WINTER 2011

Skyline sector fueling recovery with continued tightening and rent growth in 2011
North America Skyline Review

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Jones Lang LaSalle’s Skyline reports define the marketmoving segment of the office sector across local urban geographies. Our Skyline markets differ across geographies from covering the Trophy market in places like Toronto, NYC and Washington, DC to the Tower market in Boston. Our Skyline market includes a portion of the Class A CBD market and overall comprises approximately 30.0 percent of the CBD marketplace across the U.S. and Canada. We have concluded that this cross-section of the market over time leads market recoveries and downturns with respect to both the investment and leasing side. In our inaugural report, our team of research experts dissects the Skyline across 21 urban office markets in the U.S. and Canada. In future issues, we will expand our geographic focus to include even more urban office centers where institutional investors allocate their investment capital and where tenants build their local businesses.

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North America Skyline Review contents Across the Skyline: Supply and demand Across the Skyline: Pricing Skyline markets: Atlanta Baltimore Boston Charlotte Chicago Denver Fort Lauderdale Los Angeles Century City Miami Coral Gables New York City Philadelphia Stamford San Diego San Francisco Washington, DC Seattle Bellevue Montréal Toronto Rankings: Total vacancy rate 2010 total net absorption Average asking rents 12-month asking rent change

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Across the Skyline: Total vacancy
Bellevue Seattle Montréal Toronto Chicago Denver San Francisco Century City Los Angeles San Diego
B

Boston Stamford New York City Philadelphia Baltimore Washington, D.C.

Charlotte Atlanta

12% and lower

12.1% 16.0%

16.1% 20.0%

20.1% and higher

Fort Lauderdale Miami Coral Gables

Skyline markets leading demand and absorption gains
SF

New Skyline deliveries caused vacancy to increase in 2010, while stabilizing in overall market
20% 16% 12% 8% 4%

18.5%
Overall total vacancy rate Skyline total vacancy rate

10,000,000 7,500,000 5,000,000 2,500,000 0 -2,500,000 -5,000,000 2006 2007 2008 2009 2010

15.3%

0% 2006 2007 2008 2009 2010

Demand Skyline absorption accounted for approximately one-third of occupancy growth in 2010, despite comprising just 11.5 percent of total inventory. Despite the financial sector lagging the overall economy from an employment standpoint, three financial-heavy Skyline markets

(Charlotte, Toronto and New York City) led occupancy growth in 2010. Absorption in 2011 will register even larger gains as record corporate profits across industries finally spur investment in human capital and thus occupancy growth beginning at mid-year across markets.

Supply After two years of steady new development deliveries and increasing sublease options, supply dynamics have stabilized. The supply side will look quite similar across nearly all of the Skyline markets over the next three years as speculative construction projects remain limited

and sublease space options dwindle. The large block availability market is the first segment of the market to present tenants with challenges and significantly decreased leverage. Over the next 18 months, other market segments will follow suit.

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Across the Skyline: Average asking rents
Bellevue Seattle Montréal Toronto Chicago Denver San Francisco Century City Los Angeles San Diego
B

Boston Stamford New York City Philadelphia Baltimore Washington, D.C.

Charlotte Atlanta

$30.00 PSF and lower

$30.01 PSF $40.00 PSF

$40.01 PSF $50.00 PSF

$50.01 PSF and higher

Fort Lauderdale Miami Coral Gables

Rents have bottomed across most Skyline markets with cautious growth expected in 2011
$ PSF Gross

Skyline sales volume jumps, but still well below prior years, while cap rates for top product tighten further
SF

$50 $40 $30 $20 $10 $0 2006 2007 2008 2009 2010

100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 2006

Total SF sold

Cap rates

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

2007

2008

2009

2010

Rents Rents have bottomed across most Skyline segments following nearly a 15.0 percent correction in asking rents and more than a 20.0 percent correction in net effective rents. Landlords have already begun to scale back tenant improvement allowances and, across leading

markets, free rent has been slashed and face rates have inched up. We expect modest rent growth in 2011 with increased growth in 2012 and potential rent spikes in some markets in 2013 and 2014 due to lack of new supply.

Investment Investors returned to the market in 2010 and allocated the majority of their investment allocation into Skyline buildings. Skyline buildings registered a 169.0 percent increase in total square feet of office product sold, while pricing increased 7.2 percent on a per square foot

basis and yields declined 110 basis points to average 6.1 percent. Due to intense competition in the leading Gateway markets of New York City, Boston, Washington, DC and San Francisco, investment allocation will widen to incorporate more geographies in 2011 and 2012.

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Atlanta

How we define our market: Atlanta’s Urban Skyline Review includes speculative office buildings that meet one or more of the following criteria: greater than 400,000 total square feet, built or significant renovations since 1985, high-profile location, recognized tenant profile and/or architectural significance. The 53 Class A buildings that comprise the Skyline set are core buildings that truly influence the market.
Atlanta statistics - 53 office buildings across 28,612,058 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 27.9% 29.2% 600,589 s.f. $23.49 p.s.f. $54.00 p.s.f. 12 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 19 11,601,179 s.f. 2 994,665 s.f. $109.00 p.s.f. 8.6%

Leasing market Atlanta’s 28.6 million square foot Urban Skyline sector outperformed the overall urban submarkets during 2010, reporting four consecutive quarters of positive absorption totaling 600,000 square feet. Despite this growth in occupancy, vacant space in these 53 buildings remains stubbornly high, nearly 2000 basis points above the urban average. High levels of construction in recent years concentrated in the Buckhead and Midtown submarkets contributed to a glut of empty office space, yet tenant demand appears to be on the rise again. As the market’s newest projects lease up, expect landlords to gradually pull back on offered concessions. It may take several more quarters, however, to see rental rate appreciation as average asking prices in the Skyline sector hit a recent low at year-end 2010, falling to $23.49 per square foot.

