09 2nd Quarter Office Review

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C o m m e r C e C r G | S e C o N D Q ua r t e r - 2 0 0 9 | o f f i c e m a r k e t r e v i e w

OFFICE MARKET INDICATORS

Change Since

Current 2Q09 2Q08 LAS VEGAS
MARKET OVERVIEW
Vacancy 20.11%

Lease Rates $2.12

Net Absorption * (236,335)

Construction 1.4 M
*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.)

LAS VEGAS MARKET OVERVIEW
AT A GLANCE
The Las Vegas economy continues to be impacted by downturns
Overall vacancy rates showed an increase from 19.83% in 1st quarter in all major sectors, including gaming, construction, financial
2009 to the current rate of 20.11% at the end of 2nd quarter 2009. This and real estate, however we may be starting to show a sign
rate is escalating from a year ago when rates were around 16.7%. towards more positive numbers. The latest tourism figures
( June 2009) suggest visitor volumes are still down by 2.89
Construction activity slowed with 1.46 million square feet (msf) of office percent from the same period of the prior year, however are up
space currently under construction. Major projects moving forward from the 9.8 percent change at the beginning of the year. The
include: Centennial Hills Center, in the Northwest submarket with
amount of discretionary spending by tourists also appears to be
approximately 283,700 square feet (sf) of office space. Another major
moving to more positive signs as the average gaming revenues
project that just finished construction was the Rainbow Sunset Pavilion
in the southwest area with 226,140 sf of office space.
on the Las Vegas Strip were down 13.56 percent, but again
up from the 14.8 percent at the beginning of the year. All of
Average rental rates are at lower levels than we witnessed a year ago these factors point toward a cautionary, but also ready to start
at a current rate of $2.12 per square foot per month Full Service Gross spending, stage in consumer demand and market recovery.
(psf/mo/FSG). This is a also a drop from last quarter rates of $2.23 psf/
mo/FSG From a commercial perspective, the supply-demand imbalance
of office product, which started in 2008, has produced substantial
Economic outlook is still going to be a growing concern for both landlords levels of new product that entered the market despite elevated
and tenants as tighter credit terms, rising inflation and a weak job market vacancies. Half way through 2009, developers have now reduced
continue to affect the Las Vegas area. the number of new office buildings under development based
on the current fundamentals of limited to / no financing, high
vacancy and greatly reduced tenant demand. The new issue is
consumer demand to keep businesses running and staying in business. A similar situation has prevailed in the commercial retail sector.
That said, a number of retail closures resulted in higher-than-average vacancies while consumers are feeling the pinch associated with
price declines in their homes. The industrial sector has performed similarly, yet remains more stable than the office and retail sectors.
Limited development in the industrial sector has kept vacancy rates in line with historical averages.

While fundamentals in the market remain challenged, market dynamics in the global financial system create an added level of uncertainty
and unpredictability. From a global perspective, the latest crisis in the financial markets has impacted liquidity and heightened concerns
about accessibility to capital going forward. While government intervention has occurred, the full effect of these assistance programs
remains somewhat uncertain. The financial crisis has impacted the viability of major projects and has banks struggling with liquidity
issues. The positive impacts associated with major resort openings in late 2008 and well into 2009 are difficult to quantify. Major
gaming operators are likely to increase efficiencies to meet the requirements of reduced demand. Employment growth is critical to
future economic growth and the return to a healthy commercial market; which may take several years to accomplish. It is important to
note that Las Vegas has weathered a number of economic downturns and has responded with great enthusiasm. This down cycle will
likely respond similarly; only time will tell!


OFFICE MARKET | OVERVIEW

By the beginning of 2009, the Las Vegas commercial office market
continued to report upward movement in vacancies, while overall LAS VEGAS
demand slowed. The latest market performance was impacted by MARKET OVERVIEW
several factors, including economic weakness locally and nationally,
as well as volatility in the global financial markets. Professional office
tenants have been impacted by a contracting economy, continued
declines in housing values, raising unemployment and ultimately
impacting consumer spending and pullback within the tourism
industry.

OFFICE MARKET | VACANCIES

Valley-wide average vacancies continued to escalate as the supply-side of the equation, combined with declining demand and contraction
in real estate related industries, continues to impact the competitive landscape. The office market vacancies reached 20.11 percent at the
end of the 2nd quarter, which was higher than the 19.83 percent reported one quarter ago (Q1 2009) and 3.4 points higher than the
16.7 percent reported one year ago (Q2 2008). Sublease space also continues to be on the rise with currently 896,110 sf (2% of the total
market) of available sublease space. Office submarkets reporting the highest level of availability included emerging submarkets with the
newest supply of buildings such as the Airport (24.2 percent), Southeast (23.6 percent), and Southwest (27.58 percent) submarkets.
The high vacancy rates in these submarkets are a result of new buildings coming on line with little or no pre-leasing activity, combined
with lease concessions, defaults and downsizing which is causing vacancy to rise. Below-market-average vacancies were noted in the
Downtown (12.07 percent), West (17.57 percent), Central West (14.91 percent).

