Las Vegas Commerce Office Market Review
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Las Vegas Commerce Office Market Review

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Please enjoy the 1st quarter 2010 Commerce Real Estate Solutions Office Market Report

Please enjoy the 1st quarter 2010 Commerce Real Estate Solutions Office Market Report

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    Las Vegas Commerce Office Market Review Las Vegas Commerce Office Market Review Document Transcript

    • 1st QUARTER OFFICE REPORT 2010 | LAS VEGAS
    • Office Market Indicators Current Change Since 1Q10 1Q09 Vacancy 23.05% Lease Rates (FSG) $2.06 Net Absorption* (818,385) Construction N/A *The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.) At A Glance • Overall vacancy rates showed an increase from 20.8% in the fourth quarter to the current rate of 23.1%. This rate is up 3.2% from a year ago when rates averaged 19.8%. • Developers have halted any new development based on the current fundamentals of limited to no financing, high vacancy and greatly reduced tenant demand at much lower effective rates. • Average rental rates in the Las Vegas office marketed were at $2.06 per square foot per month (psf/mo) (FSG). This is a slight drop from last quarter rental rates of $2.10 psf/mo (FSG). • The economic outlook continues to be a growing concern for both landlords and tenants as tighter credit terms; rising inflation and rising unemployment continue to affect the Las Vegas area. • On the bright side, leasing activity has picked up in comparison to 2009. National and State Employment and Unemployment Overview National unemployment still remains high at 9.7 %, roughly 11 million unemployed workers that are now drawing unemployment insurance benefits. In February alone, 27 states recorded unemployment rate increases. The highest regional jobless rates were in the Western part of the country, while the Northeast recorded the lowest rates. Michigan again recorded the highest unemployment rate among the states, 14.1 percent in February. The states with the next highest rates were Nevada, 13.2 percent; Rhode Island, 12.7 percent; California and South Carolina, 12.5 percent each; and Florida, 12.2 percent. The Las Vegas economy continues to be impacted by downturns and high employment rate, currently 13.9%, in all major sectors, including gaming, construction, financial and real estate. The recession will most likely be a “jobless recovery.” Since World War II there have been a total of 11 recessions and in the most recent recessions before the 2007 recession, job growth lagged long after the recession. In fact it took several years for the unemployment rate to return back to prerecession levels. Employment growth is critical to future economic growth and the return to a healthy commercial market which may take several years to accomplish. (See chart top of 2nd page) 1
    • 15% 13% 11% 9% 7% Las Vegas -13.9% 5% Nevada - 13.2% 3% US - 9.7% 1% Unemployment Rates 1Q10 -1% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 Las Vegas Market Overview As we start the New Year, the big question on everyone’s occupied commercial real estate is beginning to look minds is what is going to happen next and will the attractive again.” Real Capital Analytics also agrees signs of recovery start to show and what will it look like stating that “owner-occupied purchase now represent for the Las Vegas Market. Experts around the nation almost 10% of global transactions and will be involved believe that recovery will start to show by early 2011 in a greater share of property deals.” In a recent study, and in some areas may have already hit rock bottom. most commercial brokerage firm’s executives believe UNLV Economics Department Chairman, Dr. Stephen that “real estate prices now make it more financially Miller says “improvements in taxable sales, gaming advantageous to buy rather than lease.” In the Las revenue and McCarran Airport passenger counts are Vegas market, commercial property values