead. Leasing activity remained fragmented during the third quarter as ongoing market uncertainty kept businesses stranded on the sidelines, waiting for indications from political and economic leaders over the near-term fate of the economy. Activity was strongest amongst larger, credit-worthy tenants who demonstrated an enhanced appetite for Class A offi ce space to replace their existing facilities. Tour activity was noticeably higher during the third quarter, however, fewer small to mid-sized companies were poised to take on the risk of organic growth and expansion. Vacancy showed little change in both the downtown (15.4 percent) and suburban markets (24.1 percent), while rental rates remained fl at from last quarter. Occupiers demonstrated a fl ight to quality buildings and location as the downtown submarket and primary suburban Class A buildings posted declines of 3.9 and 4.2 percent, respectively, in vacancy during the third quarter. Fragmented leasing activity led to concentrated net absorption across preferred building classes, yet returned near equivalent negative returns in Class B suburban markets. South Natomas and Roseville posted the largest positive gains among Class A buildings, with 64,059 and 38,767 square feet, respectively, while Class B buildings across all suburban markets lost 92,701 square feet of occupancy. San Antonio The San Antonio MSA lost roughly 100 jobs during the month of August, primarily due to seasonal losses in the leisure and hospitality sector. Despite the loss of jobs, the unemployment rate dropped from 8.2 percent in July to 7.8 percent in August Year-over-year, the metropolitan area has gained approximately 15,200 jobs. The education and health service industries have seen the largest numerical gains in jobs over the last 12 months with mining jobs also continuing to experience a recent growth spurt, increasing by 14.7 percent since The San Antonio offi ce market remained on a positive course in the third quarter of the year, albeit at a slow pace. The market posted nearly 21,000 square feet of positive absorption in the third quarter, showing slow and steady improvement in absorption for the third consecutive quarter. Direct market vacancy, however, remained static at 14.5 percent. Average market rates also showed little change from the previous quarter, dropping a few cents to $19.63 per square foot. The San Antonio market experienced a third consecutive quarter of increased leasing activity, yet the city s occupancy, absorption and rental rates remained virtually unchanged from the previous quarter. Much like the other market fundamentals, landlord concessions did not change signifi cantly in the third quarter of the year. The market is seeing a slight uptick in construction, with nearly all new projects either preleased or build-to-suit opportunities for corporate users. Meanwhile, sublease space still constitutes less than 5.0 percent of all available space in the San Antonio market, with 170,930 square feet currently available, demonstrating minimal shadow space throughout the market. The outlook for the region s offi ce market remains tepid, but hopeful. The decline in vacancy and corresponding positive net absorption are optimistic signs, yet, some fear that may be short-lived. Prolonged political stagnancy could require various departments to renegotiate leases to lower overhead expenses or shut down all together. Despite the grim fi scal outlook, the state remains the largest occupier of space in the region. The heavy concentration of state offi ces and employment, while lagging the economy recovery, has acted as a mild backstop to a situation that could get much worse. The near future remains uncertain and hangs on the state s ability to regroup and inject confi dence back into the market.