Investment market Atlanta’s investment market has been stagnant in recent years, although, in the past few months, Trophy properties have begun to garner some attention. Unlike major gateway cities like New York and Washington, DC, Atlanta has not traditionally been a private investor’s market. REITs looking to invest have been drawn to the Trophy product in Atlanta, which is easier to finance than distressed or middle-market assets. Parkway Properties received national attention with their January 2011 announcement to purchase the 483,000-squarefoot 3344 Peachtree Tower for a submarket record-setting $346 per square foot. In the current economic climate, 3344 Peachtree provided a unique and winning combination of desired traits, including an unparalleled address, a strong 93.0 percent leased rent roll with no immediate rollover, and excellent access to transportation and retail amenities. The recent spike in leasing activity has helped to get Atlanta’s market off the floor and this transaction could help spur sales of other Trophy class properties.

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Baltimore

Boston

How we define our market: The Skyline market for Baltimore is defined as Downtown Class A product located in the Central Business District and Harbor East, specifically along the Pratt Street Corridor, Harbor East, Baltimore Street Corridor and Charles Street Corridor.

How we define our market: The Skyline market for Boston is defined as the Tower market, which is further defined as New Towers that are Class A product built after 1980 and either over 18 stories in height or at least 200,000 square feet, or Old Towers that are Class A product with over 18 stories in height. Furthermore, the Tower market considers properties in the Back Bay, Financial District or South Boston Waterfront submarkets only.
Boston statistics - 46 office buildings across 32,455,542 s.f.
Leasing Investment 9.3% 16.4% 532,645 s.f. $44.77 p.s.f. $42.32 p.s.f. 6.3 Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 36 30,877,747 s.f. 1 1,755,398 s.f. $530.00 p.s.f. 4.1%

Baltimore statistics - 27 office buildings across 8,861,100 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 18.8% 22.4% 168,348 s.f. $22.52 p.s.f. $40.00 p.s.f. 6 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 11 4,186,312 s.f. 0 0 s.f. n/a n/a

Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months)

Leasing market The rental market for Baltimore’s premier downtown buildings remained soft at the end of 2010. Year-end total vacancy rose for each of the past three years, although it dipped slightly during the last two quarters of 2010. Exposure to the financial services industry kept demand levels below long-term averages and conditions generally remained in tenants’ favor, particularly for small blocks of space, which remained plentiful. In addition, rental rates and leasing activity were down on both a quarterly and yearly basis. Premier downtown properties will likely continue to see stable fundamentals over the next few years, because recent gains in Baltimore’s market have largely centered on the suburbs, where government and military operations have been driving growth. As a result, the suburban market is expected to outpace the core downtown properties that comprise the Baltimore Skyline inventory.

Investment market Sales activity in downtown Baltimore has essentially been at a standstill since 2008. This is especially true of the premier Class A buildings located in the Central Business District and Harbor East. Among those properties, no sales closed in 2009 or 2010. Two sales occurred in 2008 – 20 South Charles Street and 100 South Charles Street sold – for a combined average of $98 per square foot and a 10.5 percent cap rate. Despite the lack of recent activity among Baltimore’s Skyline properties, government-driven activity across the metropolitan area has positioned the economy for growth, indicating that investment activity will likely resume in the coming year.

Leasing market The Boston Tower market began the first stages of recovery during the second half of 2010 with availability falling from its cyclical high. The recovery in leasing volume was fueled mostly by small- and mid-sized tenants. However, four tenants greater than 100,000 square feet agreed to new leases during the fourth quarter. The Back Bay Tower market continued to record very low vacancy numbers and has just three contiguous blocks of available space greater than 50,000 square feet. This compares to 19 such spaces in the neighboring Financial District. A notable trend has emerged in 2010, as high-rise tower availability, defined as space higher than the 16th floor, began its decent from its cyclical high total vacancy, opening a five percentage point gap between it and the low-rise tower market. Leasing activity is expected to remain constant during the first half of the year with average asking rents projected to slowly rise in the Back Bay submarket.

Investment market Boston recorded one of the largest sales in the nation in 2010 as investors remained keenly focused on the nation’s core markets. In September, Boston Properties acquired the John Hancock Tower for $930 million, giving the Public REIT a 51.3 percent share of the Back Bay Class A market when combined with its existing assets. Looking forward, investors remain focused on core properties. The Boston Skyline offers well-leased assets with positive cash flow, properties which have led the market recovery thus far. However, although the bid-ask spread has tightened, many owners remain reluctant to sell at the perceived bottom of the market believing there is potential for price appreciation as the office market recovers. Investment interest is expected to pick up in 2011 and the potential to purchase assets at a discount still looms across the market as CMBS debt matures.

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Charlotte

Chicago

How we define our market: Charlotte’s skyline building set includes speculative office buildings that meet one or more of the following criteria: greater than 200,000 total square feet, full-service rental rates greater than $25.00 per square foot, built or significantly renovated since 1985, high-profile location, recognized tenant profile, and/or architectural significance.
Charlotte statistics - 20 office buildings across 12,772,959 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 15.6% 16.0% 1,234,380 s.f. $25.43 p.s.f. $35.00 p.s.f. 6 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 7 3,053,747 s.f. 0 0 s.f. n/a n/a

How we define our market: Our Skyline Review of Chicago includes buildings that are larger than 750,000 square feet and meet one or more of the following criteria: built or significantly renovated since 1985, high-profile location, recognized tenant profile and/or architectural significance.