and asking good indicators of an improving economy (for the rates continued to fall this quarter which may help with Las Vegas market).” Miller goes on to state that “a lot the decision to either buy or lease. of things are happening locally that are suggestions The Federal Government is also monitoring the weakness that the economy is trying to reach bottom and turn of the commercial real estate market. The Feds believe around.” While Southern Nevada’s local economy that the weakness of commercial loans is a very serous may be starting to see the bottom of the commercial problem because the whole economy could be hit, recession period, some experts are still worried about much like the housing bust has caused. Troubled the commercial real estate market and are analyzing commercial real estate loans could be the primary declining property values, maturing commercial loans, force behind bank failures this year. Elizabeth Warren, ownership vs. leasing, the benefit of receiverships and chair of the TARP Congressional Oversight panel stated the local business activity. that “around half of all commercial mortgages will be underwater by the end of 2010, posing a very serious According to Kenneth P. Riggs, President and CEO of problem for the economy over the next three years.” RERC, “The past decade has served up some tough lessons about acting on our gut instincts and about With the growing number of troubled properties and what makes sense and what simply does not fit with commercial foreclosures, the art of the Receivership sustainable practices. But for investors seeking to business is growing. Hiring a Receivership specialist to seize market opportunities, 2010 is time to gear up for manage a bank-foreclosed building is a great benefit a possible once in-a-lifetime opportunity to snag key to all parties. To help landlords preserve the value of long term investments in commercial real estate.” an asset after default, the receivership will quickly In 2010, with leasing activity lagging, we are seeing identify all of the problems, restructure their finances, more landlords willing to hang “For Lease” and “For acquire tenants and liquidate assets so that they can Sale” signs on their buildings. John Kulper, president of help produce a quick sale of the property. In today’s Commercial Alliance of Realtors, wrote “While lenders marketplace, these services are valuable and essential generally are avoiding investment real estate, owner- parts of the new age of real estate operations. 2
    • Office Market - Vacancies The office vacancy rate once again rose this quarter, this time by 226 basis points, to 23.05%, in comparison to 20.79% in the fourth quarter. The Downtown submarket continues to show the lowest vacancy rate at 15.15% along with Central East at 21.39% and North submarket at 19.74%. The high vacancy rates in the next submarkets are a result of newer buildings that have come on line with little or no pre-leasing activity, combined with lease concessions, defaults and downsizing which is causing vacancy to rise. The highest vacancy submarkets are the Northwest at 44.38%, Southwest at 25.81% and Airport submarket at 25.79%. Vacancy rates for all class types in the office market have increased during the quarter with Class A increasing to 31.61% from 30.16%, Class B increasing to 22.89% from 20.94%, and Class C increasing to 21.52% from 18.88%. Available sublease space dropped slightly in 1st quarter with current availability at 383,585 sf (0.89% of the total market) of available sublease space. Net absorption for the 1st quarter showed in the negatives again at (818,385). We have not seen absorption rates like the current rates since 1st quarter 2009, which was (814,631). The Southwest submarket showed the greatest amount of positive absorption with over 59,998 sf for the quarter while the Central West submarket posted the least amount with (259,542) sf of negative absorption. Professional Office: Quarterly Vacancy % 25% . 05 23 9% 0% 1% % .7 .5 83 .1 20 20 20 . 