33 Jones Lang LaSalle United States Offi ce Q San Diego Over the last year, San Diego bucked the national trend of fl at job growth by adding thousands of positions across multiple sectors. This was increasing confi dence in a speedy regional recovery despite a much gloomier national picture. However, this month s weak employment numbers are one of many indicators showing just how fragile San Diego s recovery is, as only 200 net new jobs were created, well off the recent pace. Compounding the stagnancy seen in the labor market, the professional, business, and fi nancial service sectors - those jobs that drive demand for offi ce space - contracted by 800 positions last month. San Diego s unemployment rate settled in at 10.2 percent in August after a brief fl irtation with single digits earlier this year, comparing to 12.1 percent for California and 9.1 percent for the nation. After last year s burst of leasing activity, which eclipsed totals seen during the peak of the economic expansion, a net absorption spike was anticipated in early When that didn t materialize, it was puzzling: did all of last year s leasing activity come from tenants taking advantage of a soft market by renewing or making lateral moves, which would have a negligible effect on market net absorption? Or were a few tenants truly expanding, meaning growth was imminent? Both are correct. Tenants of all sizes were going to market in record numbers to capitalize on favorable leverage which allowed them to recast their leases, make lateral moves, or expand, sometimes into higher class space which was discounted anywhere from 20 to 50 percent off peak rates. And, because of that activity and after a dismal performance up to midyear, this quarter recorded the single largest jump in occupancy seen in years with 423,000 square feet of positive net absorption. This is on par with some of the strongest quarters in the San Diego offi ce market s history. This quarter s occupancy gain should not be seen as a sign of market recovery, but rather an isolated incident. Leasing activity this quarter has fallen off dramatically in direct correlation with stock market volatility and increased uncertainty from the business community as to when the economy is going to improve. In fact, the third quarter saw the weakest leasing activity in recent memory, nearly edging out the fi rst quarter of 2009 as the weakest quarter in the last decade. Forecasted absorption echoes this trend. Other indicators also point to a market in the throes of uncertainty with full recovery anticipated to be years out. Asking rents have remained fl at with the exception of a handful of tight Class A submarkets like Del Mar Heights, which has inched upward because of contracting vacancy. San Francisco At just 8.8 percent in August, San Francisco boasts one of the lowest unemployment rates in the state thanks to steady job creation in the high-technology and professional services industries. Growth in these key employment sectors is translating into sustained demand for offi ce space and fueling continued investor interest in the market. High-technology industry growth continues to fuel leasing activity, most notably in the South of Market submarket where the vacancy rate dipped to 5.7 percent, one of the lowest rates in the country. Demand overfl ow is lending itself to tighter market conditions in the CBD as limited space availabilities in the preferred South of Market area force tenants to move north within the fi nancial district. San Francisco remains the nation s top performing offi ce market, marked by strong rent growth and net absorption. Over the past 12 months, net absorption reached nearly 1.5 million square feet, and could total almost 2.0 million square feet by year-end as several large tenants take occupancy during the fi nal quarter of Robust activity has given landlords confi dence to increase rates more aggressively, although overall vacancy remains relatively high at 15.6 percent. Rents are nearing levels last seen in 2007, prior to the fi nancial crisis, when vacancy was below 10.0 percent. Most of this increase is a result of strong demand, but some can be attributed to aggressive pricing by certain landlords seeking to increase cash fl ows to recompense their balance sheets. Supply relief is on the horizon with two owner-occupied properties returning space to the leasing market in the coming quarters, a few renovations completing, and more new construction poised to commence. This fi gure could total up to 1.5 million square feet by New construction starts will likely add an additional 1.5 million square feet during the 2013 to 2014 time period. This infl ux of space will likely provide a range of quality options for growing companies looking to expand their footprint within the city. Active requirements total more than 7.0 million square feet, which should sustain demand through the next year. Many tenants are looking to expand, while some are entering the market from other Bay Area locations. Tighter market conditions are expected in conjunction with rent growth, although both are expected to slow from their current trajectories. Speculative construction activity could emerge in the next year as developers dust off plans that were halted during the recession, especially as large-block, Class A space grows scarcer.