Chicago statistics - 53 office buildings across 61,361,849 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 14.2% 16.3% -156,285 s.f. $35.33 p.s.f. $50.00 p.s.f. 10 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 40 41,952,143 s.f. 5 5,818,367 s.f. $333.00 p.s.f. n/a

Leasing market Leasing activity more than doubled in the Skyline set in 2010 versus 2009. However, with the delivery of approximately 2.1 million square feet of space in 2010 alone, this increase has still not been enough to make a shift toward a landlordfavorable market. Even with the most recent relocations by larger tenants, such as the 71,000 square feet leased by Fifth Third Bank and the 50,000 square feet leased by CIT Group, Inc., there has not been sufficient activity to maintain the balance of excess and occupied space. Lease deals that offer companies more flexibility and enhance their bottomlines are favored, and with landlords now willing to offer aggressive concessions with direct leases, a significant rise in sublease activity is not expected. Now that the majority of the Bank of America and Wells Fargo consolidations into owned facilities have passed, and without any new construction on the horizon, the Skyline set should see increased leasing activity and positive absorption into 2011.

Investment market Lackluster job growth and concerns over changing fiscal policies kept many investors once interested in the Charlotte Skyline market at bay in 2010. Even distressed properties did not sell, as financing such deals remained challenging. In addition, properties with high vacancies, such as those found in the Charlotte Skyline set, are proving to be too risky for most. The beginning of 2011 saw the sale of the distressed property, Nascar Plaza. Should they be able to gain sufficient financing options, opportunistic investors may start closing more deals in 2011 as a number of distressed properties hit the market. However, until significant job growth can lead to the absorption of excess vacant space, more risk-averse buyers will remain wary.

Leasing market As the downturn has been widespread throughout the Metro area, the segment of the market included in the Skyline did not go unscathed. In fact, Skyline vacancy rates recorded during the last two years have paralleled those of the broader CBD market. At year-end 2010, overall vacancy for this segment increased by 20 basis points year-over-year, to 16.3 percent. Contributing to the total was the continued decrease in occupancy in the form of sublease offerings. Although the rate of additions tapered off toward year-end, sublease transactions have not kept pace with the abundance of options. In the coming year deal velocity will increase as the decision-making process accelerates; however, space needs should remain flat. Continuing the trend from 2010, activity will include a variety of relocations, renewals and subleases, but overall shifts in size, positive or negative, should average out. It is also highly unlikely that a new building will be kicked off in 2011, thus supply dynamics will remain constant for a few more years.

Investment market After a dismal 2009 that included but one sale, the Chicago CBD witnessed the return of liquidity in 2010. The availability of debt and equity began to trickle back into the system in the second quarter with the return of life company debt allocations, followed by the ramp-up of CMBS issuances and renewed appetite for risk. Considering how quickly and definitively the valve had been shut off since the record-breaking activity in 2006 and 2007, it was unexpected that an infusion of capital could so quickly bring the market to within earshot of the 10-year volume average of $2.6 billion. In line with national trends of pent-up capital seeking core-value assets in tier-one markets, the 2010 transactions included five buildings in the Skyline set. Moving forward, we expect to see some level of distressed asset activity. Although the CBD closed 2010 relatively unscathed, it’s reasonable to expect a missed payment in our future.

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Denver

Fort Lauderdale

How we define our market: The Skyline market for Denver is defined as the Trophy (Class AA) and Class A market. It is further defined as Class A product greater than 65,000 square feet and built or renovated on or after 1969 in the Central Business District.

How we define our market: The Skyline market for Fort Lauderdale is defined as the Trophy market, which is further defined as Class A product built or renovated after 1990 that is greater than 80,000 square feet in a centralized core Downtown Fort Lauderdale location. The key indicator for inclusion or exclusion is based on rent. The current threshold requires that buildings consistently garner rents greater than $19.00 p.s.f. NNN.
Fort Lauderdale statistics - 10 office buildings across 2,357,784 s.f.
Leasing Investment 19.2% 19.5% 64,836 s.f. $35.89 p.s.f. $28.00 p.s.f. 4 Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 3 1,104,463 s.f. 2 635,110 s.f. $301.00 p.s.f. 7.0%

Denver statistics - 43 office buildings across 20,544,561 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 14.1% 16.1% 888,880 s.f. $29.19 p.s.f. $35.00 p.s.f. 5 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 30 12,682,024 s.f. 2 731,691 s.f. $209.00 p.s.f. 6.5%

Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months)

Leasing market While lateral relocations, renewals and consolidations continued to dominate the overall market, the CBD and Skyline set gained new tenants from suburban submarkets due to rent cuts. Net absorption was positive throughout downtown, namely the Trophy market, and yearto-date numbers have swung into the positive. Within the CBD, large, contiguous blocks of space are sparse in the market and landlords are getting creative with accommodating larger tenants. As a result, rental rates remained at the bottom and leasing concessions will begin to decrease throughout 2011. 2011 will bring increased and steady economic growth and thus job growth. With the energy and technology sector starting its expansion in 2010, the professional and business services sector will soon follow, likely seeing an uptick in both employment and office space demand.

Investment market Investors continue to focus on core and net leased assets with credit tenants, which creates predictable yield. Flight to quality and scarcity of stable product has created a climate where values have not declined for core and net leased product. Investors are still hesitant to take on speculative risk and, as a result, the largest decline in value has occurred in tertiary markets for value-add and opportunistic assets. The Denver Metro area did not experience the flood of distressed asset sales that were expected and, because of this, the market is more stable and there is a premium for CBD assets, which will allow for higher rent growth. However, due to limited transaction volume, investors who are underwriting for CBD assets are influenced by a national perspective. As rents have bottomed out and start to grow, investors will be willing to give more credit for proforma rent growth. Coupled with debt, we should see an increase in investment sales with premiums associated for stable CBD assets.

Leasing market The Trophy market turned a corner in 2010 as reports of tenants competing for prime space reemerged, along with the first reports of users relocating into the CBD from suburban markets. Although assets off of Las Olas Boulevard continued to struggle to increase occupancy, assets on the Boulevard experienced a rebirth of demand that caused positive net absorption and a year-over-year reduction in vacancy. Trophy occupancy is expected to increase dramatically in mid-2011 as Franklin Templeton Investments relocates from Broward Boulevard into 300 Las Olas Place in June. The move could potentially drop vacancy on Las Olas Boulevard back to 2007 levels. Although bright spots are emerging within the market, the lack of organic job growth will cause the majority of 2011 leasing activity to come from laterally moving tenants. Over the next 12 months, landlords will continue to compete for credit-worthy tenants with generous incentive packages.

