Studley SERI2003 Report

SERI2003 Studley Effective Rental Index

SERI2003 CONTENTS

Introduction

1

Effective Rents

3

Tenant Effective Rent Comparison

3

Landlord Effective Rent Comparison

5

Rental Trends Rental Components

7 17

Components of Total Rent

17

Total Rent Comparison

19

Net Rent Comparison

21

Operating Expense Comparison

22

Real Estate Tax Comparison

23

Tenant Electricity Comparison

24

Suburban Analysis Suburban Tenant & Landlord Effective Rent Comparison Statistical Summary

25 25 27

Introduction The Studley Effective Rental Index (SERI) remains the commercial real estate industry’s most exhaustive study of effective rental rates for prime Class A office properties. The SERI offers real world numbers that reflect actual negotiated deal terms and allow for market lease concessions. Other industry analyses typically quote asking rents based on broker listings.

In order to create a realistic depiction of the market, Studley analysts examine

INTRODUCTION

recent office leases to determine the effect of factors that add to the complexity of all transactions – concessions given to tenants and expenses such as real estate taxes and operating expenses that are incurred by landlords. The SERI investigates 15 bellwether central business districts and markets: Atlanta, Boston, Chicago, Dallas, Denver, Houston, Downtown Los Angeles, West Los Angeles, Miami, New Jersey, Downtown New York, Midtown New York, Philadelphia, San Francisco, and Washington, D.C.

1 | STUDLEY EFFECTIVE RENTAL INDEX 2003

SERI2003 The SERI explores rental information in several ways: • A statistical summary – a quick, illustrated look at vital statistics from year-end 2002 compared with year-end 2001 data.

• Effective rental trends – individual snapshots of conditions in the selected CBDs over the past decade.

actual rents tenants are paying and the landlord effective rent segment uncovers how much of that amount landlords really get to keep.

• Suburban analysis – the SERI investigates year-to-year trends in nine selected suburban office markets.

All statistics in this year’s SERI are based on transactions as of December 2002 in existing or newly constructed Class A buildings. The data is reflective of full-floor, 10-year leases and is defined on a per rentable square foot, per annum basis.

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2

INTRODUCTION

• Effective rent comparisons – the tenant effective rent section reveals the

Tenant Effective Rents

5.7%

-18.2%

-16.4%

-13.6%

-13.0%

-10

-11.4%

-10.7%

-9.7%

-9.5%

-8.0%

-7.5%

-2.9%

-1.2%

0

-20

-30

-40

-45.8%

Tenant Effective Rent Comparison

10% 6.9%

In the space of two short years, most major U.S. markets went from nearrecord tightness to near-record softness.

Reflecting this reality, tenant effective rents continued to decline sharply in many major markets in 2002. Only two of our selected markets recorded increases in tenant effective rents, compared with four in the previous year. San Francisco, which experienced a 31.3% decrease in tenant effective rents in 2001, saw an even bigger drop in 2002, falling 45.8%. Other cities which saw drops greater than 10% in 2002 included Atlanta, Boston, Houston, West Los Angeles, Miami, and Midtown Manhattan.

Tenant Effective Rent Comparison – Percentage Change 2002 vs. 2001

The tenant effective rent is the total rent minus lease concessions (amortized over a 10-year period,

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3 | STUDLEY EFFECTIVE RENTAL INDEX 2003

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rates – in each of our selected CBDs.

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to simply reporting average landlord asking rental

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cost of occupying space for tenants – as opposed

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period payments). This comparison depicts the true

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using a 10 percent interest rate and beginning-of-

W as

EFFECTIVE RENTS

Tenant Effective Rent Comparison

SERI2003 Tenant Effective Rent Comparison 2002 vs. 2001

2001

2002

$53.72

Midtown NYC $41.21

Washington, D.C.