34 34 Jones Lang LaSalle United States Offi ce Q San Francisco Peninsula While Silicon Valley has been experiencing robust growth over the past year, overfl ow demand waves have reached the Mid- Peninsula. Unemployment rates have been on a declining trend since the beginning of the year and currently sit at 8.3 percent, down 40 basis points from last month. Consumer trends and demand in the mobile devices arena have created a shift from hardware to software and online multimedia. The rising popularity of Internet and mobile gaming has caused many startup fi rms in the region to move into expansionary mode, which has translated into job growth and increased demand for offi ce space. As of the third quarter 2011, overall asking rents stood at $3.05 per square foot per month, up 4.8 percent when compared to the second quarter, while total available space dipped from 23.8 percent to 20.0 percent. Asking prices for Class A space saw more aggressive growth, increasing by 14.8 percent to $3.22 per square foot per month, translating to a 12.3 percent premium compared to a year ago, refl ecting the strong demand for high quality space. Rents in prime areas continue to grow aggressively. Redwood City overall rents grew substantially last quarter from $3.09 per square foot per month to $3.38 per square foot per month, while Foster City rents jumped by $0.24 per square foot per month to $3.16 per square foot per month. The lack of large block space options has driven activity toward deals within the 10,000 to 25,000 square foot range. While this is expected, given the market s size from a supply standpoint, the demand for space in the Mid-Peninsula is far from being mediocre. Online gaming startups, Perfect World, Trion, Kabam, and Wildfi re Interactive recently inked deals that will increase their real estate footprint two fold. While such activity has been driven by strong performance in the software industry, it also refl ects the growing demand for space in prime submarkets, as well as the potential displacement of existing tenants in those buildings. In one of the largest deals of the year, Sony Computer Entertainment leased Bridgepointe Center in San Mateo, removing one of the largest blocks of available Class A space. Since the entire project is fully occupied by multiple tenants, the deal will effectively place approximately 300,000 square feet of tenant requirements onto the market, increasing current levels of demand. With leasing velocity gaining more traction along with demand for space, conditions in the Mid-Peninsula are running parallel to that of Silicon Valley. Larger space availabilities are becoming fewer as fi rms looking to lease sizeable amounts of space are limited to certain submarkets. Although leasing volume may not be as robust as other markets, velocity will continue at the same consistent pace until new supply is added to inventory. Seattle Third quarter economic performance in the Puget Sound region generally continued trends established during the second quarter. Gains in one sector were frequently offset by losses in another sector. Led by Boeing and its suppliers, manufacturing continues to show strength; gains within the sector have broadened with food manufacturing quite strong in the latest report. High-tech and tech-related companies such as Google, Facebook, Amazon, and Zillow continue to grow, particularly Amazon, which has about 2,000 Seattle-based jobs advertised on the company s website. Nonetheless, overall employment growth remains sluggish; the most recently available fi gures from the government showed preliminary unemployment for August 2011 at 9.3 percent statewide, up 20 basis points from May levels. The Seattle unemployment rate has followed the same trend, also up 20 basis points at 8.9 percent versus 8.7 percent in May. Overall leasing activity was again disappointing in the third quarter at less than 50.0 percent of typical quarterly activity. A number of medium to large tenants remain in the market for space, but there is limited sense of urgency as signifi cant vacancies continue to sit on the market. However, overall vacancy rates in core Seattle and Eastside markets dropped in the third quarter as tenants signing leases during the fi rst few months of the year took occupancy. In Seattle and the Eastside core markets, vacancy stood at 16.2 percent and 14.1 percent, respectively, at the end of the third quarter. Top-tier Class A space continues to outperform commodity space, but in a swap from prior quarters, close-in Seattle markets outperformed those on the Eastside and thus, rental rates edged up in close-in markets, but were essentially fl at in suburban markets. The overall outlook still suggests improving fundamentals moving into 2012 despite the outlook appearing less positive than at the start of The high-tech industry continues to display impressive growth and growth in the manufacturing sector, whilst not directly related to downtown offi ce demand, is another highly positive sign. As a result of these factors, demand for offi ce space is expected to continue to increase. The lack of options for larger tenants, particularly on the Eastside, has the makings of creating a potential situation in which a new building could conceivably get started in spite of high overall vacancy market wide. The still unanswered question is whether enough tenants would be willing to pay the $40.00 to $45.00 per-square-foot rents necessary to support a new building with rates for current availabilities averaging about 25.0 percent less.