19 20% 0% 8% 0% .3 .9 .8 17 16 16 0% 6% .8 8% 14 .6 5% 15% 3% .1 13 13 .4 .1 9% 12 2% 12 .8 % .3 10 10 57 % 69 9. 10% 8. 5% 0% 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 30 40 10 30 40 11 20 20 10 20 30 40 10 20 30 40 10 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Professional Office: Quarterly Absorption (SF) 1,000,000 800,000 600,000 400,000 200,000 - (200,000) (400,000) (600,000) (800,000) (1,000,000) 8 8 6 6 7 7 6 6 7 7 0 8 8 9 9 9 9 40 11 30 40 10 20 30 10 20 10 40 30 40 20 30 10 20 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 3 Professional Office: Inventory (SF) and Vacancy Rate (%) 50,000,000 25%
    • 8 7 8 6 6 6 6 7 7 7 9 0 8 8 9 9 9 40 11 30 40 10 20 30 10 20 30 40 10 40 20 30 10 20 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Professional Office: Inventory (SF) and Vacancy Rate (%) 50,000,000 25% 45,000,000 20% 40,000,000 15% 35,000,000 10% 30,000,000 5% 25,000,000 0% 7 7 8 8 6 7 6 6 6 7 8 8 9 9 9 9 0 30 40 10 20 30 40 11 30 40 10 10 20 20 20 30 40 10 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Professional Office: Office Employment vs Vacancy Rate (%) 350,000 25% 325,000 23.05% 20% 20.79% 300,000 17.30% 15% 275,000 10.88% 13.22% 10% 250,000 5% 225,000 200,000 0% 06 08 09 10 07 20 20 20 20 20 Professional Office Submarket - Direct vs Sublease Vacancy 50.00% 44.38% 45.00% 40.00% 35.00% 30.00% 25.81% 25.79% 25.00% 21.39% 22.69% 23.05% 20.32% 19.74% 18.88% 20.00% 1 5% 5.1 15.00% 10.00% 5.00% 1.22% 1.32% 1.49% 1.27% 0.05% 0.10% 0.72% 0.78% 0.56% 0.89% 0.00% Central Central Las Vegas Northwest Downtown West Southwest Airport Southeast North East West Area Total Vacacny % 44.38% 15.15% 21.39% 18.88% 20.32% 25.81% 25.79% 22.69% 19.74% 23.05% Sublease % 0.05% 1.22% 1.32% 0.10% 1.49% 1.27% 0.72% 0.78% 0.56% 0.89% Professional Office: Building Class 4 Class C
    • Central Central Las Vegas Northwest Downtown West Southwest Airport Southeast North East West Area Total Vacacny % 44.38% 15.15% 21.39% 18.88% 20.32% 25.81% 25.79% 22.69% 19.74% 23.05% Sublease % 0.05% 1.22% 1.32% 0.10% 1.49% 1.27% 0.72% 0.78% 0.56% 0.89% Professional Office: Building Class Class C Class B Class A Class A Class B Class C Sublease SF 6 2 ,6 3 8 2 3 2 ,6 3 4 8 8 ,3 1 3 Vacancy 1,309,654 3,981,911 4,612,677 Existing SF 4,142,378 17,391,835 21,431,514 Pricing (Average Asking Rents) The latest performance contributed to price erosion as landlords and building owners compete for a limited number of users. By 1st quarter 2010, the market reported average asking rents of $2.06 sf/FSG, a drop from the $2.10 sf/FSG from 4th quarter 2009. Elevated tenant improvement allowances and free rent concessions are impacting returns for landlords and ultimately lenders. We expect this trend to continue throughout the majority of 2010 as inventory levels remain elevated. Most of the submarkets showed asking rental rates decline with the highest declines in the Southwest submarket at $2.32 sf/FSG from $2.57 sf/FSG and North at $1.97 sf/FSG from $2.19 sf/FSG. Even with market rates declining over all some submarkets did see a slight rise in asking rates. Downtown submarket rose to $2.59 sf/FSG from $2.33 sf/FSG and Northwest rose to $1.97 sf/FSG from $1.81 sf/FSG Average asking rents by class ranged from the Top Tier Class A segment showing $2.83 sf/FSG. Lower Tier Class A building rates were slightly lower at $2.73 sf / FSG. Also, above the valley average asking rates were Top Tier Class B buildings that reported average asking rents of $2.41 sf/FSG. However the Lower Tier Class B buildings were right at the market average at $2.06 sf/FSG. Pricing for Class C properties has average rates around $1.65 sf/FSG (Top Tier C) and $1.69 sf/FSG (Lower Tier C). Please Note: the average asking rates do not take in consideration free rent & rental concession. Full Service Gross (FSG): A lease requiring the owner to pay all operating expenses, such as cleaning, maintenance and repairs, utilities, insurance and ad valorem taxes. 5
