May 25, 2010

Economics Group

Special Commentary
Mark Vitner, Senior Economist
mark.vitner@wellsfargo.com ● 704-383-5635
Anika Khan, Economist
anika.khan@wellsfargo.com ● 704-715-0575
Yasmine Kamaruddin, Economic Analyst
yasmine.kamaruddin@wellsfargo.com ● 704-374-2992

Commercial Real Estate Chartbook: Quarter 1

Hopefully, the Worst Is Behind Us
Most of the key metrics used to track and assess the health of the commercial real estate market
continued to deteriorate during the first quarter. The pace of decline, however, has slowed
markedly, reflecting the slightly stronger economic data reported for the period and the
substantially reduced pace of declines in nonresidential construction. Demand for private office,
industrial and retail space continued to contract during the quarter and rents declined. Sales
prices have declined further, while transaction volume increased modestly. On the plus side,
apartment leasing picked up during the first quarter and rents rose slightly. Improvement in the
apartment market was evident across a wide assortment of markets, including several areas
where single-family homes and condominiums are significantly overbuilt.
The commercial real estate market is currently in the belly of what looks like will be an elongated The commercial
U-shaped recovery. The bulk of declines in construction activity and prices are now likely behind real estate market
us, but even modest growth in either is still a long way off. Declines in private nonresidential is currently in the
construction are expected to moderate significantly over the course of 2010. Building activity did belly of what looks
not have as far to fall in this cycle, as commercial real estate was much more overbought than it like will be an
was overbuilt. The recovery will take several years to gain significant momentum, as rents will elongated U-
likely remain depressed until employment and income recover enough to boost occupancy rates shaped recovery.
and rents.
Commercial property values continued to decline during the first quarter. The latest
Moody’s/REAL Commercial Property Price Index fell 0.5 percent in March, as prices for offices
and retail space fell in most major markets. Commercial property prices are now down
24.9 percent over the past year and 42 percent from its October 2007 peak. Prices for apartments
and industrial space both improved modestly during the quarter.
Figure 1 Figure 2
Real Nonresidential Construction Moody's/REAL Commercial Property Price Index
Bars = CAGR Line = Yr/Yr Percent Change Year-over-Year Percent Change
30.0% 30.0% 25% 25%

20% 20%
20.0% 20.0%
Forecast 15% 15%
10.0% 10.0% 10% 10%

5% 5%
0.0% 0.0%
0% 0%
-10.0% -10.0% -5% -5%

-20.0% -20.0% -10% -10%

-15% -15%
-30.0% -30.0%
-20% -20%

-40.0% -40.0% -25% -25%

-30% -30%
-50.0% Nonresidential Construction - CAGR: Q1 @ -14.0% -50.0%
-35% Commercial Property: Q1 @ -24.9% -35%
Nonres. Construction - Yr/Yr Percent Change: Q1 @ -17.0%
-60.0% -60.0% -40% -40%
2000 2002 2004 2006 2008 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Department of Commerce, Moody’s and Wells Fargo Securities, LLC

This report is available on wellsfargo.com/research and on Bloomberg WFEC

 Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Private Nonresidential Construction Spending

The general lack of Declines in private nonresidential construction spending are expected to moderate over the
new supply will course of 2010. Office, warehouse and retail construction has already declined more than it did
help the market during the 2001 recession, despite a relatively modest build during the preceding expansion. An
recover sooner abundance of empty space and a lack of financing will hold construction activity to a minimum
once demand over the next year. A handful of self-financed projects have been announced over the past year. In
revives on a addition, there has been a slight rise in single-tenant warehouse projects announced this year,
sustained basis. reflecting the turn in the inventory cycle, as well as a modest rise in industrial projects. The
general lack of new supply will help the market recover sooner once demand revives on a
sustained basis.
Figure 3 Figure 4
Private Manufacturing Construction Spending Construction Spending Growth
Both Series are 3-Month Moving Averages Office, Retail and Warehouse Properties, Yr/Yr % Change
125% 125% 40% 40%

100% 100%

20% 20%
75% 75%

50% 50%
0% 0%
25% 25%

0% 0%
-20% -20%
-25% -25%

-50% -50%
-40% -40%
Office: Mar @ -42.1%
-75% 3-Month Annual Rate: Mar @ -34.9% -75% Retail: Mar @ -40.8%
Year-over-Year Percent Change: Mar @ -29.6% Warehouse: Mar @ -44.4%
-100% -100% -60% -60%
95 97 99 01 03 05 07 09 2000 2002 2004 2006 2008 2010