35 Jones Lang LaSalle United States Offi ce Q Silicon Valley Robust economic performance that s outperforming the rest of the nation has reduced unemployment from double digits to 9.9 percent. The innovation-based growth in the Valley is creating numerous jobs, but can also be a double-edged sword. For example, PC sales have declined due to the popularity of mobile tablets, forcing many hardware companies to realign their business strategy. Intense competition and mergers and acquisitions will also cause changes to offi ce space needs. Although Silicon Valley s local economy has strengthened, there is still a sense of uncertainty in the market. Leasing activity remains strong as three million square feet was removed from available inventory. Demand for space is quickly outpacing available supply in the northern parts of Silicon Valley, with overfl ow spilling down toward Santa Clara and the San Jose Airport. Atmel recently inked a deal for 198,033 square feet in North San Jose, while America Center in Santa Clara is now 90 percent leased and off the market. While the remaining 10 percent is still available, it is expected to attract plenty of touring activity. With available space decreasing at a substantial rate, asking rents for quality product continue to head higher. Class A rents grew by 2.1 percent during the third quarter overall, and at a much higher rate in the high demand submarkets of Palo Alto, Mountain View and Sunnyvale. Although the year-over-year rate of increase appears moderate at 1.2 percent, rent growth is gaining momentum. With several sizeable tenants in the market still looking for space options, available supply will continue to decline until new space is added to the Valley s inventory. In response to bolstered leasing velocity, market fundamentals for investment acquisitions continue to strengthen. Sales volume for offi ce product has increased as investors have been eyeing property in quality locations throughout the Valley. In addition, investors are beginning to target quality Class B product given the premium price for Class A property in highly desired submarkets. The rapid expansion of the tech industry has created demand for more space and has shifted the market into high-gear. Although a majority of large fi rms looking for space have already landed deals, leasing activity will continue to gain steam, creating tighter market conditions and bolstering rents. St. Louis The St. Louis unemployment rate stood at 8.9 percent at the end of the third quarter, just below the national average. The region has added almost 31,000 jobs in the past 12 months. Unfortunately for the offi ce market recovery, most of the employment gains continue to be in nonoffi ce occupying sectors of the economy. Area companies are adding jobs to the offi ce market, but only in pockets. For example, Stifel Nicolaus, Express Scripts and Ralcorp have all announced plans to increase local employment. Ralcorp was the target of an acquisition by Omaha-based, ConAgra. The sale of Ralcorp would have meant a signifi cant number of layoffs in St. Louis. The region continues to show just modest absorption with 5,882 square feet of occupancy gains posted in the third quarter and thus, overall, St. Louis largely remains a tenant s market. Gains in the suburbs were nearly wiped out by losses in the CBD. After demonstrating negative absorption for six of the last seven quarters, West County was the best performing submarket during the quarter. Meanwhile, positive absorption in Clayton was negated by a sublease at 7733 Forsyth. St. Louis-based, RehabCare Group was purchased by Kindred Health earlier in the year eliminating 140 jobs locally. The sublease is three contiguous fl oors totaling 45,570 square feet and is one of the largest vacancies in Clayton. Construction activity remains minimal, but a few projects are moving forward. The Streets of St. Charles has broken ground and 83.0 percent of the 60,000-square-foot offi ce component is already pre leased and Koman should start construction next quarter on the renovation of 900 Spruce Street in the CBD. St. Louis still needs to see employment gains in the offi ce sector before noticeable improvement to the overall vacancy rate can begin. Corporate downsizings are slowing, but still occurring. In the next two quarters, Wells Fargo and Bank of America will be vacating 28,277 and 142,945 square feet, respectively, in Clayton and the CBD. However, there is a chance that over 50.0 percent of the Bank of America space will be fi lled before it is vacated at the beginning of 2012.

