Presentation at the Leadership Summit

1
Economic and Commercial Real Estate Market
Trends and Outlook

• Presentation at the Leadership Summit
• Chicago, IL -- August 18, 2005
• Lawrence Yun, Ph.D., Senior Economist
• NATIONAL ASSOCIATION OF REALTORS

2
Economy Growing

Source BEA
3
Decent Job Additions
Source BLS
4
Job Gains/Losses 2005 vs 2001
In thousands
Source BLS
5
Job Gains/Losses in the Recent 12 months
In thousands
Source BLS
6
Resilient Consumer Spending
Source BEA
7
Stable Consumer Confidence
8
Despite High Oil Prices
Source Department of Energy
9
Corporate Profits are Strong
Source BEA
10
Business Spending Rising at Double-Digit Pace
Source BEA
11
Stock Market at 3-year High
12
Trade Deficit in Bad Shape
Source BEA
13
Overall Trade Increasing
millions
Source BEA
14
Dollar Recovering A Bit
Source Federal Reserve
15
Inflation Building but Still Contained
change from a year ago
Source BLS
16
Fed Nervous About Inflation Forced to Tighten
Credit
Forecast to 4.00 by Dec. 2005
17
Narrow Spreads Suggest Further Short-term Fed
Rate Hikes Pushing up Long-term Rates
18
Economic Outlook
19
Commercial Real Estate Market
20
Commercial Outlook

• Good economic fundamentals
• Capital flow into commercial real estate at
  record levels
• Modest increase in interest rates not yet
  impacting long term investments
• Job growth steady

21
Commercial Market Highlights

• Significant investment in office buildings (30
  increase in 2005)
• Port and major distribution hubs leading
  industrial sector
• Commercial lending volume up, delinquencies down
• Retail conservative investment vehicle for
• pension funds

22
Commercial Real Estate Loans Performing

Source Federal Reserve
23
Commercial Property Rate of Return(Return net
operating income capital appreciation)
Source Haver Analytics, NCREIF
24
Commercial Property Rates of Return by Sectors
Best performer
Source Haver Analytics, NCREIF
25
Commercial Construction Disciplined
Source BEA
26
Office Market

• Vacancy falling, slowdown in new supply
• Rental growth gaining traction
• Strong investor interest (REITS and foreign
  investors)
• Strongest investment markets in the West
• Northeast

27
Office Job Creation Growth
In thousands
Source NAR/Torto-Wheaton
28
Office Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton
29
Vacancy Rate Falling

Source NAR/Torto-Wheaton
30
Office Rent - Gaining Traction

Source NAR/Torto-Wheaton
31
Industrial Market

• Markets bifurcated by age and location
• But the pace of restocking barely keeping with
  shipments
• Level of obsolesce in some markets cause for high
  vacancy
• Rents struggling to gain traction in some markets
  rising in others (Southern California)
• Port markets (both traditional and inland) are
  outperforming

32
Business Inventory Change

Negative ???
Source BEA
33
Inventory-to-Sales Ratio
Source Department of Commerce
34
Industrial Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton Research
35
Industrial Vacancy Rate

Source NAR/Torto-Wheaton Research
36
Industrial Rent Growth

Source NAR/Torto-Wheaton Research
37
Retail Market

• Consumer spending holding steady despite modest
  interest rate increases and higher oil prices
• Sizable housing wealth additions in coastal
  markets
• Most new construction is strip malls and power
  centers.
• Very active REIT market best long term
  investment return (in recent year)

38
Retail Rent Growth

Source NAR/Torto-Wheaton Research
39
Multi-Family Market

• Rising mortgage rates will boost renter demand
• Local concentrated job growth raises demand for
  rental apartments
• Condo Conversions (70,800 units in 2004 and
  higher pace in 2005)
• More prevalent in Miami, Northern Virginia, Las
  Vegas, and San Diego

40
Multi-family Market Fundamentals
In number of units
Source NAR/Torto-Wheaton Research
41
Multi-family Vacancy Rate

Source NAR/Torto-Wheaton Research
42
Multi-family Rent Growth

Source NAR/Torto-Wheaton Research
43
Housing Affordability Slipping
Source NAR
44
Commercial Market Outlook Net Absorption
(Based on 57 markets)
Source NAR Forecast
45
Commercial Market Outlook Vacancy Rate
Source NAR Forecast
46
Commercial Market Outlook Rent Growth
Source NAR Forecast