NATIONAL



|PREVIOUS QUARTER |CHANGE |

| |Asking Rent (PSF) |

|  | |

|National |$25.70 |+ |

|Northeast |$32.87 |+ |

|South |$23.83 |+ |

|West |$27.58 |+ |

|Midwest |$18.59 |+ |

|  |Vacancy Rate |

|National |11.1% |+ |

|Northeast |9.9% |- |

|South |11.5% |+ |

|West |10.1% |+ |

|Midwest |13.0% |- |

|  |Net Absorption (MSF) |

|National |18.6% |- |

|Northeast |3.9% |- |

|South |6.0% |- |

|West |5.1% |- |

|Midwest |3.7% |- |

|  | |

|National |23.5 |- |

|Northeast |3.4 |+ |

|South |8.9 |- |

|West |8.9 |+ |

|Midwest |2.3 |- |

OFFICE

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INDUSTRIAL

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Commercial real estate industry analysis provided exclusively for Coldwell Banker Commercial® by Boxwood Means, Inc.

Coldwell Banker Commercial

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Midwest Office

Vacancy

Coldwell Banker Commercial

Rents

Viewpoint

Investment

Office Market Review

Vacancy

Rents

Investment

Rents

©2007 Coldwell Banker Real Estate Corporation. Coldwell Banker Commercial® Is A Registered Trademark Licensed To Coldwell Banker Real Estate Corporation. An Equal Opportunity Company. Each Office Is Independently Owned And Operated.

Including a 10-point decrease in the vacancy during the latest quarter, the 40-basis-point decline achieved year-over-year in the Northeast is the nation’s best performance. The current 9.9% vacancy stands as the nation’s lowest. Again, New York’s exceedingly low rate skews the regional number to some extent: six of the nine Northeastern markets see rates above the regional average. Five, meanwhile, enjoyed year-over-year declines. With the exception of a 160-basis point increase in Providence, the gains were small.

Northeast Office

Retail

Real Capital Analytics (RCA) reports total Midwest office investment sales volume 2007 at $13.47 billion for the first nine months, with 70.0% of the activity tied to the Chicago area market.

As in many areas, activity in the Midwest was elevated by Blackstone Group’s recent acquisition of the massive, $39 billion Equity Office Properties (EOP) portfolio and subsequent related sales, as referenced below. Now, with the nationwide tightening of credit, declining sales volume can be expected for the coming term.

NATIONAL OFFICE OVERVIEW

• Demand fell below new supply in third quarter. Overall trends feature a mismatch between increasing construction and weakening demand.

• Vacancy has held steady for the last two quarters. Rent growth, supported by high investment prices and other factors, has remained strong.

• While investment volumes remain high year over year, activity slowed markedly during third quarter as a result of changes in capital markets.

This newsletter is provided for informational purposes only and is not intended nor should it be deemed to provide legal, tax, financial or investment advice or guidance. You are urged to contact your own professional for specific guidance. Analysis and forecasts provided exclusively for Coldwell Banker Commercial® by Boxwood Means, Inc. based on data provided by CoStar Group Inc. The views, opinions and statements set forth in this newsletter do not necessarily reflect those of Coldwell Banker Real Estate Corporation.

CONSTRUCTION DELIVERIES (MSF)

Rents

Vacancy

Investment

South Office

Vacancy

Slow rent growth is a chief characteristic of the Midwestern marketplace. The 1.3% increase in the asking lease rates achieved during third quarter tied the region with the South for the period’s smallest growth rate. And the 1.6% increase recorded year over year put the region in a distant last place over the longer term. Moreover, the 5.3% loss recorded over two years, puts the region in a class by itself.

The U.S. average, by way of contrast (including the Midwestern decline) increased 10.9% over the last 24 months. Six Midwestern markets now have average rents lower than in third quarter 2006. Five lost ground during third quarter.

• New construction continues to ramp up; absorption continues to fall short. Houston is the current stand-out with respect to demand. Metro Washington DC is experiencing the most new construction projects.

• Regional vacancy remained unchanged during third quarter. Some markets, including Houston and Raleigh-Durham, have recorded marked decreases, however.