$40.45

Boston $32.37

Downtown NYC

EFFECTIVE RENTS

$30.64

New Jersey

$28.03

San Francisco

$26.58

Miami Philadelphia

$25.93

Chicago

$25.83 $25.00

West LA

$24.39

Houston

$22.99

Downtown LA

$22.73

Denver

$21.97

Dallas

$21.05

Atlanta $0

10

20

30

40

50

60

70

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 4

Landlord Effective Rents

-11.2%

-30

-33.8%

-32.3%

-27.8%

-26.9%

-26.0%

-20

-21.3%

-20.2%

-19.6%

-18.5%

-10

-5.0%

-4.9%

-0.5%

0

-40

-50

-65.0%

Landlord Effective Rent Comparison

10%

4.6%

The gap between asking and actual rents widened further in 2002, creating extremely attractive deals for tenants when combined with the wide range of concessions available. Building owners, eager to maintain solid rent rolls, were increasingly willing to offer enhanced work letters, free rent, and flexible lease terms. All of our selected markets except for Washington, D.C. posted decreases in landlord effective rents in 2002, compared with 11 out of 15 markets showing decreases in the previous year. San Francisco had by far the biggest decrease, with landlord effective rents falling 65%. Other markets with decreases in excess of 25% included Atlanta, Chicago, Miami, and Downtown and Midtown Manhattan.

Landlord Effective Rent Comparison – Percentage Change 2002 vs. 2001

-60

The landlord effective rent is calculated by taking the total rent and subtracting operating expenses,

involve far too many variables to be relevant.

5 | STUDLEY EFFECTIVE RENTAL INDEX 2003

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if any, since financing structures are complex and

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consideration of landlords’ debt service obligation,

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commissions. These numbers are derived without

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-70 .

real estate taxes, tenant electricity, concessions, and

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EFFECTIVE RENTS

Landlord Effective Rent Comparison

SERI2003 Landlord Effective Rent Comparison 2002 vs. 2001

2001

2002

$28.36

Midtown NYC $23.77

Washington, D.C.

$22.29

Boston $17.63

New Jersey

Houston

$13.19

San Francisco

$13.03

EFFECTIVE RENTS

$15.72

Denver

$12.65

West LA Miami

$12.22

Philadelphia

$12.05 $11.85

Downtown NYC Downtown LA

$10.09

Atlanta

$10.02 $9.68

Dallas $6.47

Chicago $0

5

10

15

20

25

30

35

40

45

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 6

Rental Trends

R E N TA L T R E N D S

Atlanta The Atlanta commercial real estate market weakened further in 2002 as local corporations continued to retrench. Market indicators approached levels not seen since the early 1990s.

The region’s overall availability rate topped 24% at the end of 2002, with Class A availability rates at just under 26%. Landlords increased concession packages and became more flexible on a variety of lease negotiation issues. Total rents in Atlanta decreased 16.5% in 2002, or $4.88 per square foot, to $24.75.

Boston In spite of an active investment environment, all other factors favored tenants during 2002, including falling rental rates, negative space absorption, increasing concessions, and continued increases in the sublease space inventory. Only the institutional, medical, and biotech sectors provided strength to the market. Total rents in Boston decreased 8.5% in 2002, or $4.62 per square foot, to $49.63.

Atlanta Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$30 25 20 15 10 5 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Boston Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$70 60 50 40 30 20 10 0

7 | STUDLEY EFFECTIVE RENTAL INDEX 2003

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SERI2003 By the end of 2002, Chicago saw the growth of underlying available space that has not been counted by marketing or listing services. At least 3.4 million square feet located downtown was not formally marketed or posted on listing services. This situation was driven by tenants committing to move to new construction, which will bring 2.5 million square feet to the market. The Class A availability rate in Chicago jumped to 17.0% at the end of 2002. Total rents in Chicago decreased 3.8% in 2002, or $1.44 per square foot, to $36.93.

Dallas 2002 was characterized by mounting levels of available space in the Dallas/Fort Worth region.

The Dallas CBD posted a Class A availability rate of 19.6% at year-end. As a result, new construction was held to a minimum. Although rents remained relatively stable, concessions increased, with landlords offering additional free rent and work.

Total rents in Dallas decreased 1.6% in 2002, or $0.43 per square foot, to $25.67.

Total Rent

Chicago Rental Trends

Tenant Effective

Landlord Effective

$40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Total Rent

Dallas Rental Trends

Tenant Effective

Landlord Effective

$30 25 20 15 10 5

1999

2000

2001

2002

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 8

R E N TA L T R E N D S

Chicago

Rental Trends

R E N TA L T R E N D S

Denver Landlords continued to be aggressive in Denver in 2002, offering effective rents $2 to $4 per square foot below asking rates. Concession packages achieved levels not seen since the early 1990s as landlords attempted to attract and retain tenants.