    • Professional Office Submarket - Rates $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Central Central Las Vegas Northwest Downtown West Southwest Airport Southeast North East West Area Total FSG Rate $1.97 $2.59 $1.69 $1.64 $1.93 $2.32 $2.31 $2.13 $1.97 $2.06 MG Rate $1.77 $1.63 $1.17 $1.32 $1.60 $1.90 $1.47 $1.47 $2.16 $1.61 NNN Rate $1.50 $1.69 $1.05 $1.20 $1.41 $1.36 $1.22 $1.26 $0.96 $1.29 Medical Office Market Now that the Health Care reform bill became law, Nevada will need to prepare for not only a requirement for more health care employees, but also more facilities. So far the latter part of this statement has been fulfilled, as the amount of available medical office space in the valley has already outgrown the number of doctors to fill it. As a result, the medical office space market has experienced an increase in vacancy from 4th quarter 2009 at 14.87% climbing to 15.18% during 1st quarter 2010. However with the Health Care reform bill, we expect vacancy to see a significant drop in the next year or two. It’s been estimated that more than 32 million additional Americans will now be covered with health insurance which will create a need for a substantial amount of new medical office space (roughly 60 million sf National). Also to come on line soon, are the nearly 80 million aging baby boomers who will also need more medical care over the next decade. There is some concern, however, as to the cost of the reform from employer cost to construction cost. As in the general office complexes around Las Vegas, for medical offices, the past years have been filled with challenges from rising construction costs and over building of the medical condos in certain submarkets. According to Mike Young, chief executive of Venture, “The cost of building a medical office is roughly 20% higher than standard commercial space, thus the cost of purchasing or leasing is (typically) higher.” With the slowdown of homebuilding, the demand for medical offices in the suburban areas has also become soft with significant vacancies beginning to occur in the Southwest and Southeast submarkets. In the past, the Southwest submarket has been the hot location to build medical offices, with two major hospitals opening up fairly close to each other. Most of this added vacancy has been due to over-built medical offices in the area. Other submarkets have held steady during the year, with relatively low vacancy rates. Commerce / Cushman & Wakefield Las Vegas Office Market Report Q1 2010 Medical Buildings Inventory Vacancy Demand & Supply Pricing No. of Existing Under Const. Planned Vacancy Net Space Gross Space New Sub Asking Rent (FSG) Bldgs. SF SF SF SF Rate Occupied Leased Supply Lease Low High W Avg. Northwest 75 2,070,473 - 166,046 203,376 9.82% 28,234 45,788 - 1,506 $1.30 $2.13 $1.89 Downtown 2 29,985 - 1,679,040 - 0.00% - - - - Central East 52 1,876,846 - - 301,600 16.07% (1,324) 14,154 - - $1.60 $1.75 $1.69 Central West 68 1,742,095 - - 126,922 7.29% (45,064) 1,892 - 20,962 $1.40 $2.00 $1.76 West 44 1,436,170 270,744 18.85% (17,563) 12,917 - 720 $0.99 $2.25 $1.77 Southwest 53 1,576,427 193,829 730,557 328,701 20.85% 13,293 22,841 - 21,167 $2.40 $2.40 $2.40 Airport 8 82,043 - 16,034 19.54% 230 2,750 - - $1.25 $1.85 $1.99 Southeast 87 1,893,365 27,025 324,638 428,590 22.64% 6,481 38,454 - 8,937 $1.75 $3.00 $2.33 North 14 487,626 - - 23,099 4.74% (5,689) - - - $1.12 $1.95 $1.67 Total 403 11,195,030 220,854 2,900,281 1,699,066 15.18% (21,402) 138,796 - 53,292 $0.99 $3.00 $1.94 6
    • Medical Office Submarket - Rates $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Central Las Vegas No rthwest Do wnto wn Central East West So uthwest A irpo rt So utheast No rth West A rea To tal FSG Rate $1.89 $ 0.00 $1.69 $1.76 $1.77 $ 2.40 $1.99 $ 2.33 $1.67 $1.94 M G Rate $1.78 $ 0.00 $1.33 $1.69 $1.79 $1.80 $1.55 $1.34 $1.37 $1.58 NNN Rate $1.48 $ 0.00 $1.33 $1.78 $1.76 $1.75 $1.25 $1.38 $1.22 $1.49 Outlook In the coming months we expect commercial real estate prices to decline further and not seeing any true recovery until the end of the year to early next year. The market will continue to