Investment market Pent-up demand restored investor appetite for core South Florida assets in 2010, refocusing institutional owners’ attention back to Fort Lauderdale’s Trophy market. Two record-setting sales increased velocity back to 2007 levels in the CBD. USAA’s record setting purchase of 350/450 Las Olas Centre ($362 per square foot) was a highly competitive sale that spawned Stiles Realty’s knee jerk reaction to place 300 Las Olas Place on the market. Franklin Templeton Investments, who signed a lease to occupy the property one year earlier, closed on the asset within 30 days for $283 per foot. Over the next 12 months, we expect sales velocity to increase as market fundamentals rebound and demand for core assets remains strong. Continued downward pressure on cap rates will remain as market fundamentals rebound and the limited buyer pool continues to compete for Trophy product.

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Los Angeles

Century City

How we define our market: Our Skyline Review of Los Angeles CBD includes buildings that meet one or more of the following criteria: built or significant renovations since 1985, highprofile location, recognized tenant profile and/or architectural significance.

How we define our market: Our skyline review of Century City includes buildings that meet one or more of the following criteria: built or significant renovations since 1985; high-profile location; recognized tenant profile; and/or architectural significance.

Los Angeles statistics - 23 office buildings across 21,205,996 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 13.9% 15.6% –450,949 s.f. $37.50 p.s.f. $45.00 p.s.f. 7 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 18 9,476,002 s.f. 1 627,334 s.f. $332.00 p.s.f. 6.0%

Century City statistics - 18 office buildings across 10,291,433 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 14.8% 15.6% –343,048 s.f. $43.77 p.s.f. $50.00 p.s.f. 7 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 1 483,986 s.f. 0 0 s.f. n/a n/a

Leasing market The Los Angeles CBD has arguably some of the most prominent Trophy asset buildings in the Western United States. Numerous high-profile legal and financial services tenants call the market home. Although the economic crisis has led to a reduction in occupancy, recent large renewals by The Gas Company, Quinn Emanuel and Ernst & Young offer strong indications that leasing fundamentals are stable. Looking forward, rents are not expected to slide further as the CBD is not overpriced relative to the suburban markets. Downtown’s ownership is also highly concentrated with the top two owners controlling over half of the Class A vacancy. Once the regional economic recovery gains additional traction, Downtown should see tenant migration to the market resume. Downtown offers great value to tenants in terms of accessibility, asset class and has an extensive amenity base.

Investment market Los Angeles has attracted a broad and deep pool of investors including REITs, institutional investors, offshore buyers, private equity funds and private investors. Well-located and substantially-leased properties received the greatest interest, whereas commodity properties in weak submarkets failed to gain much attention. Transaction volume doubled over the last 12 months as a number of large transactions occurred. Union Bank Plaza, a 627,300-square-foot Class A office building located in Downtown, sold for $208 million, or $332 per square foot, to KBS Realty Trust II. Looking forward, investors are willing to project strong growth in rental rates and leasing velocity over the next five years, despite the limited improvement seen in 2010. A couple of prominent downtown assets are likely to trade. Although ownership concentration is likely to increase, an outside landlord could enter the market and seize a well leased-up Downtown Trophy asset.

Leasing market Vacancy rates continue to escalate in the Century City submarket, having more than doubled since the peak in first quarter 2008. Downsizings and layoffs from the financial, entertainment and legal firms that make up the majority of the tenant base have adversely affected average asking rates and vacancy rates and caused the market to post negative absorption figures for nine straight quarters. With only two significant new leases in 2010, the bulk of transaction activity has been in the form of lease renewals. With Northrop Grumman recently vacating a large block of space and MGM also announcing its move to Beverly Hills in 2011, vacancy rates are expected to rise in the near future.

Investment market Investment sales in Century City have been more or less obsolete for several years in the office sector. The last major asset to trade hands was 1888 Century Park East, which Broadway Partners sold to the Blackstone Group in late 2008. The majority of recent sale transactions have been acquisitions for multi-family development to support the “live-work” environment that Century City boasts. Looking forward, investment activity will likely remain minimal as institutional owners are reluctant to give up core product in this desirable submarket.

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Miami

Coral Gables

How we define our market: The Skyline market for the CBD is defined as the core of Miami’s Trophy product comprising over three-quarter’s of the city’s premiere inventory, defined as Class A product comprising 200,000 s.f.+ in the combined Brickell/Downtown Miami sectors. The key indicator for this Trophy set has traditionally been based on rent with minimum average gross quoted rates above the $40.00 per square foot mark; however, current pricing averages for the majority of buildings have fallen below the $40.00 p.s.f. threshold.
Miami statistics - 17 office buildings across 8,444,626 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 21.5% 23.1% 268,251 s.f. $42.07 p.s.f. $36.00 p.s.f. 10 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 26 11,150,258 s.f. 1 600,959 s.f. $176.00 p.s.f. 5.8%

How we define our market: The Skyline market for Coral Gables is generally defined as Class A product at or greater than 150,000 square feet in the centralized urban core of this Suburban sector. The key indicator for inclusion or exclusion in this Trophy set is based on garnering the highest competitive rents. Average rates prior to the recession were at the $40.00 per square foot level; however, pricing has fallen below the $40.00 per square foot mark.
Coral Gables statistics - 12 office buildings across 2,224,868 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 12.6% 16.9% 92,561 s.f. $35.60 p.s.f. $36.00 p.s.f. 10 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 21 3,968,550 s.f. 0 0 s.f. n/a n/a

Leasing market Corresponding to weak economic fundamentals and oversupply, the combined asking rates were down from 2008 levels by $3.50 per square foot, driven in large part by the new product delivered this year. Now that occupancy has increased at these two assets, look to a pulling back of concessions; that is, rent abatement and excessive tenant improvement allowances and an effort to achieve base year rental rates closer to $40.00 per square foot within the new buildings as well as the top-tier Class A existing buildings. Overall pricing stabilization, however, is not yet in the picture given the sheer volume of vacancy in the new buildings and existing buildings that donated tenants to the new assets as well as that anticipated from the two buildings under construction, neither of which has any pre-leasing to date.