Despite these incentives demand remained weak, resulting in increased availabilities and a further decline in rents. Although the peak of the sublease glut was reached in early 2002, six million square feet of sublease space remained available at the end of the year. Total rents in Denver decreased 6.0% in 2002, or $1.72 per square foot, to $26.84.

Houston Ongoing negative economic news, along with corporate restructuring and downsizing, drove Houston market expectations to a new low in 2002.

The overall availability rate rose 1.1 percentage points to just under 20% by year-end. The Class A availability rate increased to 18.9%, which represented a six-percentage-point increase from a year earlier. Average asking rental rates in the region continued their downward trend. Total rents in Houston decreased 9.4% in 2002, or $2.91 per square foot, to $28.09.

9 | STUDLEY EFFECTIVE RENTAL INDEX 2003

Total Rent

Denver Rental Trends

Tenant Effective

Landlord Effective

$30 26 22 18 14 10

1999

Houston Rental Trends

2000

2001

2002

Total Rent

Tenant Effective

Landlord Effective

$35 30 25 20 15 10 5 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SERI2003 Downtown Los Angeles was one of the few markets to record an increase in total rents in 2002, with total rents increasing 4.4%, or $1.24 per square foot, to $29.65. Tenants capitalized on the city’s tenant-favored market for the second consecutive year by renewing existing office space and negotiating flexible long-term leases. More tenants elected to renew and expand at their current locations rather than relocate in 2002, and steady activity pushed down the Class A availability rate to 19.1% by year-end.

West LA Significant Class A office space availabilities continued to exist in West Los Angeles in 2002 as companies strove to lower their occupancy costs by terminating leases and reducing square footage.

There were more than eight million square feet of available Class A office space in West Los Angeles at year-end out of a total Class A inventory of 40 million square feet. Total rents in West Los Angeles decreased 5.3% in 2002, or $1.80 per square foot, to $32.40.

Downtown LA Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$35 30 25 20 15 10 5 0 -5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

West LA Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$40 35 30 25 20 15 10 5 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 1 0

R E N TA L T R E N D S

Downtown LA

Rental Trends

R E N TA L T R E N D S

Miami After enduring declining market conditions for most of 2002, Miami appeared to reach a state of equilibrium by the end of the year. While there were indications of market strengthening, landlords were slow to adjust to their improved bargaining position. Tenants took advantage of this by working with landlords to structure innovative transactions.

The biggest change in 2002 was the extent of concessions landlords were offering, with tenants receiving up to a year of free rent. Total rents in Miami decreased 6.5% in 2002, or $2.25 per square foot, to $32.50.

New Jersey New Jersey’s overall Class A availability rate increased to 19.3% by the end of 2002. Overall Class A rental rates fell significantly as building owners continued to compete with numerous sublease alternatives. The flood of sublease space that swamped New Jersey in 2001 began to flatten out in 2002. Just 1.5 million square feet of sublease options were added in 2002, compared with the 4.9 million square feet added to the market in 2001. Total rents in New Jersey decreased 2.6% in 2002, or $0.90 per square foot, to $33.60.

1 1 | STUDLEY EFFECTIVE RENTAL INDEX 2003

Total Rent

Miami Rental Trends

Tenant Effective

Landlord Effective

$40 35 30 25 20 15 10

1999

2000

2001

2002

Total Rent

New Jersey Rental Trends

Tenant Effective

Landlord Effective

$40 35 30 25 20 15 10 5 0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

SERI2003 The focus on Lower Manhattan by government officials continued in 2002 as both the city and state announced major initiatives in the rebuilding at Ground Zero. The submarket clearly stabilized, and 2002 saw remarkable progress. Overall, however, leasing activity was not enough to offset the downsizing and relocation that occurred throughout the year. Class A availability rates jumped in 2002, increasing to 17.8% at the end of the year. Total rents in Downtown Manhattan decreased 2.9% in 2002, or $1.26 per square foot, to $42.50.

Midtown NYC The Midtown Manhattan office market saw continued softening in 2002. Corporations and many service firms, with the significant exception of law firms, continued to shed space as the economic downturn proved longer-lived than expected. The increasing quantity of “shadow space� expanded options for tenants and further enhanced their leverage with building owners in 2002. Overall availability rates rose from 8.4% in the first quarter to 10.2% in the fourth quarter, an increase of over 20%. Accordingly, asking rents decreased in every quarter. Total rents in Midtown Manhattan decreased 14.1% in 2002, or $10.54 per square foot, to $64.00.