be impacted by cautious consumer/companies activity, causing vacancies to remain elevated and most likely continue to increase. Rents will also continue to be impacted by the current economy and will continue to fall. In a report produced by UNLV’s CBER “Southern Nevada business will continue to struggle with the after effects of the deepest recession in the US since the Great Depression. To date, Southern Nevada has not enjoyed the same level of increase in business activity as the rest of the US.” The local economy will not pick up until we see robust growth in hiring and according to the survey with only 10 % of businesses anticipated to hire more workers, the recovery will be very slow for the Las Vegas area. We are optimistic going into 2010 that the bottom is near and compared to last year, vacancy is not rising and lease rates are not falling as fast or as far as we were witnessing. Some early signs of stabilization may come from the growth from the federal government, health care sector, energy and clean technology companies needing office space. Performance by Product Type & Classification While broader market trends are clear, by providing basic break out of the office product types, it is also important to understand the performance of detailed key sectors within the commercial office market. At Commerce, we know the importance of updating the classification of buildings as the market grows older. We have taken the steps this quarter to start with a new classification process. As a team, we have separated and reclassified all office buildings in a “Tier” format. The Tier format will separate out classes in a Top Tier Class and Lower Tier Class. This will help our clients to better understand, for example, the number of “real” Class A buildings that the Las Vegas area has that would qualify as Class A in other markets such as Los Angeles and New York. The following is the Commerce Real Estate Solutions’ 1st Quarter Market report which highlights market conditions by building type and classification. 7
    • Commerce / Cushman & Wakefield Las Vegas Office Market Report Q1 2010 Professional Buildings Inventory Vacancy Demand & Supply Pricing No. of Existing Under Const. Planned Vacancy Net Space Gross Space New Sub Asking Rent (FSG) Bldgs. SF SF SF SF Rate Occupied Leased Supply Lease Low High W Avg. Northwest Class TTA 1 186,300 - - 186,300 100.00% - - - - $2.20 $2.35 $2.15 Class LTA 1 126,915 - - 88,976 70.11% - - - - $2.10 $2.35 $2.23 Class TTB 1 49,532 - - 30,858 62.30% (14,910) - - - $2.15 $2.35 $2.08 Class LTB 28 948,309 - 70,875 387,015 40.81% (11,283) 5,468 - - $1.00 $3.25 $2.08 Class TTC 74 1,233,425 - - 436,077 35.35% (5,363) 25,141 20,895 1,375 $1.50 $1.50 $1.50 Class LTC - - - - - 0.00% - - - - Total 105 2,544,481 - 70,875 1,129,226 44.38% (31,556) 30,609 20,895 1,375 $1.00 $3.25 $1.97 Downtown Class TTA 3 655,254 - - 37,963 5.79% (5,410) - - 6,123 $2.50 $3.00 $2.78 Class LTA 1 103,951 - - 12,123 11.66% (12,123) - - - $2.50 $2.75 $2.63 Class TTB - - - - - 0.00% - - - - Class LTB 10 459,277 - - 149,653 32.58% (13,445) 900 - 16,317 $1.50 $2.85 $2.85 Class TTC 4 152,562 - - 25,598 16.78% (2,974) - - 1,997 $1.20 $2.60 $2.60 Class LTC 37 631,421 - - 78,083 12.37% (11,941) 1,500 - - $0.95 $2.25 $2.10 Total 55 2,002,465 - - 303,420 15.15% (45,893) 2,400 - 24,437 $0.95 $3.00 $2.59 Central East Class TTA 5 995,120 - 184,200 129,925 13.06% (7,628) - - 43,449 $3.05 $3.55 $3.11 Class LTA 5 387,590 - - 105,183 27.14% (18,539) - - 8,938 $2.65 $3.00 $2.76 Class TTB - - - - - 0.00% - - - - Class LTB 6 529,138 - 39,963 192,126 36.31% (19,230) 1,664 - 19,506 $1.00 $1.65 $1.12 Class TTC 81 2,718,485 - - 652,499 24.00% (174,204) 12,150 - - $0.99 $1.85 $1.29 Class LTC 49 1,171,471 - - 161,404 13.78% (13,007) - - 4,500 $0.80 $1.60 $0.98 Total 146 5,801,804 - 224,163 1,241,137 21.39% (232,608) 13,814 - 76,393 $0.80 $3.55 $1.69 Central West Class TTA - - - - - 0.00% - - - - Class LTA 1 157,624 - - 10,534 6.68% - - - - $2.80 $2.90 $2.85 Class TTB - - - - - 0.00% - - - - Class LTB 48 2,349,221 