36 36 Jones Lang LaSalle United States Offi ce Q Tampa The Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area added 14,618 jobs in the year-ended August 31st, pushing the unemployment rate down by 11.3 percent year-over-year, to 11.0 percent. While this is a strong improvement, we are concerned that employment is slowing as total employment remained virtually stagnant on a month-over-month basis. We contribute this stagnation to national fear over a double-dip recession and less to underlying local market conditions. Thus, we believe the local economy will be heavily tied into the fate of the national economy and the European debt crisis. Bright spots for the local economy included the leisure and hospitality, and fi nancial activities sectors. Leisure and hospitality grew at approximately 6.0 percent, year-over-year in each of the summer months, suggesting that Tampa Bay s attraction as a tourist destination was on the rise. Furthermore, fi nancial activities continued to grow, increasing payrolls by 3.2 percent when compared to last August. This is a strong improvement and suggests that growth in the sector is increasing as it put its strongest showing of year-over-year growth since June Finally, professional and business services continued to add employees at its annualized growth rate of 1.8 percent, fueling offi ce demand. Overall market conditions continued to tighten in the quarter, with direct net absorption for all submarkets and assets of 191,276 square feet, and total net absorption of 248,902 square feet, pushing direct vacancy down to 22.8 percent. Asking rental rates fell by 1.0 percent year-over-year, to $20.78 per square foot. We interpret this as a sign that tenants remain in control and landlords eager to make deals. However, we also note that the year-over-year decline in asking rental rates has been steadily slowing, suggesting that conditions are balancing out. We forecast that over the next 13 quarters, employment in the offi ce-using sectors will increase by approximately 5.6 percent. Since we believe that many tenants have already trimmed down their space requirements to rightsize for current conditions, we anticipate that this return to hiring will increase space demands by approximately 6.2 percent, increasing occupancy by just about 1.8 million square feet and dropping vacancy to about 19.0 percent and driving up asking rents by approximately 8 percent from today s asking levels. Thus, we would strongly urge tenants with leases expiring in the next three years to act now in adding term, while conditions remain in their favor. Washington, DC The economic outlook in the Metro DC region darkened at the end of the third quarter as the region suffered three consecutive months of job losses and a divided Congress stalled the passage of new legislation. A push for austerity and an increasingly divisive political climate threatened to interrupt future levels of federal spending for contractors and other private sector businesses. As a result, tenants became more careful and judicious in regard to their hiring, business planning and real estate decision making. The economic and political turmoil evident during the third quarter of 2011 exerted a massive infl uence over regional leasing activity. The federal government is the largest employer and most infl uential driver of offi ce demand in Metro DC region, and after expanding more than 5.0 million square feet during a period of unprecedented expansion in 2010, the feds moved to the sidelines in As political discord intensifi ed, over 3.0 million square feet of federal requirements were cancelled across the region. Compounding matters, the deteriorating macroeconomic environment led a variety of private sector employers to reduce headcounts and shrink their leased footprints. Market fundamentals in Washington, DC wavered in mid-2011 as a result of the changing political and economic environment. Reduced tenant demand, combined with stable levels of supply, produced a modest uptick in vacancy rates and a slight decline in average asking rents. Although leasing activity throughout 2010 was brisk, the market lost considerable velocity in the fi rst three quarters of Heightened renewal activity and moves by the federal government to consolidate operations in Class A buildings characterized leasing activity throughout the Metro DC region. Close-in submarkets like Rosslyn-Ballston, Bethesda- Chevy Chase and downtown Washington, DC continued to demonstrate solid fundamentals, while many outlying markets suffered from oversupply and a distinct lack of tenant demand. Trophy and Class A buildings offering new, effi cient designs in core locations should maintain their edge over second-generation product in non core markets. Abundant blocks of commodity space should create a wide disparity in rents and concession packages, leaving tenants in the market for second generation space especially small and mid-size blocks at a wide advantage over owners in that segment of the market. Longer-term, the supply-constrained nature of the market should limit space options at new buildings, and a return of normalized job growth could produce a swift change in market fundamentals once macroeconomic conditions improve.