• Led by Northern Virginia, the greater Washington-Baltimore area maintains its lead in investment sales volume. The crackdown on credit, however, is altering patterns everywhere.

• .

South Office

West Office

NET ABSORBTION (MSF)

asking rents (psf)

Vacancy Rate

Supply and Demand

• Vacancy in New York City, lowest in the U.S., is 5.3%, down 10 bps from a quarter earlier, down 120 year over year and down 200 since third quarter 2005.

• Philadelphia, the leader in six-month absorption as noted, claims a third-quarter rate of 12.6%, down 30 bps for the quarter. Only Pittsburgh’s 14.2% stands higher.

• Vacancy at 10.9% is indicated for Boston as the recovery there continues. Rates of 11.1% and 11.2% are indicated for the previous quarter and third quarter 2006 amid modest volumes of new supply.

• The 9.0 million square feet under construction in New York, down from 10.5 million a quarter earlier, remain unparalleled in the region. Delivery of 1.6 million square feet during six months, including third quarter’s 1.5 million, were easily offset by occupancy gains of 2.6 million.

• Boston and Philadelphia follow with respective under-construction volume of 4.4 million and 4.2 million square feet, the former up 16.9% from a year earlier, the latter down 12.6%. Philly’s 3.0 million square foot six-month net absorption total was the region’s best. Boston was solid with 1.1 million.

• New York’s peripheral markets—Long Island, Westchester County and Northern New Jersey—claim a combined under-construction total of 5.8 million square feet.

Slow economic growth coupled with land and cost issues makes for a perennially low profile for office development in the markets of the Northeast, with the occasional exception—New York’s replacement of World Trade Center office space, for example. Indeed, the New York market, which comprises more than a quarter of the region’s stock of existing inventory and accounts for nearly 40% of current construction, bears a dominant influence on the region’s statistical portrait.

Region-wide, meanwhile, 24.1 million square feet were under construction at the close of third quarter according to CoStar Group, down 5.6% from a quarter earlier and also 5.1% lower year over year. Net absorption, moreover, is running comfortably ahead of same-term new supply. The 5.8 million square feet delivered over the last six months coincided favorably with the 9.6 million square feet absorbed net. In this respect, New York, Philadelphia and, to a lesser extent Boston, were the star performers.

Supply and Demand

Led by Manhattan, investment sales volume in the Northeast proper (excluding Pittsburgh and Philadelphia) is reported by Real Capital Analytics (RCA) at $45.69 billion so far this year, a whopping 207% increase over the last 12 months.

At 6.1%, the average cap rate, driven downward by low rates in Manhattan, was lowest among all U.S. regions. Under the same influence, the Northeast’s $448 psf average selling price was the national high. Philly and Pittsburgh, with a combined total of $880 million in sales year-to-date, represent a year-on-year decline in volume for each city. Cap rates in these markets are considerably higher

• With $32.63 billion changing hands across 155 transactions, Manhattan accounted for 70.1% of regional dollar sales volume (including sales in the two Pennsylvania markets). Its 5.0% average cap rate was the regional low (and second in the U.S. after Austin’s 4.8%). The Big Apple’s average sales price of $691 psf was easily the national high.

• Boston and Stamford followed with $4.67 billion and $3.06 billion in sales. Respective average deal prices were $213 and $262 psf. Cap rates were 6.2% in both markets.

• Major recent deals include Somerset Partners $510.0 million ($1,527 psf) acquisition of the 334,000 square foot 450 Park Avenue building in Midtown Manhattan. The New York State Teachers Common Retirement Fund-Taconic Investment Partners joint venture was the seller.

• At $57.91 psf, New York City’s overall average lease rate was up 3.6% and 22.0% from a quarter and year earlier.

• Next- best year-on-year growth rates, 4.6% and 4.3%, are indicated for Philadelphia and Long Island. Gains for the latest quarter were 0.9% and 0.1%. Respective rents are $22.02 and $26.71 psf.

• While Providence enjoyed the region’s best third quarter increase at 5.3%, its $18.49 psf average remained 2.5% below the rate achieved a year earlier.