33,550 36,000 382,721 16.29% (65,271) 14,010 - - $0.75 $2.00 $1.66 Class TTC 122 3,100,237 - - 690,210 22.26% (186,486) 82,038 - 6,628 $1.00 $1.60 $1.38 Class LTC 52 780,205 - - 122,343 15.68% (7,785) 6,656 - - $1.65 $1.65 $1.65 Total 223 6,387,287 33,550 36,000 1,205,808 18.88% (259,542) 102,704 - 6,628 $0.75 $2.90 $1.64 West Class TTA 1 143,633 - - 57,555 40.07% 5,380 5,380 - 4,128 $2.50 $2.85 $2.67 Class LTA 3 293,255 - 641,960 55,220 18.83% 16,352 16,352 - - $1.95 $2.40 $2.23 Class TTB 35 1,858,277 - - 419,271 22.56% (125,243) 4,393 - 42,273 $1.00 $2.60 $1.87 Class LTB 121 2,434,220 40,000 903,441 385,644 15.84% (102,934) 11,633 - 40,552 $1.50 $2.50 $1.76 Class TTC 179 2,536,944 - - 542,715 21.39% 16,803 97,156 - 25,060 $1.00 $2.15 $1.58 Class LTC 11 245,699 - - 65,774 26.77% (7,571) - - - $0.81 $1.60 $1.51 Total 350 7,512,028 40,000 1,545,401 1,526,179 20.32% (197,213) 134,914 - 112,013 $0.81 $2.85 $1.93 Southwest Class TTA - - - - - 0.00% - - - - Class LTA 2 336,140 70,000 323,412 229,816 68.37% 44,398 44,398 - - $2.60 $3.25 $2.96 Class TTB 28 1,584,370 - - 535,016 33.77% (21,160) 49,021 - - $2.40 $2.45 $2.42 Class LTB 102 1,797,248 738,826 958,554 276,905 15.41% 46,753 60,333 - 56,605 $2.44 $2.50 $2.47 Class TTC 68 1,001,558 - - 170,216 17.00% (11,513) 31,966 - 4,750 $1.00 $2.85 $1.81 Class LTC 6 114,542 - - 35,869 31.32% 1,520 2,400 - - $1.10 $2.75 $1.95 Total 206 4,833,858 808,826 1,281,966 1,247,822 25.81% 59,998 188,118 - 61,355 $1.00 $3.25 $2.32 Airport Class TTA - - - - - 0.00% - - - - Class LTA 5 433,464 - - 227,525 52.49% (82,410) - - - $2.25 $2.85 $2.63 Class TTB 17 1,157,337 - 333,494 281,144 24.29% (4,186) - - - $2.35 $3.55 $2.75 Class LTB 35 1,675,945 161,523 433,915 324,191 19.34% (15,157) 23,231 - 32,481 $1.35 $2.35 $1.99 Class TTC 153 1,769,918 - - 465,875 26.32% (18,981) 15,390 - 4,000 $0.55 $2.50 $1.86 Class LTC - - - - - 0.00% - - - - Total 210 5,036,664 161,523 767,409 1,298,735 25.79% (120,734) 38,621 - 36,481 $0.55 $3.55 $2.31 Southeast Class TTA - - - - - 0.00% - - - - Class LTA 4 323,132 - 1,168,000 168,534 52.16% - - - - $2.95 $2.95 $2.95 Class TTB 23 1,238,237 - - 324,255 26.19% (8,339) 2,262 - 24,900 $2.95 $2.95 $2.95 Class LTB 38 1,176,806 199,183 1,112,015 237,809 20.21% (11,117) 5,705 - - $1.69 $2.95 $2.32 Class TTC 312 4,230,703 - - 850,579 20.10% 19,098 81,257 - 29,431 $1.05 $2.50 $1.18 Class LTC - - - - - 0.00% - - - - Total 377 6,968,878 199,183 2,280,015 1,581,177 22.69% (358) 89,224 - 54,331 $1.05 $2.95 $2.13 North Class TTA - - - - - 0.00% - - - - Class LTA - - - - - 0.00% - - - - Class TTB - - - - - 0.00% - - - - Class LTB 4 133,918 - - 55,303 41.30% 6,984 6,984 - - $1.60 $2.65 $2.30 Class TTC 69 1,427,822 - - 306,805 21.49% 7,167 20,370 - 10,572 $1.00 $2.65 $1.68 Class LTC 19 316,522 - - 8,630 2.73% (4,630) - - - $1.35 $2.50 $1.92 Total 92 1,878,262 - - 370,738 19.74% 9,521 27,354 - 10,572 $1.00 $2.65 $1.97 Las Vegas Total Class TTA 10 1,980,307 - 184,200 411,743 20.79% (7,658) 5,380 - 53,700 $2.20 $3.55 $2.68 Class LTA 22 2,162,071 70,000 2,133,372 897,911 41.53% (52,322) 60,750 - 8,938 $1.95 $3.25 $2.66 Class TTB 104 5,887,753 - 333,494 1,590,544 27.01% (173,838) 55,676 - 67,173 $1.00 $3.55 $2.41 Class LTB 392 11,504,082 1,173,082 3,554,763 2,391,367 20.79% (184,700) 129,928 - 165,461 $0.75 $3.25 $2.06 Class TTC 1,062 18,171,654 - - 4,140,574 22.79% (356,453) 365,468 20,895 83,813 $0.55 $2.85 $1.65 Class LTC 174 3,259,860 - - 472,103 14.48% (43,414) 10,556 - 4,500 $0.80 $2.75 $1.69 Total 1,764 42,965,727 1,243,082 6,205,829 9,904,242 23.05% (818,385) 627,758 20,895 383,585 $0.55 $3.55 $2.06 8
    • Las Vegas Professional Office Market Overview 2000-2010 YTD 12,000,000 30.00% 11,000,000 10,000,000 23.05% 25.00% 9,000,000 20.79% 8,000,000 17.30% 20.00% 7,000,000 Square Feet 15.77% Vacancy 14.42% 14.72% 15.28% 6,000,000 13.61% 15.00% 11.59% 11.48% 5,000,000 9.32% 4,000,000 10.00% 3,000,000 2,000,000 5.00% 1,000,000 - 0.00% 18 20 22 21 25 30 48 43 42 15 17 ,49 ,02 ,62 ,75 ,24 ,19 ,55 ,97 ,96 ,7 ,3 Base 81 37 6, 0, 1, 2, 1, 9, 1, 5, 5, ,03 ,16 03 89 90 13 78 55 57 45 72 8 5 6 3 6 2 3 9 7 1 9 Ave. Lease Rate Sub $2.00 $1.94 $1.88 $1.87 $1.91 $2.03 $1.86 $1.91 $2.34 $2.10 $2.06 Ave. Lease Rate DT $2.27 $2.26 $2.23 $2.16 $2.22 $2.36 $2.27 $2.29 $2.70 $2.33 $2.59 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Built Net Absorption Vacant Inventory Vacancy 9
