US Real Estate Market Research Initiating Coverage Q1 2008 The Staubach Company and the Wharton Geospatial Information Systems Group (GIS), part of the Wharton School of Business at the University of Pennsylvania, have collaborated to provide the real estate industry and business decision makers with a predictive research for forecasting real estate direction in the nation’s volatile markets. As part of this ongoing research effort, we will examine macro and micro concepts and trends in specific real estate markets. Our quarterly research reports use some of the analytical methods from our first collaboration research paper as referenced below. We will include insights from our continuing research efforts going forward. THE STAUBACH COMPANY Peter B. Hennessy President, New York 212.418.2626 Reginald Ross Director, New York 212.418.2682 WHARTON GIS Susan Wachter, PhD GIS Lab Director 215.898.6355 Kevin Gillen, PhD Research Fellow 215.898.4818 The full paper is available via email, please send requests to: Reginald.Ross@Staubach.com. The information contained in this report should be considered as only a single factor in any business or investment decision and should be independently verified before relying on it. The Staubach Company (TSC) does not warrant that the materials are free of errors or will continue to be accurate in an ever-changing business environment. THIS REPORT, ITS CONTENTS, OR THE INFORMATION DERIVED THEREFROM IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. TSC MAKES NO WARRANTIES ABOUT THE ACCURACY, RELIABILITY, COMPLETENESS, OR TIMELINESS OF THE MATERIAL CONTAINED HEREIN. US Real Estate Market Research NATIONAL Initiating Coverage Q1 2008 National Overview - Short-Term Uncertainty, Broad Underlying Strength From a National perspective, US commercial markets enter 2008 fundamentally strong. While pockets of the US are likely to see some commercial property volatility and softness in 2008, others appear to be strong with more positive outlooks. Losses in financial sector employment have been offset by gains in Professional and Business services employment in most markets. December durable goods orders beat expectations, thus stoking optimism for near-term stability. Markets with concentrations in energy, technology and with global linkages have some advantages in the near-term. Some of these markets were largely left behind in the extreme lease-pricing run ups of 2007 and are showing increased volume and continued declines in vacancy. Those markets with more significant employment exposure to the housing sector are likely to experience more softness than others, as we suggested in June of 2007. However, Orange County, which was home to several subprime lenders that were among the first to experience bankruptcies and shut downs has not seen more than 5% - 8% drops in local leasing rates. If we take this city as a model, this level of drop could indicate the maximum extent of pricing decline due solely to subprime problems in areas where mortgage lenders are a smaller factor in the tenant base. Declines in the national economy are likely to take a more prevalent role in any short-term softness. As home equity values fall, the dollar continues its slide, and the stock market shows increased volatility, people naturally will feel less wealthy – because in actuality, they are. Larger economy issues may be a short term phenomenon and likely to abate over the intermediate-term, but that doesn’t matter to the average person who is likely to spend less on non-essential items this year than in the recent past. When people spend less, our economy slows and all businesses limit RE expansions. It is this effect that is more likely to limit pricing gains in some markets and result in zero-to-negative pricing growth in others. Overall, we expect volatile but ultimately stable RE lease pricing following some short-term pressure as the national economy finds its way during the first half of 2008. THE STAUBACH COMPANY Peter B. Hennessy President, New York 212.418.2626 Reginald Ross Director, New York 212.418.2682 WHARTON GIS Susan Wachter, PhD GIS Lab Director 215.898.6355 Kevin Gillen, PhD Research Fellow 215.898.4818 The Staubach Company and economists at the Wharton GIS Lab are collaborating to provide advanced real estate research and outlook for the nation’s urban centers.
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