High average occupancy and the favorable excesses of demand over same-term new supply serve to fortify rent growth. The regional rent increases of 2.0% and 10.7% recorded during the latest quarter and year over year were overshadowed only by the performance of the Western markets.

The $32.74 psf regional asking rent, meanwhile, had no match nationwide. Like others, though, these numbers are skewed upward significantly by New York’s growth rates and rent levels (see below). If New York is excluded, rent growth for the Northeast as a whole falls dramatically. New York aside, only two of the eight remaining markets enjoyed third quarter growth rates above 1.0%.

Rent growth has slowed but remains significant. The 1.3% increase in asking rents for third quarter, a tie with the Midwest for the smallest gain, compares tellingly with the region’s 6.9% increase year over year.

The overall average stands at $23.59 psf. Only a small handful of constituent markets experienced changes, one way or another, greater than 2.0% during the quarter. Four, led by Austin, have enjoyed double-digit year-over-year increases.

• Austin and Miami posted the quarter’s best rent growth with respective increases of 3.5% and 3.3%, thereby lifting rents to $26.49 and $29.27 psf. Austin’s robust 19.5% growth over 12 months out-performed all others in the region.

• Other strong year-over-year performers were Southwest Florida (14.3%), Houston (13.4%) and Tampa Bay (10.5%). Respective quarter-end averages were $20.72, $21.43 and $21.27 psf.

• Metro Washington DC’s $33.97 psf average, up 1.6% for the quarter, marks the regional high. The three markets of South Florida follow with a combined average of $28.08 psf, up 1.7%.

While activity remained strong through the first nine months of the year, the credit crunch will affect the dynamics of investment here as elsewhere in the U.S.

Real Capital Analytics (RCA) reports for its Southeast region (which excludes the markets of Texas and greater Washington DC) that total sales volume of $12.19 billion year to date. Led by Northern Virginia, sales in greater Washington-Baltimore approached $17.74 billion. Sales in Texas, led by the healthy Austin market with its robust rent growth, reached $7.85 billion.

On the other hand, RCA notes that Miami is the country’s largest metro area experiencing a market correction with diminishing sales volume and a rollback in prices.

• Metro Washington DC has been a hotbed of activity. Northern Virginia led the region in nine-month sales volume at $10.24 billion. The District of Columbia followed with $5.23 billion. The latter’s $537 psf average sales price was highest in the region.

• With $2.72 billion in sales, Austin registered the nation’s lowest average cap rate at 4.8%. Its average sales price was $222 psf.

• Major recent transactions include Prudential Real Estate Investors’ $280.5 million ($407 psf) acquisition from Boston Properties of the 688,493 square foot Democracy Center in Bethesda, MD (suburban Washington DC).

Construction activity in this huge region is increasing in leaps and bounds, raising the anxiety level regarding potential oversupply in a number of markets. According to CoStar Group, 86.8 million square feet were under construction throughout the South at the close of third quarter, a 10.2% (8.0 million square foot) increase for the period, and a 26.7% (18.3 million square foot) increase year over year.

The 15.5 million square feet of net absorption recorded over the past six months fell well short of the 23.0 million of newly delivered construction. At just under 6.0 million square feet, net absorption for the latest quarter amounted to just two-thirds of space completed. While outright negative net absorption is a rarity among constituent markets, demand in many is not keeping up.

• Houston is an exception. Rapid growth in the energy sector drove the market to a six-month net absorption total of 4.4 million square feet. Developers are responding: 5.4 million square feet are under construction, a 64.7% increase year over year.

• Atlanta delivered 2.7 million square feet over the past half year; 2.1 million were absorbed net. Construction, however, has increased to 6.4 million square feet. Under-construction volumes have risen to 15.9 million, and 7.1 million square feet in Washington DC and Dallas-Fort Worth. With its elevated vacancy (see below), new supply in Dallas is a source of concern.

• Negative net absorption is reported for a number of markets in Florida, with Palm Beach County hardest hit over six months. Meanwhile, nearly 10.0 million square feet are under construction in South Florida; demand has not been keeping up with space delivered.

• With a 220-bps decline to 11.6%, the energy-driven Houston market enjoyed the South’s best year-over-year vacancy improvement. The rate dropped 50 basis points in the last quarter alone. San Antonio also lost 50 bps during the latest quarter, falling to 12.2%.