    • Commerce Classification definitions: GLOSSARY/MAJOR MARKET DEFINITIONS Top Tier Class A: Describes the highest quality office space locally available. The architecture of Class A office structures always prioritizes design and visual appeal over cost, and sometimes over practicality - a Class A building can be considered a monument and a testament to the success and power of its tenants. Class A: Generally 100,000 sq. ft. or larger (five or more floors), concrete and steel construction, built since 1980, business /support amenities, strong identifiable location/access. Most prestigious buildings competing for premier office users with above average rents for the area. Buildings have high quality standard finishes, state-of-the-art systems, exceptional accessibility and suggest a definitive market presence. Lower Tier Class A: Investment – grade property, well located and offering high-quality space. Good design, above-average workmanship and materials. Well maintained and managed, exceptionally so if an older building. Quality tenants. Building(s) location considered premier with high market perception standards. Typically higher rent with excellent building finishes, multiple building amenities and high efficiencies. Lower Tier Class A will have 3 or more floors, concrete and steel construction. Top Tier Class B: Building(s) location considered excellent with medium market perception standards. Renovated and in good locations. Typically lower rent than Class “A” with good building finishes, some building amenities and medium efficiencies. Built after 2000. Concrete and steel construction. Lower Tier Class B: Buildings competing for a wide range of office users with average rents for the area. Building finishes are fair to good for the area and systems are adequate, but the buildings do not compete with class A at the same price. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors. Such buildings offer utilitarian space without special attractions and have ordinary design. Built before 2000. Wood frame and tilt wall construction. Top Tier Class C: A classification used to describe buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors. 15 to 25 years old. Wood frame and tilt wall construction. Smaller buildings, Garden Style design. Lower Tier Class C: Older, un-renovated and of any size in average to fair condition. Basic Space in a no-frills older building. Below –Average maintenance and management. Mixed or low tenant prestige. Inferior elevators and mechanical/ electrical systems. Class C Buildings are typically 15 to 25 years old but are maintaining steady occupancy. Medical: A building is considered medical if greater than 55% of its rentable area is occupied by medical tenants. Full Service Gross (FSG): A lease requiring the owner to pay all operating expenses, such as cleaning, maintenance and repairs, utilities, insurance and ad valorem taxes. 10
    • Las Vegas - Office Submarket Map 11
    • COMMErCE | FULL SErVICE COMMErCIAL rEAL ESTATE SOLUTIONS Commerce Real Estate Solutions has been among the top commercial real estate brokerage firms in the Intermountain West for over 30 years. From our headquarters in Salt Lake City and offices in Provo/Orem, Clearfield and St. George, Utah, Las Vegas, Nevada and Seattle and Bellevue Washington we offer a full range of brokerage services, valuation and consulting, client representation and property/facility management. Our alliance with Cushman & Wakefield extends our reach worldwide. Meeting your real estate objectives is our number one goal at Commerce Real Estate Solutions. Whether you’re looking to lease, own, develop or sell commercial properties, we have the team of professionals to get it done