Downtown NYC Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$60 50 40 30 20 10 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Midtown NYC Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$80 70 60 50 40 30 20 10 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 1 2

R E N TA L T R E N D S

Downtown NYC

Rental Trends

R E N TA L T R E N D S

Philadelphia The Philadelphia region’s office market remained static in the fourth quarter of 2002, with an overall availability rate of 18.2%. The strong leasing performance posted by some Philadelphia area submarkets may be a harbinger for 2003. These numbers reflected more deals being closed and less sublease space coming to market. Although the Philadelphia region experienced rising vacancies and minimal leasing activity in 2002, investors poured money into local properties. Total rents in Philadelphia increased slightly in 2002 to $31.11.

San Francisco San Francisco leasing activity rose in the latter part of 2002, as tenants cashed in on low rents and generous concession packages from landlords.

Asking rental rates posted their eighth consecutive quarterly decline in the fourth quarter of the year.

Availability rates in 2002 remained at a level not seen in more than three decades. After two years of freefall, the San Francisco market stabilized at about 80% occupancy in the second half of 2002.

Total rents in San Francisco decreased 38.8% in 2002, or $21.50 per square foot, to $33.95.

1 3 | STUDLEY EFFECTIVE RENTAL INDEX 2003

Philadelphia Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$35 30 25 20 15 10 5 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

San Francisco Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$80 70 60 50 40 30 20 10 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SERI2003 In 2002, Washington, D.C. continued to boast the nation’s healthiest office market, posting a 7% availability rate at the end of the year. Major leasing activity was dominated by D.C.’s core tenants – the federal government and law firms.

Large users needing more than 150,000 square feet faced unyielding rents for the scarce number of well-located large blocks of space. Total rents in the District increased 6.4% in 2002, or $2.95 per square foot, to $49.35. However, with approximately two million square feet expected to deliver in late 2003, landlords may become more flexible with rental rates and concessions in the coming year.

Washington, D.C. Rental Trends

Total Rent

Tenant Effective

Landlord Effective

$50 40 30 20 10 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 1 4

R E N TA L T R E N D S

Washington, D.C.

Rental Trends National Rental Trends Overview – 2002

R E N TA L T R E N D S

The following graphs compare total rents, tenant effective rents and landlord effective rents for all 15 of our selected major metropolitan markets presented in the same scale.

Total Rent Tenant Effective Landlord Effective

Atlanta $80 70 60 50 40 30 20 10 0 -10

Boston

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Chicago

Dallas

$80 70 60 50 40 30 20 10 0 -10

$80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

1999

Denver

Houston

$80 70 60 50 40 30 20 10 0 -10

$80 70 60 50 40 30 20 10 0 -10

1999

1 5 | STUDLEY EFFECTIVE RENTAL INDEX 2003

2000

2001

2002

2000

2001

2002

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SERI2003 $80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Philadelphia $80 70 60 50 40 30 20 10 0 -10

$80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Downtown NYC

New Jersey $80 70 60 50 40 30 20 10 0 -10

Miami

West LA

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$80 70 60 50 40 30 20 10 0 -10

1999

2000

2001

2002

Midtown NYC

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

San Francisco $80 70 60 50 40 30 20 10 0 -10

$80 70 60 50 40 30 20 10 0 -10

$80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Washington, D.C.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$80 70 60 50 40 30 20 10 0 -10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 1 6

R E N TA L T R E N D S

Downtown LA

Rental Components Components of Total Rent – 2002

R E N TA L C O M P O N E N T S

The SERI tracks the four components of total rent: net rent, operating expenses, real estate taxes, and tenant electricity. The aggregate total rent for each of our selected CBDs is reflected on the following page.

Components of Total Rent The graph provides an overall picture of how much each of the rental components – net rent, operating expenses, real estate taxes, and electricity – contributed to total rents in our 15 CBD markets in 2002.

1 7 | STUDLEY EFFECTIVE RENTAL INDEX 2003

SERI2003 Components of Total Rent

Net Rent

Atlanta

Operating R.E. Taxes Electricity Expenses

$24.75

Boston

$49.63

Chicago

$36.93

Dallas Denver

R E N TA L C O M P O N E N T S

$25.67 $26.84

Houston

$28.09

Downtown LA

$29.65

West LA

$32.40

Miami

$32.50

New Jersey

$33.60

Downtown NYC

$42.50

Midtown NYC

$64.00

Philadelphia

$31.11

San Francisco

$33.95

Washington, D.C.