• Raleigh-Durham staged the quarter’s best performance, dropping 110 bps to end the period at 12.2%. Nashville and Charlotte have shed 150 and 190 bps, respectively, since third quarter 2006 as their rates fell under 10%.

• Vacancy in Dallas remains elevated at 17.2%, unchanged from a quarter earlier, though down 10 bps over 12 months. The long-sluggish Atlanta market shows improvement with a 20-bps decrease to 13.9% during third quarter.

At 11.5%, unchanged since mid-year but up from 11.2% a year ago, the South has the second-highest regional vacancy rate after the Midwest. Given current dynamics of supply and demand, additional increases do not seem unlikely.

Ten of the region’s 22 markets saw their rates rise during the quarter; 13 are up year over year. The markets of Florida, grappling with an economic downturn more pronounced than in many other areas, claimed the top five spots for year-over year vacancy increase. (Miami tied with Washington DC for fifth place).

As seen throughout the nation, net absorption decreased markedly in the West during the latest quarter: the 5.05 million square feet achieved during the period according to CoStar Group were down from 8.1 million the quarter preceding. This volume of demand was exceeded substantially by the 8.9 million square feet of new office developments that entered the market during the period.

Performances, however, vary greatly throughout the region. In some markets, demand ran well ahead of completions while others saw the reverse. And two of the region’s major markets—Orange County and San Jose—suffered occupancy losses. Meanwhile, nearby markets—San Diego and San Francisco—recorded strong performances. Approximately 54.6 million square feet were under construction region-wide at quarter’s end, down 3.9% from second quarter yet still up 13.2% year over year.

• Blame the credit crunch. The greatest disparity between new supply and demand—1.8 million and negative 95,000 square feet—is recorded for Orange County amid ongoing contraction in the mortgage-related tenant base. Moreover, the county led the region in third quarter completions; 2.5 million square feet are still underway.

• Thank Boeing and Microsoft. At 2.0 million square feet, Seattle led the region in six-month net absorption. There are 6.1 million square feet of new projects underway at quarter’s end.

• Phoenix leads in construction with 8.9 million square feet in the pipeline and 3.4 million delivered over the past six months. Occupancy gains for the period trailed at 1.5 million, giving rise to concerns with respect to oversupply.

• Ongoing improvement in the revived San Francisco market produced a quarter-end vacancy rate of 10.0%, down 40 bps. The metro’s 210 basis point decline in vacancy year-over-year is the region’s best performance. It led over two years as well with a 430-point decline.

• Eager development has run into an unexpected economic downturn in the Inland Empire. Third quarter vacancy was 10.4%, up 140 bps, and 230 bps higher since the beginning of the year. Seattle’s thriving demand and robust economy, meanwhile, supported a 40-bps decline to 8.8% during the quarter.

• Vacancy is lowest in Los Angeles at 7.5%. Despite the 250-bps increase in Orange County year-to-date, the rate remains favorable at 9.6%.

The Western vacancy rate added 10 basis points during third quarter to end the period at 10.1%. While this is not a large increase and regional vacancy remains second-lowest in the nation after the Northeast, the placid surface conceals a variety of rates and trends.

Reflecting the substantial gap between the latest quarter’s deliveries and its net absorption, eight of the region’s 15 markets saw their levels rise during the period. Three markets, including Orange County, recorded increases of 100 or more basis points. Cutting the other way, substantial declines were recorded in a number of markets, including Portland, Seattle and San Francisco.

With gains of 2.8% for the latest quarter and 11.8% year over year, the West remains the national leader in rent growth. At $27.09 psf, average asking rents were second in the U.S. to the Northeast, where the overall level is skewed upward by New York’s high rents.

All of the region’s markets, including Orange County with its negative net absorption, posted rent increases during the quarter and over the last year. The San Francisco Bay area markets and Seattle remain among the top gainers.

Most Western office markets have seen heated investment activity this year. “Regionally,” states Real Capital Analytics (RCA) in an October report, “investment momentum was positive for all regions with the West leading the way on the strength of San Francisco.” Moreover, some markets including San Francisco, Seattle and San Diego, achieved increases in average sales prices during third quarter despite the problems in the capital markets.

