Office

Doug Rall, CPA

Today s Today’s Agenda
• • • • • • Overview K t O i Kootenai Cl i Class A B C office space A, B, ffi Vacancy estimates, asking rates, concessions y , g , Effect of new construction Migration to Idaho Employment data Summary, forecast, conclusion

Class A Office
Varies by locality and measured by y y y • Quality of Construction • Exceptional finish, amenities, location • New or built in the past five years • Modern technology • Rents $16 - $21 + NNN • NNN Charges $4- $6 psf

Class B Office
• Often older property needing updating pdating • Lesser quality interior finishes and amenities • Designed for lower operating and maintenance costs • Rents $10 - $16 + NNN • NNN Charges $3 - $5 psf

Class C Office
• Older property with signs of functional obsolescence • Often not ADA compliant • I ffi i t mechanical Inefficient h i l systems • Deferred maintenance • Rents $6 - $10 + NNN • NNN Charges $ 2 - $4 psf

Class C Value Added
Upgrade to increase rents and occupancy.

Kootenai Office Vacancy
12 10

Percen nt Vaca ant

8 6 4 2 0
Post Falls Hayden Rathdrum Coeur d'Alene

2007 2008 2009

Sublease Effective Vacancy y

Mountain West Bank 2123 N. Government Way

Idaho State Police 615 W. Wilbur

Bio Life Plasma Center 8300 Cornerstone Dr.

Global Credit Union 320 E. Neider

LCT Professional Bldg. 8382 Wayne Dr.

Migration from Other States g
Drivers License Surrenders in Kootenai County
2000 1800 1600 1400 1200 1000 800 600 400 200 0 2002 2003 2004 2005 2006 2007 2008 2009

Arizona California Colorado Montana Nevada Oregon Washington

Spokane + Kootenai Non-Farm Employment Growth
Much worse than previous recession: -1% in 2002

Area

2008

2009

2010-F

Spokane S k + Kootenai

0.3%

-3.4%

0.5% 1%

Unemployment will remain high in 2010, with little or no wage g g growth.

Spokane + Kootenai Unemployment Rate
Pessimistic Scenario: Simulated recovery based on projected changes in national unemployment from 2010 ERP f ERP.
9.7% 8.9% 9.0% 8% 8.0% 7% 7.0% 6% 5.6% 5% 4% 3% 2007 2008 2009 2010 2011 2012 2013 2014 4.4% 6.2% 6.5% 6 5% 6.0% 7.9% 7.0%

11% 10% 9%

Unemp ployment Ra ate

Optimistic Scenario: Simulated recovery path based on 1991 and 2001 recessions, but starting from 9%.

Spokane + Kootenai Household Income, 2008
25%

20%

Remember for 2010/11: (1) 50% make less than 50K (2) 75% make less than 75K
17%

Median = $47,000
20%

Share of f Household ds

15%

12%
10%

12%

12% 9%

7% 5%
5%

2%
0%

3%

2008 Income for Spokane + Kootenai 

Summary of Employment Outlook
• Employment growth will be slow in 2010 and into 2011. • Unemployment will not return to normal levels (6.2%) until 2013 or 2014. • For the next few years median household income will be approximately $47K in our pp y area.

Kootenai Office Summary and Conclusion Forecast for 2010
Office vacancy will follow unemployment trends trends. There will be little speculative office construction p during 2010. Leasing rates will stabilize by 2011. L i t ill t bili b 2011 Office vacancy will decrease to acceptable levels by 2013 (optimistic scenario). Good property management and strong tenant relationships are the key to success.

Thank You
For Slides • Email drall@cbcsr.com • Vi it www.cbcsr.com Visit b