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Corporate Real Estate Letter

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					                     Frank Fudem’s
                                                                                        Corporate Real Estate Letter
                                                                                                                                                                     October 2001
                                               3Q01 Newsletter: 9/5/01 Figures…

                                                                                                                              Office Occupancy still Shrinking:
                                             San Francisco Net Absorption
                                           Change in amount of space occupied:
                                        3.5                                                                                        Third quarter 2001 was the 5th consecutive quarter of
                                        3.0                                                                                        “negative absorption”: a net decline in the amount of
              Millions of Square Feet




                                        2.5                                                                                        office space occupied in San Francisco.
                                        2.0
                                         1.5
                                         1.0
                                                                                                                                   Since the market peaked in early 2000, approximately
                                         0.5                                                                                       8.4 million square feet of once-occupied space have
                                         0.0                                                                                       been vacated and placed back on the market.
                                        -0.5
                                        -1.0
                                                                                                                              San Francisco Office Supply and Demand:
                                        -1.5
                                        -2.0
                                        -2.5                                                                                       Sharp decline in amount of space occupied caused
                                        -3.0                                                                                       vacancies to jump to 14%.
                                        -3.5
                                                2Q99 3Q994Q99 1Q002Q00 3Q00 4Q001Q01 2Q013Q01
                                                                                                                                   San Francisco now has 11.5 million square feet
                                                                                                                                   available in the Central Business District.

                                                    San Francisco Office Space                                                San Francisco Asking Rates: Have declined to early
                                                      Supply and Demand:                                                      1999 levels and are still dropping, although not as
                              83                                                                                              precipitously as earlier this year.
                              82               Total Inventory
                              81
                              80                                                                                              Impact of September 11 tragedy on Real Estate
Millions of square feet




                                                                          2.1%   3.3%           11.5MM Sq. Ft. Vacant
                              79
                              78
                                                                   1.9%                  5.5%
                                                                                                                              Market: Greater uncertainty about future economic
                              77
                                           3.7%
                                                     3.6%   3.8%
                                                                                                 9.3%
                                                                                                                              conditions. Please see separate paper enclosed.
                              76
                              75                                                                        12.1%
                              74
                                                                                                                14.1%
                                                                                                                              Prognosis: Prior to the 1999/2000 real estate bubble, San
                              73                                                                                              Francisco typically experienced One Million to 1.5 Million
                              72
                              71                                                                                              square feet per year of positive absorption (net increase in
                              70                                                                                              amount of space occupied). Occupancy has declined sharply
                              69                                      70.9MM Sq. Ft. Occupied
                                                                                                                              in the last 15 months; when growth resumes and absorption
                              68
                                                2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01                             turns from negative to positive, the 11.5 million feet now
                                                                                                                              available means San Francisco could have a 7-to-10 year
                                                                                                                              supply of space based on historic (pre-1999) levels of
                                                                                                                              demand. I therefore expect rents to continue to decline.
                                           San Francisco Office Vacancy Rates &
                                                  Average Asking Rates:                                                       In addition to lowering rents, landlords are increasingly willing
1%
 6                                                                                                                      $80   to provide more generous tenant improvement allowances
1%
 4                                                                                                                      $70   and other concessions. Some landlords have volunteered to
                                                                                                                              delay rent commencement to entice tenants to relocate. We
1%
 2                                                                                                                      $60
                                                                                                                              are beginning to hear occasional rumors of “free” rent and
1%
 0                                                                                                                      $50   moving allowances.
       8%                                                                                                               $40

       6%                                                                                                               $30
                                                                                                                              Recommendation: Rents are still dropping and I believe
                                                                                                                              have not yet reached bottom. On the other hand, business
       4%                                                                                                               $20
                                                                                                                              considerations should drive real estate decisions. Real estate
       2%                                                                                                               $10   should not drive business decisions. You may not catch the
       0%                                                                                                               $0
                                                                                                                              very bottom: like the stock market, the real estate market
                                        2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01                                     cannot be perfectly timed. The good news: tenants have
                                                                                                                              considerable leverage and are able to negotiate very
                                                     Vac c Rat
                                                        an y es                         Ask gRen al es
                                                                                           in   t Rat
                                                                                                                              favorable terms. Please let me know if I can help you take
                                                                                                                              maximum advantage of these favorable market conditions.