While a slowdown now is anticipated, deal volume in the West through the first three quarters of the year exceeded $56.4 billion. RCA notes that top assets in leading markets are likely to experience a smaller price correction than Class B and C assets in secondary and tertiary markets. Seattle and the coastal California markets, accordingly, may be among those markets less stressed by the current crunch.

• San Francisco leads the region in average rents and rates of growth. Its $34.72 psf third quarter average is up 7.1% and 24.8%, respectively, for the latest quarter and the last 12 months. Nearby San Jose’s 12-month gain to $23.98 reflects an increase of 18.4%. Growth slowed here during the latest quarter, however.

• With the exception of a 3.9% increase in Los Angeles to $30.67 psf, rent growth was slow in Southern California during the quarter. Orange County and San Diego recorded gains of 0.5% and 0.1%. Their respective averages were $31.59 and $32.01.

• Denver’s revived market has produced an average of $20.54 psf, up 3.0% for the quarter, and 13.4% year over year. Leases associated with recent high-priced sales of numerous CBD properties contributed to these gains.

• San Francisco and Seattle led the West in sales year-to-date with respective volumes of $10.46 billion for 106 transactions and $10.34 billion for 127. Orange County managed $6.51 billion for the period.

• Highest average sales price and lowest cap rate, $394 psf and 5.4%, were earned in San Francisco. Average cap rates in the Inland Empire and Orange County were 5.6% and 5.8%. Portland followed at 5.9%.

• Major recent deals include BPG Properties’ $169.50 million ($274 psf) acquisition from the Divco Properties-RREEF joint venture of the 619,000 square foot Park Center Plaza in downtown San Jose. TIAA spent $71.0 million ($531 psf) in its acquisition of the World Trade Center North property in Seattle.

Supply and Demand

Winter 2007

Northeast Office

Midwest Office

West Office

Supply and Demand

• While the Midwest retains the nation’s highest regional vacancy rate, its 20 basis point decline was the largest in the U.S. during the quarter.

• Construction continues to increase. Rent growth remains sluggish.

• Blackstone Group’s recent sale of former EOP assets to Tishman Speyer is described as the largest real estate deal in Chicago history.

• Net absorption, slowing during the quarter, fell well below deliveries, a result in part of occupancy losses in some markets including Orange County.

• Only the West posted a vacancy rate increase during the quarter. Performances varied greatly from place to place, however. The region maintains its lead in rent growth.

• Investment sales, led by San Francisco and Seattle, remained strong through third quarter. The credit crunch is expected to slow the pace, however.

• Net absorption runs comfortably ahead of same-term new supply. Current construction is dominated by the New York area, Boston and Philadelphia.

• Heavily influenced by New York, regional occupancy and rent growth rates show substantial recent increases.

• New York dominates investment sales activity but significant volumes are indicated for some New England markets as well.

Investment

• The robust Cincinnati market saw its rate shed 120 bps during the latest quarter to close the period at 14.2%. Kansas City’s 150-point decline, to 12.5%, was the best year-over-year performance.

• After falling during second quarter, vacancy in Chicago held steady at 13.4% during the latest. The rate is down 50 bps over 12 months and is down 190 over 24.

• A 310-bps increase during the quarter drove the rate in Tulsa to 17.5%, highest in the U.S. Detroit, with its troubled economy, claims a rate of 17.1%, down 20 bps for the period but up 30 points year on year.

Even the Midwest, with its perennially slow economic growth and subdued office development profile, has participated in the recent nationwide trend of increased office construction. Although its 16 markets account for only 11.2% of space presently being built throughout the U.S., the 21.0 million square feet under construction are up 11.5% from only a quarter earlier and are up 6.7% year over year.

Supply and demand numbers for the latest quarter are favorable: 2.3 million square feet delivered, 3.7 million absorbed net. All but two regional metros enjoyed positive absorption during the latest quarter and all but one recorded plus-side volume for the last six months.

While Chicago is the six-month absorption leader, other cities were not far behind. With respect to space under construction, however, Chicago has no rival: space underway in this market accounts for nearly 40% of the Midwestern total.