$49.35

$0

10

20

30

40

50

60

70

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 1 8

Rental Components Total Rent Comparison – Percentage Change 2002 vs. 2001

6.4%

10%

-14.1%

-2.9%

-2.6%

-6.5%

-5.3% -9.4%

-6.0%

-5

-1.6%

-3.8%

0

0.2%

4.4%

5

-8.5%

Total rents in most major markets across the U.S. experienced declines in 2002.

Only two of our selected markets showed modest increases, Washington, D.C. and Downtown Los Angeles. Three markets experienced decreases in total rent over 10% in 2002, with San Francisco experiencing by far the biggest drop, falling 38.8%.

-16.5%

-10

-15

-20

-25 -30

1 9 | STUDLEY EFFECTIVE RENTAL INDEX 2003

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2002 with the previous year.

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tenant electricity. The numbers presented contrast

-35

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rent, operating expenses, real estate taxes, and

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The total rent comparison is the sum of the net

-38.8%

Total Rent Comparison

A

R E N TA L C O M P O N E N T S

Total Rent Comparison

SERI2003 Total Rent Comparison 2002 vs. 2001

2001

2002

$24.75

Atlanta

$49.63

Boston $36.93

Chicago

R E N TA L C O M P O N E N T S

$25.67

Dallas

$26.84

Denver

$28.09

Houston

$29.65

Downtown LA West LA

$32.40

Miami

$32.50 $33.60

New Jersey

$42.50

Downtown NYC

$64.00

Midtown NYC $31.11

Philadelphia

$33.95

San Francisco

$49.35

Washington, D.C. $0

10

20

30

40

50

60

70

80

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2 0

Rental Components Net Rent Comparison Net rent equals the gross rental cost exclusive of the tenant’s proportionate share of real estate taxes, operating expenses, and tenant electricity.

Net Rent Comparison 2002 vs. 2001

$33.13 $19.00

Chicago $15.00

Dallas Denver

$18.78

Houston

$18.49 $18.00

Downtown LA

$21.42

West LA

$20.00

Miami

$23.00

New Jersey

$23.78

Downtown NYC

$41.41

Midtown NYC $19.00

Philadelphia

$20.00

San Francisco

$33.85

Washington, D.C. $0

2 1 | STUDLEY EFFECTIVE RENTAL INDEX 2003

2001

$15.25

Atlanta Boston

R E N TA L C O M P O N E N T S

2002

10

20

30

40

50

60

SERI2003 These numbers include heating, ventilation and air conditioning; maintenance; common area utilities and electricity; cleaning; and all other non-capital costs associated with the operation of a building.

Operating Expense Comparison 2002 vs. 2001

2002

2001

$5.25

Atlanta

$8.87

Boston $7.90

Chicago $6.08

Dallas

$5.84

Denver

R E N TA L C O M P O N E N T S

Operating Expense Comparison

$4.65

Houston

$7.75

Downtown LA $6.40

West LA

$8.50

Miami $6.05

New Jersey Downtown NYC

$8.38

Midtown NYC

$8.40 $7.52

Philadelphia

$9.00

San Francisco $7.25

Washington, D.C. $0

1

2

3

4

5

6

7

8

9

10

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2 2

Rental Components Real Estate Tax Comparison Real estate taxes are determined by using basic local real estate taxes in each of the 15 CBD markets, exclusive of special assessments and other onetime charges.

Real Estate Tax Comparison 2002 vs. 2001

2002

$2.75

Atlanta

$6.38

Boston

$8.50

Chicago $2.99

R E N TA L C O M P O N E N T S

Dallas $1.33

Denver

$3.50

Houston $2.10

Downtown LA

$2.73

West LA

$2.50

Miami

$3.05

New Jersey

$7.84

Downtown NYC

$11.69

Midtown NYC Philadelphia

$3.09

San Francisco

$3.15 $6.00

Washington, D.C. $0

2 3 | STUDLEY EFFECTIVE RENTAL INDEX 2003

2001

2

4

6

8

10

12

SERI2003 Tenant electricity consists of the payment made by the tenant, whether to the landlord or public utility, or by the landlord, as a general building expense, for the electrical power consumed within the tenant’s premises, exclusive of building HVAC.