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Commercial Real Estate Fundamentals
Stronger economic growth during the first quarter helped boost retail sales and office
employment during the first quarter. The improvement, however, may have gotten a bit ahead of
itself. Retail sales grew much faster than after-tax income during the period and the growth also
seems to be much greater than would have been implied by the tepid rebound in consumer
confidence. Office employment has increased for three out of the past six months. A large portion
of the increase has been in administrative and waste services, however, which may simply reflect
clean-up efforts from this past winter’s storms. Demand for office space still remains constrained,
as many firms need to consolidate space following significant staff reductions over the past two
years.
Figure 5 Figure 6
Retail Sales Ex. Auto & Gas Stations vs. Confidence & Income
3-Month Moving Average
Office Employment Growth
Month-over-Month Percent Change
15% 160 0.8% 0.8%
Stock Market Tax Cut 2 Housing Refi
Bubble Boom
12% 0.6% 0.6%
Tax 140
Tax Cut 1 Rebates
9%
0.4% 0.4%
120
6%
0.2% 0.2%
100
3%
0.0% 0.0%
0% 80
-0.2% -0.2%
-3%
60
-0.4% -0.4%
-6%
40
-0.6% -0.6%
-9%
Core Retail Sales, 3-Month Annual Rate: Apr @ 10.8% (Left Axis) 20
-12% -0.8% -0.8%
Disp. Personal Income, Yr/Yr % Change: Mar @ 2.8% (Left Axis)
Consumer Confidence: May @ 57.8% (Right Axis) Office Employment: Apr @ 0.3%
-15% 0 -1.0% -1.0%
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 2000 2002 2004 2006 2008 2010

Source: Conference Board, U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC

2
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Private Office Construction Spending

Nonresidential Construction Spending 80%
Both Series are 3-Month Moving Averages
80%

ƒ While economic growth is now solidly in positive

60% 60%
territory, outlays for nonresidential structures will
likely continue to decline well into 2010. 40% 40%
ƒ Private nonresidential construction spending fell at
an annualized rate of 7.2 percent in the first quarter 20% 20%
and is expected to contract 13.2 percent in 2010
before regaining its footing in 2011. 0% 0%

ƒ Construction spending for office and commercial

-20% -20%
structures, which include retail and wholesale
structures, continued to contract with declines of
-40% -40%
39.3 percent year over year. 3-Month Annual Rate: Mar @ -40.6%
Year-over-Year Percent Change: Mar @ -40.8%
ƒ Construction material costs have risen for two -60% -60%
consecutive months due largely to rising commodity 94 96 98 00 02 04 06 08 10

prices. Much of the increase is due to improving

global demand, which now looks less certain.
PPI: Materials & Components for Construction
Quarter-over-Quarter Percent Change
5.0% 5.0%
Private Nonresidential Construction Spending
Both Series are 3-Month Moving Averages
4.0% 4.0%
40% 40%

3.0% 3.0%
30% 30%

2.0% 2.0%
20% 20%

1.0% 1.0%
10% 10%

0.0% 0.0%
0% 0%

-1.0% -1.0%
-10% -10%

-2.0% -2.0%
-20% -20%
Materials & Components for Construction: Q1 @ 0.5%
-3.0% -3.0%
-30% 3-Month Annual Rate: Mar @ -25.9% -30% 2005 2006 2007 2008 2009 2010
Year-over-Year Percent Change: Mar @ -24.3%
-40% -40%
Architectural Billings Index
95 97 99 01 03 05 07 09
3-Month Moving Average, Seasonally Adjusted
65 65

Private Commercial Construction Spending 60 60

Both Series are 3-Month Moving Averages
80% 80%
3-Month Annual Rate: Mar @ -21.2% 55 55
Year-over-Year Percent Change: Mar @ -37.0%
60% 60%
50 50

40% 40% 45 45

20% 20% 40 40

35 35
0% 0%

30 30
-20% -20%
Architectural Billings Index: Apr @ 48.5
25 25
-40% -40% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-60% -60% Source: The American Institute of Architects, Dept. of Commerce,