Investment market Completed CBD trades of Class A product or those assets of institutional interest have declined annually since 2007. Although 2008 witnessed record per square foot pricing – near $350 per square foot – transaction volume declined 23.0 percent with the number of properties sold reduced by half. The combination of weak employment fundamentals and lock down of the credit markets translated into no institutional sales in 2009 and only one trade in 2010. Signaling a change in the investment environment, Miami Tower, a 600,959-square-foot iconic office tower, was purchased by LaSalle Investment Management in December 2010 for $105 million. At 79.0 percent occupancy, the trade reflected pricing of $175 per square foot with an in-place cap rate near 6.0 percent.

Leasing market This urban core represents a high-profile location that attracts a recognized tenant roster. As such, larger credit users consider Coral Gables while also touring the CBD. Although not as competitive as searches between the Brickell and Downtown buildings in the CBD, it has become more so in today’s environment where the tenant holds the advantage. Firms have been able to increase their leverage due to the favorable pricing offered at the newly delivered CBD buildings. By year-end, both the Gables and the CBD were on par in terms of seeing the largest tours (20,000 square feet or greater) with approximately of 400,000 square feet touring in each location.

Investment market While the number of selected institutional grade assets trading from 2005 to 2008 remained relatively consistent, average pricing increased substantially. Like its CBD counterpart, investment sales within the Coral Gables market was hindered by the lack of available financing and waning office demand factors— resulting in only one trade in 2009 and no transactions in 2010.

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New York City

Philadelphia

How we define our market: New York City’s Skyline Review analyzes the premier buildings in Midtown and Downtown Manhattan—those buildings that truly move the market.

How we define our market: Philadelphia’s Skyline Review analyzes 53 premier buildings greater than 100,000 square feet or towering more than 15 stories in Philadelphia’s CBD. Over two-thirds of the buildings analyzed are located in the city’s primary financial and business hub, Market Street West. The remaining buildings are located in Market Street East and University City.
Philadelphia statistics - 53 office buildings across 32,383,972 s.f.
Leasing Investment 10.7% 12.0% 534,192 s.f. $26.41 p.s.f. $45.00 p.s.f. 10 Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 33 21,332,097 s.f. 3 2,925,542 s.f. $170.40 p.s.f. n/a

New York City statistics - 67 office buildings across 81,415,840 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 8.0% 10.5% 1,107,515 s.f. $68.09 p.s.f. $62.86 p.s.f. 5.9 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 67 52,028,339 s.f. 6 4,789,908 s.f. $668.00 p.s.f. 5.24%

Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months)

Leasing market Although the worst of the downturn has passed, steady employment growth remains elusive. Although there have been some recent job gains in New York City, they are mostly in nonofficeusing industries. Activity has certainly increased as a result of renewals and relocations and absorption levels are positive, but sustained improvement and recovery are dependent on new demand. The most recent job forecasts are pointing toward modest gains in mid-to-late-2011. Manhattan’s Trophy properties, which tend to be a leading indicator of the broader market, recorded declines in vacancy over the last several months. In Midtown, the Trophy vacancy rate dropped to 10.5 percent in November, from 13.1 percent at the close of 2009.

Investment market Real estate capital markets have changed dramatically in the last year as the doldrums of 2009 have given way to renewed optimism and improvement in many sectors of the economy. The resilient local economy, low cost of money and improving office market fundamentals have contributed to the resurgence of the New York City investment sales market. With low-risk investments barely keeping pace with inflation, investors are lining up to invest in New York City real estate. The velocity of recovery in New York City outpaces the global and U.S. markets. The $12.1 billion in New York City transactions represent a 245.7 percent increase over the $3.5 billion in 2009.

Leasing market Total vacancy as of year-end 2010 for Philadelphia’s Skyline was 12.0 percent, which is 150 basis points higher than the five-year average vacancy of 10.5 percent. There is no doubt that the economic downturn affected occupancy, but a constriction on new supply helped to soften the blow. In terms of leasing activity, renewals were the most popular form of transaction in 2010. Large renewals in the latter half of 2010 included law firm Cozen O’Connor’s five-year extension for 171,000 square feet at 1900 Market Street and the Children’s Hospital of Philadelphia extension for 226,000 square feet at 3535 Market Street. 2011 is expected to be a transition year marked by slow, sustainable growth. Sublet space in Trophy buildings will be absorbed and large, contiguous blocks of desirable space will start to dwindle.

Investment market Brandywine Realty Trust was the only active buyer of Skyline assets in 2010. In the latter half of 2010, they purchased Trophy building 1717 Arch, now known as Three Logan, from The Blackstone Group for $129 million. Following that acquisition, Brandywine invested $25 million of preferred equity for a 25.0 percent stake in One and Two Commerce Square. Landlord, Thomas Properties Group, maintains control of the buildings with Brandywine acting as a minority partner. Investment sales activity is expected to pick up in 2011 as buildings with maturing debt will likely recapitalize or sell. Additionally, the period of “extend and pretend” appears to be coming to a close as there has been increased momentum toward working out troubled debt situations.