Tenant Electricity Comparison 2002 vs. 2001

2002

2001

$1.50

Atlanta $1.25

Boston

$1.53

Chicago

$1.60

Dallas $0.89

Denver

R E N TA L C O M P O N E N T S

Tenant Electricity Comparison

$1.45

Houston

$1.80

Downtown LA

$1.85

West LA Miami

$1.50

New Jersey

$1.50

Downtown NYC

$2.50

Midtown NYC

$2.50 $1.50

Philadelphia

$1.80

San Francisco

$2.25

Washington, D.C. $0.0

0.5

1.0

1.5

2.0

2.5

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2 4

Suburban Analysis

-50

-15.0%

-8.1%

-17.3%

-60.4%

-40

-17.3%

-15.4%

-20 -30

-9.3%

0 -10

-4.9%

0.4%

10%

-60

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The following graphs analyze tenant effective rents and landlord effective rents for the following suburban office markets: Suburban Chicago (Cook County and Lake/DuPage Counties, Ill.); Fort Lauderdale, Fla.; metropolitan New York (Fairfield County, Conn., and Long Island and Westchester County, N.Y.); Orange County, Calif.; Suburban Washington, D.C. (Northern Virginia); and Silicon Valley, Calif.

Suburban Tenant Percentage Change

Suburban Landlord Percentage Change

-40

-21.9%

-35.9%

-8.7%

-74.4%

-24.1%

-30 -50

-10.6%

-15.0%

-20

-27.3%

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2 5 | STUDLEY EFFECTIVE RENTAL INDEX 2003

IL

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S U B U R B A N A N A LY S I S

Suburban Tenant and Landlord Effective Rent Comparison

SERI2003 Suburban Tenant Effective

2002

$22.63

Orange County, CA

$23.62

Silicon Valley, CA

$31.19

Fairfield County, CT $21.04

Ft. Lauderdale, FL

$21.06

Cook County, IL

$28.60

Long Island, NY $24.30

Westchester County, NY

$21.30

Northern VA

$0

10

20

30

40

50

Suburban Landlord Effective

2002

$12.50

Silicon Valley, CA

$16.84

Fairfield County, CT $10.91

Ft. Lauderdale, FL $6.60 $5.53

$12.62

Long Island, NY Westchester County, NY Northern VA

$0

2001

$11.71

Orange County, CA

Lake / DuPage Counties, IL

60

$8.81 $11.33

10

20

30

40

50 STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2 6

S U B U R B A N A N A LY S I S

$16.41

Lake / DuPage Counties, IL

Cook County, IL

2001

Statistical Summary This summary depicts a two-year comparison of all rental components – net rent, operating expenses, real estate taxes, and electricity costs – as well as tenant concession packages. Taken together, these figures enable us to calculate Tenant Effective Rents and Landlord Effective Rents for our 15 selected CBDs.

S TAT I S T I C A L S U M M A RY

Sublease alternatives comprised an increasingly significant portion of available space in 2002, much of which will convert to direct space during the next several years. In addition, brokers reported significant quantities of “shadow space.” Shadow space is sublease space that could be made available under the right terms but which is not formally on the market. It is difficult to gauge the impact of shadow space, but its presence further increased tenants’ leverage in lease negotiations, putting additional downward pressure on effective rents.

The continuing series of shocks endured by the economy in 2002 created a tendency toward risk-aversion among corporate leaders, slowing a nascent recovery. Recession, terrorism, corporate fraud, and the prospect of war were enough to make businesses question major capital investments and expansion plans. However, optimism may grow if the national economy recovers as anticipated in 2003.

2 7 | STUDLEY EFFECTIVE RENTAL INDEX 2003

Atlanta Boston Chicago Dallas Denver Houston Downtown LA West LA Miami New Jersey Downtown NYC Midtown NYC Philadelphia San Francisco Washington, D.C.