93 95 97 99 01 03 05 07 09 Dept. of Labor and Wells Fargo Securities, LLC

3
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Commercial & Multifamily Mortgages Outstanding

Commercial Mortgages Outstanding 24%
Year-over-Year Percent Change
24%

ƒ Commercial and multifamily mortgages outstanding 20% 20%

fell by $45 billion in the fourth quarter, the fourth
16% 16%
consecutive quarterly decline. By comparison,
mortgages continued to decline more than a year 12% 12%

after the 1990—1991 recession ended. 8% 8%

ƒ Commercial banks continue to hold the majority of
4% 4%
commercial mortgages at 45 percent. CMBS, CDO
and other ABS issuers are the second-largest holders 0% 0%
with 20 percent of the market.
-4% -4%
ƒ Small banks continue to have more exposure to
commercial real estate with 40 percent of their bank -8% -8%
Commercial & Multifamily Mortgages: Q4 @ -2.8%
loans tied up in that sector. -12% -12%
ƒ Delinquency rates have risen nearly eight 56 60 64 68 72 76 80 84 88 92 96 00 04 08

percentage points since early 2006 and will continue

to rise this year but the rate of increase should
moderate. Commercial Real Estate Loans at Banks
Commercial Real Estate Loans as a Percent of Bank Loans
45% 45%
Commercial & Multifamily Mortgages Outstanding
Q4 2009
40% 40%

Other
21% 35% 35%

30% 30%
Commercial
Banking
45% 25% 25%

20% 20%

Securitized
20% 15% 15%
Large Commercial Banks: Apr @ 14.9%
Small Commercial Banks: Apr @ 40.8%
10% 10%
04 05 06 06 07 08 09 10
Life Insurance
Savings
Companies
Institutions
9%
5% Commercial Real Estate Delinquency Rates
14% 14%
Commercial Real Estate Delinquency Rates: Q4 @ 8.8%
Commercial & Multifamily Mortgages Outstanding
Billions of Dollars, Non-Seasonally Adjusted 12% 12%
$4,000 $4,000

10% 10%
$3,500 $3,500

8% 8%
$3,000 $3,000

$2,500 $2,500 6% 6%

$2,000 $2,000 4% 4%

$1,500 $1,500
2% 2%

Other: Q4 @ $695B
$1,000 $1,000
Life Insurance Companies: Q4 @ $307B 0% 0%
Securitized: Q4 @ $690B 91 93 95 97 99 01 03 05 07 09
$500 Savings Institutions: Q4 @ $184B $500
Commercial Banking: Q4 @ $1,506B
$0 $0 Source: Federal Reserve Board and Wells Fargo Securities, LLC
2005 2006 2007 2008 2009

4
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

CRE Cap Rates vs. 10-Year Treasury Yields

CRE Property Fundamentals 12%
Percent, Yield
12%

ƒ Property fundamentals remain weak, but are

showing some tentative signs of moderating. 10% 10%

ƒ Apartment vacancy rates were flat on the quarter

and apartment rent growth increased after five 8% 8%

consecutive quarterly declines.

ƒ Office employment suggests brighter days are near 6% 6%

but the office market still has a way to go. Office

employment likely troughed in October 2009, which 4% 4%
brings the peak-to-trough decline to 8.6 percent.
Apartment: Q1 @ 6.8%
Office vacancy rates will likely continue to move 2%
Office: Q1 @ 7.9%
2%
Retail: Q1 @ 8.3%
higher, however, as businesses consolidate Industrial: Q1 @ 8.9%
operations. 10-Year Yield: Q1 @ 3.7%
0% 0%
ƒ Commercial real estate lending standards remain 1995 1997 1999 2001 2003 2005 2007 2009
tight but are easing slightly.