22 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 23

Stamford

San Diego

How we define our market: The Skyline market for Stamford is defined as the Trophy market, which is further defined as Class A product greater than 60,000 square feet located in the greater Stamford office market, spanning four submarkets. The key indicator for inclusion or exclusion is based on rent. The current threshold requires that buildings consistently garner rents greater than $35.00 p.s.f. gross.
Stamford statistics - 37 office buildings across 9,348,054 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 21.6% 25.4% 405,768 s.f. $44.08 p.s.f. $28.68 p.s.f. 3.2 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 14 3,766,745 s.f. 1 581,766 s.f. n/a n/a

How we define our market: The Skyline market for San Diego is defined as the top 20 highrise office projects located within the CBD. These properties are further defined as Class A and B and at least 140,000 square feet. When grouping by class, the building set share similar amenities, parking availability/cost, rental rates and common areas.

San Diego statistics - 20 office buildings across 7,415,490 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 17.1% 17.6% –51,979 s.f. $27.96 p.s.f. $27.00 p.s.f. 3 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 17 6,058,180 s.f. 0 0 s.f. n/a n/a

Leasing market Leasing activity in Stamford totaled more than 275,000 square feet for the fourth quarter. The largest lease executed during the fourth quarter was Frontier’s one-year extension at 3 High Ridge Road in the Stamford North/Merritt Parkway submarket for 78,929 square feet. The largest new lease was signed by Louis Dreyfus Highbridge Energy at 2 Harbor Point Square for 66,012 square feet in the Stamford South/I-95 submarket. We expect the CBD/Railroad submarket will tighten further during the short term, helping to maintain the recent uptick in asking rents in the highest quality buildings and compression in the vacancy rate. With the repositioning of the Financial Centre, however, expected to be completed by the close of 2011, there will likely be upward pressure on vacancy rates and some flattening in asking rents during the first half of 2012. Overall, we expect all submarkets to regain real momentum during the first half of 2011, particularly after office-using employment begins to increase, fueling an increase in leasing activity.

Investment market The Stamford office investment market is still in the early stages of recovery. The market is historically a low-volume environment, but during the run-up to the recession sales volume spiked to more than two times average volume between 2002 and 2007. BLT – owner of four Trophy properties – recently took ownership of two other Stamford buildings, indicating a renewed confidence in the direction of the office market. Even with more liquidity in the system, both lenders and investors alike are cautious – particularly as delinquencies and upcoming maturities continue to threaten the CMBS market. The year’s most significant restructuring was that of 695 E. Main Street – Financial Centre, foreclosed upon in March and taken over by Lehman Brothers. With no other buildings at risk in terms of loan maturities coupled with recovery on the leasing side, the Stamford office investment market is well positioned for a rebound during 2011 to sales volume levels between $100 and $200 million.

Leasing market Total vacancy in the Skyline inventory is 17.6 percent. Vacancy ended the year 70 basis points higher than the fourth quarter of 2009 after 52,000 square feet of negative net absorption. This was due to contraction and consolidation among law and financial services firms, although balanced somewhat by occupancy gains seen from government and education tenants. The 12-month outlook for downtown is dependent solely on deals signed in coming quarters, as very few leases for new or expansion space signed in 2010 will commence in 2011. With large blocks of space available – varying from ultra-high-end law firm space to basic commodity space – opportunities abound, but the pool of tenants in the market is small. The government and education sectors are forecasted to continue expansion within Downtown. This will help reverse occupancy losses but will not put significant upward pressure on rents for at least 12 to 18 months.

Investment market The investment market in downtown San Diego continued its three-year malaise in 2010. No relevant institutional sales have occurred since 2008 when Wereldhave purchased DiamondView Tower for $161 million, or $524 per square foot. Much of the slowdown of sales activity can be attributed not only to the general economic decline and diminishing values of properties, but also to the concentration of ownership by a single investor, The Irvine Company. The Irvine Company owns six buildings containing 2.8 million square feet within the Skyline, translating into nearly 40.0 percent of the inventory. In late 2010, two properties came to market: Hines Interest’s 525 B Street and RREEF’s Emerald Plaza. Each asset is soliciting offers now and is appealing to a broad pool of domestic and international investors. Increased vacancies, state control over redevelopment funds, a potential new Charger football stadium, a new homeless shelter and absorption of existing condominium supply will likely cool institutional investment activity in the near future.

24 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 25

San Francisco

Washington, DC

How we define our market: Our Skyline Review of San Francisco includes buildings that meet one or more of the following criteria: built or significant renovations since 1985; high-profile location, recognized tenant profile and/or architectural significance.

How we define our market: The Skyline market for Washington, DC is defined as the Trophy market, which is further defined as top-tier Class A product that is greater than 100,000 square feet in a centralized core DC location. The key indicator for inclusion or exclusion is based on rent levels. The current threshold requires that buildings consistently garner rents greater than $42.75 p.s.f. NNN.
Washington, DC statistics - 38 office buildings across 12,409,926 s.f.
Leasing Investment 8.9% 10.6% 325,750 s.f. $70.64 p.s.f. $80.00 p.s.f. 8 Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 16 4,887,250 s.f. 4 1,206,866 s.f. $830.00 p.s.f. 5.7%

San Francisco statistics - 49 office buildings across 26,780,334 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 12.6% 15.0% –433,664 s.f. $43.63 p.s.f. $45.00 p.s.f. 4 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 37 22,171,473 s.f. 3 1,884,766 s.f. $422.00 p.s.f. 5.7%

Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months)

Leasing market As the next growth cycle begins in earnest, the performance of Skyline buildings is taking on a leadership position. During the downturn, rents held firmer and were the first to rise during the second half of 2010. At 15.0 percent overall vacancy versus 17.1 percent citywide, it’s clear that the city’s top performing buildings maintained proven track records. Although vacancies did rise in these buildings, landlords felt comfortable enough with their strong tenancies to avoid the level of discounting experienced market-wide. With less ground to regain, the Skyline buildings are well positioned for recovery as the market gains further momentum. The outlook moving into 2011 is promising, as tenants are confident that business is back on track and ready for new growth.

