Presentation at the Leadership Summit Chicago, IL -- August 18, 2005 Lawrence Yun, Ph.D., Senior Economist NATIONAL ASSOCIATION OF REALTORS ® Economic and Commercial Real Estate Market Trends and Outlook

Economy Growing % Source: BEA

Decent Job Additions Source: BLS

Job Gains/Losses 2005 vs 2001 Source: BLS In thousands

Job Gains/Losses in the Recent 12 months Source: BLS In thousands

Resilient Consumer Spending Source: BEA

Stable Consumer Confidence

Despite High Oil Prices Source: Department of Energy

Corporate Profits are Strong Source: BEA

Business Spending Rising at Double-Digit Pace Source: BEA

Stock Market at 3-year High

Trade Deficit in Bad Shape Source: BEA

Overall Trade Increasing Source: BEA $ millions

Dollar Recovering – A Bit Source: Federal Reserve

Inflation Building but Still Contained % change from a year ago Source: BLS

Fed Nervous About Inflation – Forced to Tighten Credit Forecast to 4.00% by Dec. 2005

Narrow Spreads Suggest Further Short-term Fed Rate Hikes Pushing up Long-term Rates

Economic Outlook 2.2 million 2.0 million Job Additions 5.0% 4.4% 10-year Treasury 4.0% 3.2% 3-month Treasury 2.7% 3.0% CPI Inflation 5.1% 5.1% Unemployment Rate 3.5% 3.6% GDP 2006 2005

Commercial Real Estate Market

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

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

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

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

Commercial Real Estate Loans Performing Source: Federal Reserve %

Commercial Property Rate of Return (Return = net operating income + capital appreciation) Source: Haver Analytics, NCREIF

Commercial Property Rates of Return by Sectors Source: Haver Analytics, NCREIF Best performer

Commercial Construction Disciplined Source: BEA

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

Vacancy falling, slowdown in new supply

Rental growth gaining traction

Strong investor interest (REITS and foreign investors)

Strongest investment markets in the West

& Northeast

Office Job Creation Growth Source: NAR/Torto-Wheaton In thousands

Office Market Fundamentals In thousand square feet Source: NAR/Torto-Wheaton

Vacancy Rate Falling % Source: NAR/Torto-Wheaton

Office Rent - Gaining Traction Source: NAR/Torto-Wheaton %

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

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

Business Inventory Change % Source: BEA Negative ???

Inventory-to-Sales Ratio Source: Department of Commerce

Industrial Market Fundamentals In thousand square feet Source: NAR/Torto-Wheaton Research

Industrial Vacancy Rate % Source: NAR/Torto-Wheaton Research

Industrial Rent Growth Source: NAR/Torto-Wheaton Research %

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)

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)

Retail Rent Growth Source: NAR/Torto-Wheaton Research %

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

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

Multi-family Market Fundamentals In number of units Source: NAR/Torto-Wheaton Research

Multi-family Vacancy Rate % Source: NAR/Torto-Wheaton Research

Multi-family Rent Growth % Source: NAR/Torto-Wheaton Research

Housing Affordability Slipping Source: NAR

Commercial Market Outlook Net Absorption (Based on 57 markets) Source: NAR Forecast 262,000 237,000 Multi-Family (units) 29,000 34,000 Retail ( x 1,000 sq ft) 153,000 133,000 Industrial ( x 1,000 sq ft) 56,000 61,000 Office ( x 1,000 sq ft) 2006 2005

Commercial Market Outlook Vacancy Rate Source: NAR Forecast 5.2% 6.2% Multi-Family 6.3% 6.3% Retail 9.8% 10.3% Industrial 13.2% 14.1% Office 2006 2005

Commercial Market Outlook Rent Growth Source: NAR Forecast 3.0% 2.5% Multi-Family 4.0% 4.4% Retail 1.8% 0.7% Industrial 3.4% 2.3% Office 2006 2005