Net Percent of Banks Tightening Standards

Commercial Real Estate Loans
100% 100%
Commercial Real Estate Commercial Real Estate Loans: Q2 @ 12.5%
Percent, Dollars per Square Foot
14% $180 80% 80%

60% 60%
12%

$140
40% 40%
10%

20% 20%

8% $100
0% 0%

6%
-20% -20%
$60

4% Price: Q1 @ $117.64 per SF (Left Axis) -40% -40%

Vacancy Rate: Q1 @ 12.0% (Right Axis) 1990 1994 1998 2002 2006 2010
Cap Rate: Q1 @ 7.8% (Right Axis)
2% $20
U.S. CMBS Issuance
01 02 03 04 05 06 07 08 09 10 Billions of Dollars
$45 $45
CMBS Issuance: Apr @ $1.4B
Commercial Real Estate Vacancy Rates $40 $40
Percent
24% 24%
$35 $35
Apartments: Q1 @ 8.0%
Office: Q1 @ 17.3%
21% 21% $30 $30
Retail: Q1 @ 10.8%
Industrial: Q1 @ 13.3%
18% 18% $25 $25

15% 15% $20 $20

$15 $15
12% 12%

$10 $10
9% 9%
$5 $5
6% 6%
$0 $0
2004 2005 2006 2007 2008 2009 2010
3% 3%

0% 0% Source: Federal Reserve Board, Property & Portfolio Research, Real

1994 1996 1998 2000 2002 2004 2006 2008 2010 Capital Analytics, Reis, Inc. and Wells Fargo Securities, LLC

5
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Apartment Effective Rent Growth

Apartment 1.6%
Quarter-over-Quarter Percent Change
1.6%

ƒ The apartment market remains weak but is showing 1.2% 1.2%

signs of stabilization. The improving labor market
seems to have boosted demand with net absorption 0.8% 0.8%

rising in each of the past three quarters. We remain

0.4% 0.4%
cautious, however, as the glut of single-family
housing and the pick-up in existing and new home 0.0% 0.0%
sales due to the first-time homebuyers’ tax credit
-0.4% -0.4%
will likely continue to compete with apartments.
ƒ Effective rent growth posted a mild gain after five -0.8% -0.8%
consecutive quarters of negative rent growth.
Effective rent growth outpaced asking rent growth -1.2% -1.2%
Apartment Effective Rent Growth: Q1 @ 0.3%
in the first quarter likely due to landlords pulling
-1.6% -1.6%
back a bit on concessions. 2005 2006 2007 2008 2009 2010

ƒ According to REIS, Memphis and Houston have the

highest vacancy rates of around 13 percent.
Apartment Supply & Demand
Percent, Thousands of Units
10% 50
Apartment Price vs. Vacancy Rate 8% 40
Dollars per Square Foot, Percent
$120 10% 6% 30
4%
20
2%
$100 8% 10
0%
0
-2%
$80 6% -10
-4%
-20
-6%
-30
$60 4% -8%

-10% -40
Apartment Net Completions: Q1 @ 22,210 Units (Right Axis)
Apartment Net Absorption: Q1 @ 21,369 Units (Right Axis)
-12% -50
Apartment Vacancy Rate: Q1 @ 8.0% (Left Axis)
$40 2%
-14% -60
Apartment Price: Q1 @ $100.26 per SF (Left Axis) 2005 2006 2007 2008 2009 2010
Apartment Vacancy Rate: Q1 @ 8.0% (Right Axis)
$20 0%
Apartment Sales Volume
01 02 03 04 05 06 07 08 09 10
National Multi Housing Council, Diffusion Index
80 80

Apartment Cap Rate vs. 10-Year Treasury Yield

70 70
Percent, Yield
10% 10%
60 60
9% 9%

50 50
8% 8%

7% 7% 40 40

6% 6%
30 30

5% 5%
20 20
4% 4%
10 10
3% 3%
Apartment Sales Volume: Q2 @ 72.0
2% 2% 0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Apartment: Q1 @ 6.8%
1% 1%
10-Year Yield: Q1 @ 3.7%
0% 0% Source: Federal Reserve Board, NMHC, Real Capital Analytics, Reis,
1995 1997 1999 2001 2003 2005 2007 2009 Inc. and Wells Fargo Securities, LLC

6
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Office Effective Rent Growth

Office 4.0%
Quarter-over-Quarter Percent Change
4.0%

ƒ Demand for office space continues to decline. The

3.0% 3.0%
pace of decline is moderating, however, and there
are some early signs of a turnaround.
2.0% 2.0%
ƒ Office employment has been positive for two
consecutive quarters. Areas with the least exposure 1.0% 1.0%
to the housing bust are faring best. Some of the
areas hardest hit by the housing slump saw peak-to- 0.0% 0.0%

trough declines in office employment around

14 percent and will take much longer to recover. -1.0% -1.0%

ƒ While completions slowed in the first quarter,

-2.0% -2.0%
roughly 6 million square feet were delivered. This
Office Effective Rent Growth: Q1 @ -0.8%
new supply pushed the vacancy rate higher, to
-3.0% -3.0%
17.3 percent in the first quarter. 2005 2006 2007 2008 2009 2010
ƒ Suburban office vacancy rates continue to rise,
likely reflecting new competition in new submarkets
and falling rents in many central business districts. Office Supply & Demand
Percent, Millions of Square Feet
20% 25
Office Price vs. Vacancy Rate 16% 20
Dollars per Square Foot, Percent
$350 18% 12% 15