Investment market Investment sales have staged a comeback after values plummeted and froze the transaction market in 2008 and 2009. While only three Skyline buildings traded in 2010, values have increased substantially and are now only 20.0 percent off peak levels established in 2007 versus nearly 50.0 percent in late 2008. Heightened tenant leasing activity and technology sector driven growth spurred future prospects just as capital availability thawed. By the end of 2010, improvement accelerated and competition for limited product pushed values higher and cap rates lower. While leasing fundamentals have plenty improvement ahead, the next two years promise to bring a new vitality and higher values to the market.

Leasing market Leasing activity gained velocity in 2010 and remains on track to pick up additional momentum in 2011. Rapid expansion of the federal government helped fuel tenant demand across multiple private sector industries, particularly among government affairs groups and contractors. The window of opportunity for large tenants began to close, as many of the biggest blocks of space received lease commitments. A brief pause in speculative construction shifted negotiating leverage into owners’ hands and developers are now positioning themselves to break ground on new speculative construction projects. Occupancy gains will persist in 2011 as law firms resume hiring and government affairs groups continue to grow their presence. Tenants’ willingness to pay a premium for views, location and amenities will continue to drive prices and leasing activity in the market, with net effective rent growth forecasted to reach double digits over the next two years as conditions tighten.

Investment market Investor appetite for high-quality, core product in Washington, DC surpassed pre-recession levels in 2010. Driven by the safety and desirability of quality assets in the nation’s capital, sales volume of Trophy assets topped $900 million for the year, the highest quantity ever for the city. Of the seven deals in DC history to surpass $800 per square foot, three occurred in 2010. The purchase of 1225 Connecticut Avenue, NW in December 2010 for $216 million highlighted recent sales activity, as it became the first building in DC to ever eclipse the $900 per-square-foot mark. The number of off-market transactions increased dramatically in 2010, accounting for more than one-third of all sales volume for the year. The supply-constrained nature of the DC market and the height restrictions on buildings, which serve to provide overall deal sizes well below other major gateway cities, should continue to draw investor interest to DC over the long term.

26 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 27

Seattle

Bellevue

How we define our market: The Seattle Skyline market is defined as those assets that have a significant impact due to their size, quality of space or iconic status. Averaging over 800,000 square feet, all buildings included offer Class A space and are situated in the most prominent, highly desired locations. Among the key indicators for inclusion or exclusion in this set are rent levels and/or value levels. The current threshold requires that buildings consistently garner rents greater than $25.00 p.s.f. full service.
Seattle statistics - 15 office buildings across 12,353,523 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 23.5% 25.1% 226,637 s.f. $33.28 p.s.f. $65.00 p.s.f. 10 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 6 5,529,503 s.f. 0 0 s.f. n/a n/a

How we define our market: The Bellevue Skyline market is defined as assets that have a significant impact due to their size, quality of space or iconic status. Averaging over 340,000 square feet, all buildings included offer Class A space and are situated in the most prominent, highly desired locations. The key indicator for inclusion or exclusion is rent level. The current threshold requires that buildings consistently garner rents greater than $25.00 p.s.f. full service.
Bellevue statistics - 12 office buildings across 5,164,766 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 10.2% 10.8% –61,707 s.f. $34.83 p.s.f. $35.00 p.s.f. 10 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 9 4,224,766 s.f. 2 1,331,179 s.f. $541.00 p.s.f. 6.3%

Leasing market After suffering through a rental rate decline of close to 20.0 percent from the third quarter of 2008 through the end of 2009, while at the same time suffering from a rise in overall vacancy from below 12.0 percent to over 27.0 percent (largely due to the delivery of two new buildings), the Seattle leasing market has stabilized. Vacancy is now declining and rental rates have come off their lows set in early 2010 and are expected to rise further in 2011. Concessions are also becoming less prevalent and tenant improvement allowances are declining from allowances as high as $100 per square foot at the peak of the downturn in new buildings that had yet to stabilize. Furthermore, fewer buildings are under construction than at any time since 2005 with only four buildings totaling 987,000 square feet currently being built in the entire Seattle market, none of which is Class A high-rise space. This pause in new deliveries should allow the market to recover more quickly than would otherwise be the case.

Investment market None of the Skyline buildings traded over the last 12 months. However, the Seattle market in general, and Skyline properties in particular, represents the type of properties that are targets of market participants. Based on information from Skyline sales that took place in the Bellevue market across Lake Washington from Seattle, investors remain reluctant to purchase anything other than top quality, well-leased assets in premier locations. This has led to a premium to be placed on Skyline type assets, with initial returns that are nearing the levels set at the peak of the market. It is safe to say that any of the Skyline buildings would command significant interest if marketed today, likely selling at cap rates in the 6.0 percent to 6.7 percent range.

Leasing market During the downturn that began in the third quarter of 2008, the Bellevue market has outperformed the Seattle market, despite two 2009 deliveries that increased inventory in this segment by 35.0 percent. Although still declining on an annual basis, the Bellevue Skyline rental market bottomed out on a quarterly basis in the third quarter of 2010, following a vacancy rate bottom in the second quarter of 2010. To date in 2011, vacancy is continuing to decline, while rental rates continue to rise; however, concessions remain prevalent and tenant improvement allowances have actually climbed from 2009 levels as landlords have sought to fill vacant space. A pause in new deliveries should allow the market to recover over the next 12 to 15 months. Overall it is expected that the Bellevue market will tighten more quickly than the Seattle market because the Bellevue market is not only smaller with less available space, but also has higher levels of absorption.

Investment market Two of the Skyline buildings traded over the last 12 months, surprising many market watchers, with aggressive pricing. Both assets were occupied by Microsoft and sold at cap rates in the mid-6.0 percent range at prices per square foot of $530 to $550 per square foot. The Bellevue market in general, and Skyline properties in particular, represents the type of properties that are targets of market participants. Based on information of the above noted Skyline sales, investors remain reluctant to purchase anything other than top quality, well-leased assets in premier locations. This has lead to a premium to be placed on Skyline type assets, with initial returns that are nearing the levels set at the peak of the market. It is safe to say that any of the Skyline buildings would command significant interest if marketed today, likely selling at Cap rates in the 6.0 percent to 6.7 percent range.