37 Jones Lang LaSalle United States Offi ce Q Westchester County Westchester County has continued to experience slow growth in terms of employment, but the momentum has shifted from offi ce-using payrolls to nonfarm payrolls. Total nonfarm payrolls increased by 0.6 percent year-over-year through September, and added more than 2,300 jobs to the economy through the third quarter. Increases in offi ce-using employment are no longer the main driver behind the job recovery. While offi ce-using employment accounted for 77.7 percent of total employment growth through the second quarter, it represented just 55.9 percent of growth in employment by the end of the third quarter. Offi ce-using sectors increased payrolls by 1.8 percent during the last 12 months through September, and expanded employment by almost 1,300 jobs after the fi rst nine months of The Westchester offi ce market indictors continued to show little movement through the third quarter. Leasing activity continued to slow during the third quarter to less than 240,000 square feet. This compares with more than 860,000 square feet leased in the fi rst quarter, and 280,000 square feet in the second quarter. Despite lower leasing activity, market indicators have only slightly weakened. The overall vacancy rate was 19.4 percent at the end of the quarter compared with 19.2 percent three months earlier. The Class A vacancy rate recorded a slight uptick to 21.4 percent from 21.0 percent during the same period. The overall average asking rent contracted to $26.10 per square foot from $26.19 per square foot during the second quarter. Signifi cant growth in regional offi ce-using employment is not anticipated in the near future, due to the recently derailed global economic recovery. Through the remainder of 2011, the local offi ce market is likely to continue the trends already seen this year. Leasing activity is likely to remain low, while market indicators are likely to remain fl at or weaken. Even though there has been growth of about 400 offi ce-using jobs in Westchester County each quarter this year, there has been little demand to increase real estate requirements and new tenant demand for space is virtually nonexistent. Due to uncertainty in the economy, some companies have delayed making decisions regarding their real estate requirements. Long-term, a turnaround in the Westchester County offi ce market is contingent on signifi cant growth in offi ce-using employment. West Palm Beach Seasonal fl uctuations caused Palm Beach County s unemployment rate to increase to 11.0 percent in the third quarter; a 70-basis-point increase. However, it s not all bad new for the county as overall unemployment has decreased 1.3 percent over the last 12 months and continued growth is anticipated as tourists and part-time residents return in the fourth quarter. While many offi ce-using sectors experienced defl ated employment growth in recent months, jobs were added within three critical sectors. The market s largest offi ce-using sector, professional services, continued to add jobs for the second straight quarter and growth also occurred in the fi nancial services and education and health services. Palm Beach County experienced the typical summer slowdown of tours and leasing activity, however, the robust leasing activity that occurred in the previous months brought some signifi cant space absorption that dropped vacancy for the third consecutive quarter. Occupancy not only tightened in West Palm Beach, but in all of the suburban markets, with the exception of North Palm Beach. The trend of users upgrading building class and moving into more effi cient spaces continued in the third quarter. The trend is starting to signifi cantly impact market conditions as both West Palm Beach and suburban vacancy experienced historic reductions of 2.8 percent and 1.4 percent, respectively. While the fl ight to quality is tightening conditions in the Class A and Trophy sectors, Class B vacancy felt the repercussions with a 40-basis-point increase that pushed Class B vacancy back above the 30.0 percent mark. Although vacancy remains at historical highs, market conditions have shown tremendous signs of tightening over the last 12 months. The summer slowdown has kept landlords aggressively competing to fi ll vacancy, which in turn continued to place downward pressure on effective rental rates. Employment growth within the service sectors will cause Palm Beach County to grow at a slow and steady pace over the next 12 months. The fl ight to quality among users is expected to continue, which will heighten occupancy within core assets and tighten tenant leverage among that asset class. Asking rental rates are expected to experience stabilization as owners continue to offer increased concessions in an effort to maintain a higher rental rate. This trend will continue to compress effective rates, but the rate of compression will be modest compared to prior quarters.