8% 10
$300 16%
4% 5

14% 0% 0
$250
-4% -5
12%
$200 -8% -10

10% -12% -15

$150 -16% -20
8%
-20% Office Net Completions: Q1 @ 6.1M SF (Right Axis) -25
$100 Office Net Absorption: Q1 @ -11.6M SF (Right Axis)
6% -24% -30
Office Vacancy Rate: Q1 @ 17.3% (Left Axis)
-28% -35
$50 4%
Office Price: Q1 @ $168.48 (Left Axis) 2005 2006 2007 2008 2009 2010
Office Vacancy Rate: Q1 @ 17.3% (Right Axis)
$0 2%
Office Employment Growth
01 02 03 04 05 06 07 08 09 10 Year-over-Year Percent Change
10% 10%

Office Cap Rate vs. 10-Year Treasury Yield 8% 8%

Percent, Yield
10% 10%
6% 6%

4% 4%
8% 8%
2% 2%

0% 0%
6% 6%

-2% -2%

4% 4% -4% -4%

-6% -6%
Office Employment Growth: Apr @ -1.0%
2% 2% -8% -8%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Office: Q1 @ 7.9%
10-Year Yield: Q1 @ 3.7%
0% 0% Source: Federal Reserve Board, Real Capital Analytics, Reis, Inc, U.S.
1995 1997 1999 2001 2003 2005 2007 2009 Department of Labor and Wells Fargo Securities, LLC

7
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Retail Effective Rent Growth

Retail 1.2%
Quarter-over-Quarter Percent Change
1.2%

ƒ While the labor market and consumer spending

0.8% 0.8%
improved in the first half of 2010, we expect the
pace of improvement to slow as various stimulus
programs wind down and Census hiring peaks in the 0.4% 0.4%

spring. Retail fundamentals will likely remain weak

until a self-sustaining recovery takes hold. 0.0% 0.0%

ƒ Effective rent growth has been negative for eight

consecutive quarters as landlords continue to -0.4% -0.4%

contend with space returned from bankruptcies and

store closures. A few strong chains are using this as -0.8% -0.8%
an opportunity to trade up to better locations.
Retail Effective Rent Growth: Q1 @ -0.8%
ƒ Retail completions continue to hit the market, but -1.2% -1.2%
the pace has slowed significantly. Even with less 2005 2006 2007 2008 2009 2010

new space coming on line, vacancy rates will still

likely trend higher.
Retail Supply & Demand
Percent, Millions of Square Feet
16% 22
Retail Price vs. Vacancy Rate Retail Net Completions: Q1 @ 0.9M SF (Right Axis) 20
Dollars per Square Foot, Percent 14% Retail Net Absorption: Q1 @ -2.6M SF (Right Axis) 18
$240 11% Retail Vacancy Rate: Q1 @ 10.8% (Left Axis)
16
12% 14
10% 12
$200
10% 10
9% 8
8% 6
$160 4
8%
6% 2
0
7% 4% -2
$120
-4
6% 2% -6
-8
$80
0% -10
5%
Retail Price: Q1 @ $146.77 per SF (Left Axis) 2005 2006 2007 2008 2009 2010
Retail Vacancy Rate: Q1 @ 10.8% (Right Axis)
$40 4%
Real Personal Consumption Expenditures
01 02 03 04 05 06 07 08 09 10 Bars = CAGR Line = Yr/Yr Percent Change
8.0% 8.0%