28 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 29

Montréal

Toronto

How we define our market: The Skyline market for Montréal is defined by the Class A and AAA product located in the downtown core. The size threshold for Skyline buildings is 200,000 square feet or greater with average asking net rents of $20.00 per square foot and greater.

How we define our market: The Skyline market for Toronto is defined as the Trophy market, which is further defined as Class A or AAA bank tower space. The key indicator for inclusion or exclusion in this Trophy set is based on rent. The current threshold requires that buildings consistently garner rents greater than $25.00 per square foot net.

Montréal statistics - 16 office buildings across 9,184,293 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 9.6% 11.3% 63,959 s.f. $43.69 p.s.f. $25.00 p.s.f. 0 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 3 2,086,468 s.f. 0 0 s.f. n/a n/a

Toronto statistics - 17 office buildings across 17,024,813 s.f.
Leasing Direct vacancy rate Total vacancy rate 2010 net absorption Average asking rent Average TI allowance Average free rent (months) 11.5% 12.7% 994,732 s.f. $62.13 p.s.f. $28.00 p.s.f. 6 Investment Number of Skyline transactions (2005–2010) S.f. of buildings sold (2005–2010) Number of Skyline transactions (2010) S.f. of buildings sold (2010) Average $ p.s.f. (2010) Average cap rate (2010) 1 1,196,240 s.f. 0 0 s.f. n/a n/a

Leasing market Montréal’s core office market faired well during the recession. Since the onset of the recovery, the market has been characterized by aggressive landlords attracting tenants from the downtown fringe to newer and more prestigious buildings in the core. As a result, large blocks of both direct and sublet space have evaporated. Much of the demand for space has been fueled by the upswing in Québec’s economy. The fourth quarter saw balanced market conditions emerge with rates increasing slightly. The trends seen in 2010 are expected to persist through this year. Québec’s economy is expected to continue to grow with another 25,000 new jobs to be created. Demand will increase and, with no new supply expected in the short term, asking rates will continue to move up on the back of a landlord’s market. The outlook for 2011 looks bullish from the landlord perspective, with some caution applied to just how much net rents will increase over the next 12 months.

Investment market Unlike the other major markets across the country, Montréal has had little appetite for new office product. The last Class A or AAA office tower built was E-Commerce Place II, completed in 2004 with the funding for the project coming from the public sector. While much talk through 2010 surrounded the possibility of a new tower being built, market fundamentals have not tightened to a point that make a new development profitable. With new development seeming like a pipedream, quality assets have been the target of many institutional owners over the last decade. As a result, smaller landlords who are struggling with maturing debt have large pension funds waiting to capitalize, furthering the consolidation of ownership among five to six landlords. Look for this trend to continue through 2011.

Leasing market After a strong second half of 2010, Toronto’s overall and Downtown leasing markets will continue to see strong leasing in the first quarter of 2011. With two to three large firms still on the street, diminishing large block availabilities, coupled with an emerging landlord’s market, will drive occupancy costs higher in the Trophy market asset class through 2011. Limited opportunity for new construction will push vacancy down forcing tenants to look at new construction options or face a move to the fringe or suburbs. The effect of the Pan-American Games will become a serious consideration for construction and leasing demand over the next four years.

Investment market Thanks in large part to five institutional landlords controlling nearly 80.0 percent of Toronto’s Financial Core inventory, the last 12 months have seen extremely low vacancy and higher occupancy costs, limiting exposure within their portfolios leading to easier access to credit. As a result, the next two to four quarters will see firms like the Oxford Properties Group look to markets like New York, Washington and London to either develop or purchase debt of depressed assets it would like to own. Although debt may not guarantee ownership, the likelihood of default removes bidding wars. The relative strength and stability of the CRE market in Canada will continue to encourage Canadianbased funds to look abroad through 2011 and into 2012.

30 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 31

Rankings: Total vacancy rate
Atlanta Stamford Seattle Miami Baltimore Fort Lauderdale San Diego Coral Gables Chicago Boston Denver Charlotte Century City Los Angeles San Francisco Toronto Philadelphia
Montréal

Bellevue Washington, DC NYC

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Total vacancy rates (includes sublease)

32 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 33

Rankings: 2010 total net absorption
Charlotte NYC Toronto Denver Atlanta Philadelphia Boston Stamford Washington, DC Miami Seattle Baltimore Coral Gables Fort Lauderdale Montréal San Diego Bellevue Chicago Century City San Francisco Los Angeles
-800 -400 0 400 800 1200 1600
Square feet in thousands (includes sublease)

Rankings: Average asking rents
Washington, DC NYC Toronto Boston Stamford Century City

Montréal
San Francisco Miami Los Angeles Fort Lauderdale Coral Gables Chicago Bellevue Seattle Denver San Diego Philadelphia Charlotte Atlanta Baltimore

0

$10

$20

$30

$40

$50

$60

$70

$80

$/Square foot gross (all values are displayed in U.S. dollars)

34 Jones Lang LaSalle • North America Skyline Review • Winter 2011

Jones Lang LaSalle • North America Skyline Review • Winter 2011 35

Rankings: 12-month asking rent change
San Francisco Seattle Washington, DC Montréal Toronto Fort Lauderdale Denver Philadelphia NYC Los Angeles Chicago Miami Bellevue Atlanta Century City Baltimore Coral Gables Boston San Diego Charlotte Stamford
-12.0% -8.0% -4.0% 0.0%
Percent change

4.0%

8.0%

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Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader

in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $41 billion of assets under management. For further information, please visit our website, www. joneslanglasalle.com.

©2011 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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