While the overall Midwestern vacancy rate remains the highest in the nation, this region out-performed all others in rate of improvement with a 20-basis point decline to 13.0%. Vacancy a year earlier, however, also was 13.0%.

Only three of the region’s markets saw their rates rise during the quarter. Nine enjoyed declines while four held steady. Ten markets, however, have rates higher now than a year ago. And only two markets—Oklahoma City and Madison, WI—have rates below 10.0%.

• Chicago’s construction boom continues. More than 8.1 million square feet were underway at quarter’s end, up 12.2% for the period, up 25.4% year over year. The 909,000 square feet delivered over the past six months were accompanied by net absorption at more than 1.8 million. Demand will need to stay strong if the market is to maintain its favorable profile.

• Kansas City and Minneapolis each follow with 1.7 million square feet under construction. Detroit and Cincinnati claim 1.6 million and 1.5 million, respectively. Six-month net absorption exceeded same-term deliveries in all four markets.

• Cincinnati, leading the latest quarter with net absorption at 1.1 million square feet, followed Chicago with 1.7 million over the last six months. Kansas City and Columbus were next with 1.4 million and 1.3 million.

• Tishman Speyer’s August acquisition, primarily from Blackstone, of $1.7 billion of six former EOP properties in downtown Chicago (one of which subsequently flipped to Hines Interests) is described by Chicago Business as the largest real estate deal in the history of the city.

• Sales volume in Chicago through September is reported by RCA at $9.42 billion in 125 transactions. The average sales price was $191 psf, the regional high. The average cap rate was 7.1%. Caps in Minneapolis and St. Louis averaged 6.8% and 6.9%.

• Recent notable deals include GE Pension Trust’s $114.3 million ($208 psf) acquisition from the John Buck Company-McMorgan & Company joint venture of the 1974-built, 550,000 square foot 200 W. Monroe building in Chicago’s West Loop. This was but one of a number of significant sales occurring recently in downtown Chicago.

• With new space continuing to arrive on line, rents in Chicago continue to make progress. Third quarter’s $24.01 psf, highest in the region, is up 0.9% for the quarter and 3.1% over 12 months.

• Solid year-over-year increases at 6.0%, 3.4% and 3.2% are indicated for Indianapolis, Kansas City and Columbus. Respective latest quarter averages were $17.26, $17.41 and $16.14 psf.

• The lack of decline in Detroit—a city with a one-cent increase to $20.23 psf—may be construed as a good sign for this beleaguered market. Current rents here are down 1.0% year over year.

National Office

©2007 Coldwell Banker Real Estate Corporation. Coldwell Banker Commercial® Is A Registered Trademark Licensed To Coldwell Banker Real Estate Corporation. An Equal Opportunity Company. Each Office Is Independently Owned And Operated.

While net absorption of office space has fluctuated from quarter to quarter, the overall trend is downward. As reported by CoStar Group Inc., the 18.6 million square feet achieved nationwide during third period were more than 10 million fewer than recorded for the quarter preceding and were nearly 12 million off the average for the previous 13 quarters.

Construction activity, meanwhile, continues to increase. The 186.4 million square feet underway at the close of the latest quarter represented an increase on the order of 6.6 million square feet (3.7%) since mid-year. More to the point, current construction is up 24.7 million square feet (15.3%) year over year. Meanwhile, the delivery of 23.5 million square feet during third period brought the year-to-date total to 80.6 million square feet.

While activity is present in all the nation’s regions, the South and West, with their generally strong growth profiles, continue to dominate development and absorption. All regions, however, saw their net absorption totals decrease during the latest quarter. Concerns with respect to future trends in the market would not be surprising.

Supply and Demand

Vacancy

Rents

Investment

National Office

• Led by greater Washington DC, South Florida and the Texas markets, the South claims 86.8 million square feet of office space under construction at quarter’s close, up 26.7% from four quarters earlier.

• The 8.9 million square feet delivered to the South during the period, down from second quarter’s 14.1 million, were but a brief respite. Net absorption, at 6.0 million square feet, was weak and failed to keep up.