Retail Cap Rate vs. 10-Year Treasury Yield

Percent, Yield 6.0% 6.0%
12% 12% Forecast

4.0% 4.0%

10% 10%
2.0% 2.0%

8% 8%
0.0% 0.0%

6% 6% -2.0% -2.0%

4% 4% -4.0% -4.0%
PCE - CAGR: Q1 @ 3.6%
PCE - Yr/Yr Percent Change: Q1 @ 1.8%
-6.0% -6.0%
2% 2% 2000 2002 2004 2006 2008 2010
Retail: Q1 @ 8.3%
10-Year Yield: Q1 @ 3.7%
0% 0% Source: Federal Reserve Board, Real Capital Analytics, Reis, Inc, U.S.
1995 1997 1999 2001 2003 2005 2007 2009 Department of Commerce and Wells Fargo Securities, LLC

8
Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLC
May 25, 2010 ECONOMICS GROUP

Industrial Asking Rent Growth

Industrial 1.5%
Quarter-over-Quarter Percent Change
1.5%

ƒ Industrial fundamentals remain anemic, but 1.0% 1.0%

demand is positioned to grow in coming quarters.
0.5% 0.5%
Inventories grew by $31 billion in the first quarter
contributing 1.6 percentage points to GDP growth. 0.0% 0.0%

Inventories are expected to grow by roughly $50

-0.5% -0.5%
billion a quarter in 2010 and 2011.
ƒ Industrial completions continue to come on line, but -1.0% -1.0%

the pace has slowed significantly. While completions -1.5% -1.5%

have slowed, roughly 4 million square feet were
-2.0% -2.0%
delivered in the first quarter, which pushed the
vacancy rate up to 13.3 percent. -2.5% -2.5%
ƒ Wholesale trade employment has increased for the Industrial Asking Rent Growth: Q1 @ -1.6%
-3.0% -3.0%
past three months but is still off 7.8 percent from its 2005 2006 2007 2008 2009 2010
November 2007 peak. Trucking and rail traffic is
improving, however, particularly along the East
Coast. Industrial Supply & Demand
Percent, Millions of Square Feet
14% 70
Industrial Price vs. Vacancy Rate 12% 60
Dollars per Square Foot, Percent
$90 14% 10% 50

8% 40
13%
$80 6% 30
12%
4% 20
11% 2% 10
$70
0% 0
10%
-2% -10
$60 9%
-4% -20
8% -6% -30
$50 -8% Industrial Net Completions: Q1 @ 4.2M SF (Right Axis) -40
7%
Industrial Net Absorption: Q1 @ -6.0M SF (Right Axis)
-10% -50
Industrial Vacancy Rate: Q1 @ 13.3% (Left Axis)
6%
$40 -12% -60
Industrial Price: Q1 @ $55.07 per SF 5% 2005 2006 2007 2008 2009 2010
Industrial Vacancy Rate: Q1 @ 13.3%
$30 4%
Wholesale Trade Employment Growth
01 02 03 04 05 06 07 08 09 10 Year-over-Year Percent Change
8.0% 8.0%

Industrial Cap Rate vs. 10-Year Treasury Yield

6.0% 6.0%
Percent, Yield
10% 10%
4.0% 4.0%

2.0% 2.0%
8% 8%

0.0% 0.0%

6% 6%
-2.0% -2.0%

-4.0% -4.0%
4% 4%

-6.0% -6.0%
Wholesale Trade Employment Growth: Apr @ -1.2%
2% 2% -8.0% -8.0%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Industrial: Q1 @ 8.9%
10-Year Yield: Q1 @ 3.7%
0% 0% Source: Federal Reserve Board, Property & Portfolio Research, RCA,
1995 1997 1999 2001 2003 2005 2007 2009 U.S. Department of Labor and Wells Fargo Securities, LLC

9
Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com

& Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wellsfargo.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wellsfargo.com
Jay Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wellsfargo.com
Scott Anderson, Ph.D. Senior Economist (612) 667-9281 scott.a.anderson@wellsfargo.com
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 eugenio.j.aleman@wellsfargo.com
Sam Bullard Senior Economist (704) 383-7372 sam.bullard@wellsfargo.com
Anika Khan Economist (704) 715-0575 anika.khan@wellsfargo.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wellsfargo.com
Ed Kashmarek Economist (612) 667-0479 ed.kashmarek@wellsfargo.com
Tim Quinlan Economist (704) 374-4407 tim.quinlan@wellsfargo.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wellsfargo.com
Yasmine Kamaruddin Economic Analyst (704) 374-2992 yasmine.kamaruddin@wellsfargo.com

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer
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