Year

Net Rent

Operating Expenses

R.E. Taxes

Electricity

Total Rent

Concession Packages

Landlord Effective

Tenant Effective

2002

$15.25

$5.25

$2.75

$1.50

$24.75

$25.00

$10.02

$21.05

2001

20.00

5.38

2.75

1.50

29.63

30.00

13.70

25.19

2002

33.13

8.87

6.38

1.25

49.63

62.00

22.29

40.45

2001

38.34

8.44

6.21

1.25

54.25

58.00

27.93

45.67

2002

19.00

7.90

8.50

1.53

36.93

75.00

6.47

25.83

2001

21.00

7.35

8.49

1.53

38.37

66.00

9.78

28.61

2002

15.00

6.08

2.99

1.60

25.67

25.00

9.68

21.97

2001

15.75

5.85

2.90

1.60

26.10

15.00

11.88

23.88

2002

18.78

5.84

1.33

0.89

26.84

27.75

15.72

22.73

2001

20.66

5.67

1.37

0.86

28.56

27.00

17.72

24.57

2002

18.49

4.65

3.50

1.45

28.09

25.00

13.19

24.39

2001

21.50

4.50

3.50

1.50

31.00

20.00

16.77

28.04

2002

18.00

7.75

2.10

1.80

29.65

45.00

10.09

22.99

2001

18.00

6.78

1.98

1.65

28.41

45.00

10.14

21.75

2002

21.42

6.40

2.73

1.85

32.40

50.00

12.65

25.00

2001

23.40

6.42

2.68

1.70

34.20

42.00

15.72

27.99

2002

20.00

8.50

2.50

1.50

32.50

40.00

12.22

26.58

2001

22.50

8.25

2.50

1.50

34.75

27.00

16.51

30.76

2002

23.00

6.05

3.05

1.50

33.60

20.00

17.63

30.64

2001

24.00

6.00

3.00

1.50

34.50

20.00

18.57

31.54

2002

23.78

8.38

7.84

2.50

42.50

68.50

11.85

32.37

2001

26.25

8.13

6.88

2.50

43.76

54.00

16.40

35.77

2002

41.41

8.40

11.69

2.50

64.00

69.50

28.36

53.72

2001

54.00

8.13

9.91

2.50

74.54

60.00

41.88

65.66

2002

19.00

7.52

3.09

1.50

31.11

35.00

12.05

25.93

2001

19.25

7.30

3.00

1.50

31.05

32.50

12.67

26.24

2002

20.00

9.00

3.15

1.80

33.95

40.00

13.03

28.03

2001

42.00

8.50

3.15

1.80

55.45

25.00

37.25

51.75

2002

33.85

7.25

6.00

2.25

49.35

55.00

23.77

41.21

2001

32.40

6.50

5.50

2.00

46.40

53.00

22.73

38.56

STUDLEY EFFECTIVE RENTAL INDEX 2003 | 2 8

S TAT I S T I C A L S U M M A RY

SERI2003

Julien J. Studley, Inc. Corporate Headquarters 300 Park Ave. New York, NY 10022 (212) 326-1000

A Member of Global Property Alliance

www.globalpropertyalliance.com

Entire contents copyright Š 2003 Julien J. Studley, Inc.

Atlanta

Houston

Philadelphia

3390 Peachtree Road N.E., Suite 850 Atlanta, GA 30326 (404) 467-0707

24 Greenway Plaza, Suite 1105 Houston, TX 77046 (713) 522-5300

1 Liberty Place 1650 Market St., Suite 1525 Philadelphia, PA 19103 (215) 563-4000

Chicago

Downtown Los Angeles

One E. Wacker Drive, Suite 3900 Chicago, IL 60601 (312) 595-2900

777 S. Figueroa St., 25th Floor Los Angeles, CA 90017 (213) 553-3800

Dallas

Los Angeles

13727 Noel Road, Suite 1000 Dallas, TX 75240 (972) 739-2200

10960 Wilshire Blvd., Suite 1700 Los Angeles, CA 90024 (310) 444-1000

Denver

New Jersey

1050 17th St., Suite 1050 Denver, CO 80265 (303) 302-5100

333 Thornall St., 1st Floor Edison, NJ 08837 (732) 906-1001

South Florida

New York

200 E. Broward Blvd., Suite 1200 Fort Lauderdale, FL 33301 (954) 343-1600

300 Park Ave. New York, NY 10022 (212) 326-1000

Orange County 2 Park Plaza, Suite 1075 Irvine, CA 92614 (949) 660-3555

San Francisco 505 Montgomery St., Suite 1200 San Francisco, CA 94111 (415) 421-5900

Suburban Washington, D.C. 8180 Greensboro Drive McLean, VA 22102 (703) 442-9000

Washington, D.C. 555 13th St. N.W., Suite 420E Washington, D.C. 20004 (202) 628-6000