• The West claims 54.6 million square feet under construction, up 13.2% from a year ago. Construction completed during third quarter outweighed absorption by nearly two-to-one. Phoenix, with 8.9 million square feet underway, and greater Los Angeles are the most active builders.

A number of factors have contributed to heated rent growth in recent quarters. Chief among them is the large volume of investment sales transacted at high prices led by the massive Equity Office Properties-Blackstone deal. These high acquisition costs are passed on to tenants in the form of significant lease rate increases. Higher land and construction costs for new projects also mandate higher lease rates.

At $25.70 psf, the third quarter average for the national market was up 1.9% from a quarter earlier and 8.4% year over year. The increases, however, are not distributed evenly among the nation’s regions. Year-over-year gains of 11.8% and 10.7% in the West and Northeast were accompanied by an increase of 6.9% in the South and a gain of only 1.6% in the Midwest.

• At 24.8%, rent growth in San Francisco led the West and the U.S. over the latest four-quarter span. A gain of 18.4% is recorded for neighboring San Jose while numerous other regional markets enjoyed double-digit growth rates. The average for the West for the latest quarter was $27.09 psf.

• The Northeast’s performance is skewed upward by the 22.0% increase achieved by the dominant New York City market over the past 12 months, which closed third quarter with an asking average of $57.91 psf, highest in the nation. Growth was relatively meager in other Northeastern markets.

• A slowdown in rent growth in the South produced a third quarter gain of 1.3%, a tie with the typically sluggish Midwest. Austin led in growth at 3.5% for the quarter and $19.5% year over year. The greater Washington DC area leads in average rents at $33.97 psf. Lease rates are high in South Florida as well.

• At $32.64 billion, Manhattan led all other markets in sales volume for the first three quarters of the year. The average selling price and cap rate were $691 psf and 5.0%. Average asking price and cap rate for newly offered properties as of September $868 psf and 4.8%.

• San Francisco, the hot Seattle market and Chicago followed with three-quarter sales totals of $10.46 billion, $10.34 billion and $9.42 billion, respectively. With $2.72 billion in sales, Austin’s 4.8% average cap rate was the nation’s lowest.

• Recent major deals include the $510 million ($1,527 psf) sale of the 334,000 square foot 450 Park Avenue building in Manhattan. Somerset Real Estate Partners and the New York State Common Retirement Fund-Taconic Investment Partners joint venture were buyer and seller.

Blackstone’s acquisition of the Equity Office Properties (EOP) portfolio continued to reverberate through the national office investment market. In August, sales of significant office properties topped $13.1 billion, more than double the total achieved the previous August according to Real Capital Analytics (RCA). The month’s activity included $4 billion in sales from Blackstone’s and CarrAmerica’s privatizations. Year-to-date through September, Blackstone closed $32 billion in sales, 25% of the national total.

That said, the “credit crunch” emanating from the subprime lending fiasco has not gone unnoticed in the office investment market. RCA notes that the capital markets changed dramatically over the course of the third quarter, affecting both volume and pricing. Sales volume for September, accordingly, was $8.5 billion.

• The placid surface of the South’s vacancy performance - unchanged at 11.5% - balances out a number of substantial ups and downs. The 100-bps increase in Southwest Florida and the 110-point decline in Raleigh-Durham were the largest changes.

• At 9.9%, vacancy in the Northeast is the nation’s lowest. Rates a quarter and year earlier were 10.0% and 10.3%. Strong absorption in Philadelphia, Boston, Long Island and the huge New York City market are responsible.

• While the Midwest’s 13.0% remains the nation’s highest regional rate, its 20-bps decline was its best performance. Large declines in Cincinnati, Kansas City and Columbus along with significant declines elsewhere (and very few increases) were the sources of the region’s improvement. Low construction activity helps.

The downward trend in the national office vacancy curve, underway since mid-2003, came to an end at 11.0% at the close of last year. The rate rose to 11.1% a quarter later and, despite the latest quarter’s supply and demand imbalance, has shown no subsequent movement. Vacancy rates in most of the nation’s regions, however, have not been static. Small declines in the Midwest and Northeast, products in part of small construction totals, were accompanied by a small increase in the West. The South alone showed no change.

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