                          Frank Fudem's Corporate Real Estate Letter is a complimentary periodic commentary on the San Francisco office market. If you foresee a real
                            estate need or if anyone else in your organization would like to receive future editions of this letter at no charge, please call, write or email
                            Frank Fudem, BT Commercial, 201 California Street, Suite 100 San Francisco, CA 94111 ▪ 415/677-0455 ▪ ffudem@btcommercial.com
                                                          San Francisco
                                                                                                                       Frank Fudem specializes in
                                                    3rd Quarter 2001                                                   representing corporate tenants in office
                                          Vacancy Rates and Asking Rental Rates                                        space transactions including relocations,
                                                                                                                       lease renewals, and consulting. One of
                                                                                                                       San Francisco's top brokers since 1984,
    Submarkets                     Vacancy Rates                     Asking Rental Rates*                              he has represented local and national
                         3Q 2001 last 90 days last 12 months 3Q 2001 last 90 days last 12 months                       tenants in millions of square feet of
North Financial                                                                                                        successful negotiations.
         Direct          6.7%             up 1.4%             up 4%
         Sublease        5.4%              up 1%             up 4.5%                                                   Personal Mission Statement : Increase
         Subtotal       12.1%             up 2.4%            up 8.5%   $38.20          down $7.23         down $2.63   my clients' success by real estate
South Financial                                                                                                        expertise.
         Direct          6.1%             up 0.8%            up 5.1%
         Sublease        6.0%             up 0.7%            up 4.8%                                                   BT Commercial Real Estate is the
         Subtotal       12.1%             up 1.5%            up 9.9%   $37.67          down $5.55         down $1.92   largest brokerage focusing exclusively
Jackson Sq./ N. Waterfront                                                                                             on Northern California: BT Commercial
         Direct          6.2%             up 0.3%            up 4.8%                                                   has 130 agents in eight offices serving
         Sublease        5.0%             up 0.7%            up 4.8%                                                   San Francisco, the Peninsula and the
         Subtotal       11.2%               up 1%            up 9.7%   $35.48           down $5.3         down $2.65   East Bay. BT has consummated more
S.Beach/Rincon/SOMA                                                                                                    than $18 Billion of real estate
         Direct         10.6%             up 2.2%           up 5.5%                                                    transactions.
         Sublease        5.5%             up 0.8%           up 4.8%
         Subtotal       16.1%               up 3%          up 10.3%    $23.80          down $5.19         down $0.85   Frank Fudem's Corporate Real Estate
Union Square                                                                                                           Letter is a complimentary periodic
                                                                                                                       commentary on the San Francisco office
         Direct          8.6%          down 1.2%             up 5.5%
                                                                                                                       market. If you forsee a real estate need,
         Sublease        2.4%            up 0.1%             up 1.9%
                                                                                                                       or if you would like more information on
         Subtotal       11.0%          down 1.1%             up 7.4%   $33.22          down $2.65         down $3.48
                                                                                                                       Bay Area or San Francisco commercial
Yerba Buena
                                                                                                                       real estate, or if anyone else in your
         Direct         11.9%               up 2%           up 6.2%
                                                                                                                       organization would like to receive future
         Sublease        7.3%             up 1.9%             up 7%
                                                                                                                       editions, please call write or email:
         Subtotal       19.2%             up 3.9%          up 13.2%    $25.40          down $3.88         down $2.06
                                                                                                                       Frank Fudem
San Francisco CBD Totals                                                                                               Senior Vice President
         Direct         8.3%              up 0.9%            up 5.5%                                                   BT Commercial Real Estate
         Sublease       5.8%              up 1.1%             up 5%                                                    201 California Street, Suite 100
            Total     14.1%                up 2%           up 10.5%    $32.51          down $5.36         down $2.08   San Francisco, CA 94111
                                                                                                                       415/677-0455
* "Asking Rental Rates" are an imperfect indicator as many of San Francisco's leading landlords do not post Asking
Rates, so the most expensive buildings are not represented.                                                            ffudem@btcommercial.com

				
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