for you. Our seasoned agents are recognized both regionally and nationally for their first-rate performance; and because of their success, they tend to stay with our company longer. The average tenure of Commerce agents is one of the longest in the industry. That means you’re getting an experienced agent when you do business with us. You’re also gaining access to our Information Services Group, which includes our Geographic Information System (GIS), the industry standard-bearer in mapping, Graphic Design and Marketing, and Research. At Commerce we have a complete understanding of the real estate market. Our comprehensive database allows our agents to feel, track and analyze every movement in the industry and to see opportunities as soon as they arise. Combine this with the global resources of Cushman & Wakefield and you get the most innovative and progressive real estate brokerage in the Intermountain West: Commerce Real Estate Solutions. Doing business in a brisk and nuanced marketplace is complex and difficult. We can help. Our experience, knowledge, innovative thinking, networking infrastructure and unmatched service make Commerce the clear choice for your commercial real estate needs. CUShmAn & WAkEFIELd Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. Founded in 1917, it has 231 offices in 58 countries and 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com. 230 Offices in 58 Countries Europe Austria Bulgaria Channel Islands France Ireland Norway Russia Vienna* Pleven* Jersey* Lyon Cork* Drammen* Moscow Canada Belgium Plovdiv* Sofia* Czech Republic Paris Dublin* Oslo* Stavanger* Scotland Brussels Prague Germany Italy Edinburgh Alberta Manitoba Newfoundland Berlin Bologna Poland Glasgow Calgary Winnipeg* St. John's* Denmark Dusseldorf Milan Warsaw Edmonton* Copenhagen* Serbia New Brunswick Nova Scotia Frankfurt Rome Portugal Belgrade* British Columbia Fredericton* Halifax* England Hamburg Luxembourg Lisbon Vancouver Moncton* Birmingham Munich Slovakia Ontario Luxembourg* Saint John* London-City Romania Bratislava Greece United States London Newmarket London-West End Athens Macedonia Bucharest Spain Manchester Skopje* Timisoara Ottawa Barcelona Thames Valley Hungary Toronto Central Budapest The Netherlands Madrid Toronto East Amsterdam Alabama Sweden Maine Toronto West Birmingham* Northern Ireland Stockholm Portland Quebec Belfast* Mobile Switzerland Maryland Montreal Central Basel* Arizona Montreal Suburban Phoenix Baltimore Geneva* Tempe Bethesda Zurich* Tucson* Massachusetts Turkey California Boston Istanbul Carlsbad Michigan Inland Empire Ohio L.A. 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Midtown New Delhi Georgia Virginia Pune Hanoi Rochester* Ho Chi Minh City C&W Owned Offices Atlanta Syracuse Fredicksburg* Indonesia Syracuse* McLean Hawaii Jakarta C&W Alliance/Associate Offices Utica* Newport News* Honolulu Watertown* Norfolk/Virginia Beach* Japan AS OF MARCH 2009 Illinois Westchester County Richmond* Tokyo Chicago Roanoke* Chicago Suburban North Carolina Washington Charlotte* Indiana Bellevue Greensboro/Winston-Salem* Indianapolis* Seattle Raleigh/Cary Kentucky Raleigh/Durham* Wisconsin Louisville* Tarboro* Milwaukee* 12
    • Our Vision We are the firm of choice - a real estate advisor and principal - the global standard for knowledge, service, and execution. Our Values These values govern all that we do: Our CLIENTS come first Our foremost standard of conduct is INTEGRITY Every employee is a TEAM member and contributes to our success Individually and collectively striving to achieve EXCELLENCE in everything we do Treating each other and our clients with RESPECT and DIGNITY CITIZENSHIP - A commitment to the communities in which we live and work Realize the value in actively recruiting, developing, and mentoring talented individuals of DIVERSE cultures and backgrounds PROFITABILITY - Drives our ability to invest, improve, and succeed 3800 Howard Hughes Pkwy, Suite 1200 Las Vegas, NV 89169 Tel: (702) 796-7900 Fax: (702) 796.7920 Website: www.comre.com