38 38 Jones Lang LaSalle United States Offi ce Q Appendix

39 Jones Lang LaSalle United States Offi ce Q United States office statistics Quarterly total net absorption - SF (Including Subleases) YTD total net absorption - SF (Including Subleases) Current quarter average marketed rent ($ PSF) Market Inventory (SF) YTD completions (SF) YTD total net absorption (% of Inventory) Direct vacancy (%) Total vacancy (%) Quarterly percent change Under construction (SF) Atlanta 139,934,510 19, , , % 20.3% 21.6% $ % 0 Austin 45,184, , , % 18.6% 20.2% $ % 0 Baltimore 68,639, , ,819 1,087, % 15.1% 15.7% $ % 1,156,591 Boston 159,506, , , , % 15.7% 20.6% $ % 0 Charlotte 44,685, , , , % 17.1% 18.5% $ % 0 Chicago 235,143, ,506 10, % 17.2% 19.9% $ % 0 Cincinnati 36,090, , , , % 19.3% 19.7% $ % 68,000 Cleveland 39,334, , , % 19.3% 20.8% $ % 590,000 Dallas 164,267, , ,874 1,524, % 21.9% 22.7% $ % 281,600 Denver 110,783,884 30, ,054 1,182, % 14.2% 15.3% $ % 185,000 Detroit 68,360, , , % 28.3% 29.1% $ % 0 Fairfi eld County 48,616, , , % 19.1% 22.0% $ % 166,094 Fort Lauderdale 17,918, , % 19.7% 20.8% $ % 0 Hampton Roads 26,861, , ,182-76, % 14.5% 14.9% $ % 266,700 Houston 153,042,624 1,973,237 1,412,885 1,800, % 16.1% 17.9% $ % 798,500 Jacksonville 21,117, , , % 19.7% 20.1% $ % 0 Los Angeles 183,189, , , , % 16.6% 18.0% $ % 518,511 Miami 35,515, ,905 14, , % 20.3% 21.1% $ % 352,276 Minneapolis 64,035, , , % 14.8% 15.7% $ % 0 New York 429,486, ,193 2,778, % 8.1% 10.3% $ % 4,400,000 New Jersey 156,304, , , % 21.5% 25.3% $ % 683,670 Oakland-East Bay 46,184, ,568-93, % 16.7% 17.6% $ % 0 Orange County 91,640,927 17, ,260 1,396, % 18.7% 18.2% $ % 0 Orlando 28,520, ,000 57, , % 19.4% 21.1% $ % 0 Philadelphia 136,434,817 60, ,058 1,561, % 14.6% 15.3% $ % 400,000 Phoenix 75,203, , , , % 25.6% 26.9% $ % 210,202 Pittsburgh 70,365, , , % 10.4% 10.9% $ % 363,000 Raleigh / Durham 41,816, , , % 15.9% 16.7% $ % 0 Richmond 42,454, , , % 10.9% 11.6% $ % 33,000 Sacramento 42,674, ,352-57, % 22.1% 22.5% $ % 0 San Antonio 25,152, ,851 38, % 14.5% 15.2% $ % 1,189,357 San Diego 80,468,778 83, , , % 15.8% 16.8% $ % 0 San Francisco 74,253, , , % 14.9% 15.7% $ % 70,484 San Francisco Peninsula 26,823, , , % 14.9% 17.9% $ % 0 Seattle 104,082, , ,451 1,709, % 15.1% 16.1% $ % 495,426 Silicon Valley 58,256, ,602 1,364, % 20.8% 22.2% $ % 516,000 St. Louis 42,761,104 47,512 5,882-65, % 16.5% 17.9% $ % 60,000 Tampa 38,027, , , % 22.8% 23.2% $ % 121,802 Washington, DC 325,470,336 1,358,074 1,249 1,037, % 12.8% 14.1% $ % 5,023,510 West Palm Beach 21,667, , , % 25.3% 25.7% $ % 0 Westchester County 33,857, , , % 16.4% 19.3% $ % 190,000 U.S. totals 3,654,137,907 9,341,363 9,291,325 24,572, % 16.2% 17.8% $ % 18,139,723

40 40 Jones Lang LaSalle United States Offi ce Q United States rankings Inventory Marketd rents New York Washington, DC Chicago Los Angeles Dallas Boston Northern New Jersey Houston Atlanta Philadelphia Denver Seattle Orange County San Diego Phoenix San Francisco Pittsburgh Baltimore Detroit Minneapolis Silicon Valley Fairfield County Oakland-East Bay Austin Charlotte St. Louis Sacramento Richmond Raleigh / Durham Cleveland Tampa Cincinnati Miami Westchester County Orlando Hampton Roads San Francisco Peninsula San Antonio West Palm Beach Jacksonville New York San Francisco San Francisco Peninsula Washington, DC Fairfield County Silicon Valley Miami Los Angeles Boston Fort Lauderdale West Palm Beach Seattle Minneapolis Chicago Austin Westchester County San Diego Houston Oakland-East Bay Philadelphia Northern New Jersey Orange County Baltimore Sacramento Phoenix Denver Tampa Charlotte Orlando Dallas Pittsburgh Atlanta Raleigh / Durham St. Louis Detroit San Antonio Cincinnati Cleveland Hampton Roads Richmond Jacksonville Fort Lauderdale Square Feet (Millions) $0 $10 $20 $30 $40 $50 $60 $/Square Foot

41 Jones Lang LaSalle United States Offi ce Q United States rankings YTD total net absorption New York Houston Seattle Philadelphia Dallas Orange County Silicon Valley Denver Baltimore Washington, DC San Francisco Northern New Jersey Minneapolis Austin Atlanta San Francisco Peninsula Los Angeles Boston San Diego Phoenix Pittsburgh Charlotte Richmond Fairfield County Orlando Cincinnati Miami Raleigh / Durham West Palm Beach Tampa Cleveland Jacksonville San Antonio Chicago Sacramento St. Louis Hampton Roads Oakland-East Bay Westchester County Fort Lauderdale Detroit Total vacancy rates Detroit Phoenix West Palm Beach Northern New Jersey Tampa Dallas Sacramento Silicon Valley Fairfield County Atlanta Orlando Miami Fort Lauderdale Cleveland Boston Austin Jacksonville Chicago Cincinnati Westchester County Charlotte Orange County St. Louis Los Angeles Houston San Francisco Peninsula Oakland-East Bay San Diego Raleigh / Durham Seattle Minneapolis Baltimore San Francisco Philadelphia Denver San Antonio Hampton Roads Washington, DC Richmond Pittsburgh New York ,000 1,500 2,000 2,500 3,000 Square Feet 0% 5% 10% 15% 20% 25% 30% 35% Vacancy rate (includes sublease)

42 42 Jones Lang LaSalle United States Offi ce Q United States rankings Under construction Under construction as % of inventory Washington, DC New York San Antonio Baltimore Houston Northern New Jersey Cleveland Los Angeles Silicon Valley Seattle Philadelphia Pittsburgh Miami Dallas Hampton Roads Phoenix Westchester County Denver Fairfield County Tampa San Francisco Cincinnati St. Louis Richmond Boston Charlotte Sacramento San Diego Orlando Minneapolis Austin Raleigh / Durham Atlanta Chicago Jacksonville San Francisco Peninsula Orange County Oakland-East Bay West Palm Beach Fort Lauderdale Detroit San Antonio Baltimore Washington, DC Cleveland New York Hampton Roads Miami Silicon Valley Westchester County Houston Pittsburgh Seattle Northern New Jersey Fairfield County Tampa Philadelphia Los Angeles Phoenix Cincinnati Dallas Denver St. Louis San Francisco Richmond Charlotte Sacramento Boston San Diego Orlando Minneapolis Austin Raleigh / Durham San Francisco Peninsula Orange County Oakland-East Bay Atlanta Chicago Jacksonville West Palm Beach Fort Lauderdale Detroit Square Feet 0%.5% 1% 1.5% 2% 2.5% 3% 3.5% 4% 4.5% 5% Square Feet

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