OFFICE MARKET | PRICING (Average Asking Rents)

The latest performance contributed to price erosion as landlords and building owners compete for a limited number of office tenants.
By 2nd quarter, the market reported average asking rents of $2.12 sf/FSG, a drop from the $2.23 sf/FSG from the previous quarter.
Elevated tenant improvement allowances and free rent concessions are impacting returns for landlords, investors and ultimately lenders.
We expect this trend to continue throughout the majority of 2009 as inventory levels remain elevated.

Average rents in the Class A segment reached $3.02 sf/FSG with newer, high-end buildings targeting a price point well above the
average. Mid-range product (Class B) reported average asking rents of $1.80 sf/FSG, which was below the valley-wide average. Pricing
for Class C properties decreased again this quarter to $1.54 sf/FSG. Downtown ($2.42 sf/FSG), Central East ($2.15 sf/FSG) and
Airport ($2.00 sf/FSG) submarkets show the highest lease rates, while Central West ($1.88 sf/FSG), Northwest ($1.94 sf/FSG) and
North ($1.56 sf/FSG) submarkets show the lowest average lease rates. Please Note: the average asking rates do not take inconsideration
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.

OFFICE MARKET | NEW SUPPLY (Completions) AND MARKET DEMAND

Construction activity slowed with 1.46 million square feet of office space currently under construction. Major projects moving forward
include: Centennial Hills Center, in the Northwest submarket with approximately 283,700 square feet (sf ) of office space.

At the end of 2nd quarter, net absorption ended with a negative 236,335 sf. This is due to the continued decline in market demand
combined with new buildings added to the inventory during the quarter. The hardest hit areas showing negative absorption was in the
West, Central East and Airport submarkets.


OFFICE MARKET | OUTLOOK

The market will continue to be impacted by cautious consumer/
companies activity, causing vacancies to remain elevated and most LAS VEGAS
likely continue to increase. Near-term contraction within the MARKET OVERVIEW
employment market will also have an impact on office market
demand. The effect of extended lease up periods and softening
economic conditions will contribute to increased repossession activity
by lenders that will result in further price adjustments. “About $2.2
trillion of U.S. commercial properties bought or refinanced since
early 2004 have fallen below the price at which they changed hands,”
according to a report by Real Capital Analytics, a research firm based
in New York. Due to lack of financing, owners are going to have to
rely on cash deals, which in turn push down sale prices in order for buildings to be sellable Real Capital Analytics also reported that
“April saw the largest rise yet for properties that are reported to be in default, foreclosure or involved in bankruptcy.” The Las Vegas
area currently has $9.7 billion worth of properties in distress, with office buildings showing $177 million worth, roughly 678,377 square
feet of distressed space. Tight credit, falling property values and lenders unwilling to refinance projects are causing landlords to fear that
they will no longer be able to hang on to their properties. We expect this trend to continue for the foreseeable future as we work our
way thru this deleverage cycle. On a brighter side, Real Capital Analytics also points out in their report, that the office sector has fewer
distressed properties than other properties types and that Medical office buildings has see little trouble in the foreclosure process and
seems to be the golden child of office building properties types.

OFFICE MARKET | 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 CRG, 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. While also taking a
look at lower tier Class A buildings, buildings that is what the Las Vegas market considers Class A, but would not qualify as Class A
in Los Angeles or New York.

The following is the Commerce CRG 2nd Quarter Market report which highlights market conditions by building type and
classification.


Las Vegas, Nevada | Commerce CRG
Second Quarter 2009


Las Vegas, Nevada |Quarter 2009CRG
Second Commerce
OFFICE MARKET | MEDICAL OFFICE MARKET
Second Quarter 2009

The medical sector of the office market continues to perform slightly
better than the balance of the market in 2009. Vacancies within the LAS VEGAS
segment dropped again this quarter from 14.9 percent first quarter MARKET OVERVIEW
Medical Office Market
2009 to 14.1 percent second quarter 2009.
Medical Office Market
The medical sector of the office market continues to perform slightly better than the
The balance sector of the office market continues to perform slightly dropped again this
medical of the market in 2009. Vacancies within the segment better than the
balance of from market in 2009. quarter 2009 within the segment dropped again this
quarter the 14.9 percent first Vacancies to 14.1 percent second quarter 2009.
quarter from 14.9 percent first quarter 2009 to 14.1 percent second quarter 2009.

LAS VEGAS OFFICE SubMARKET GRAphS

Professional Office: Quarterly Vacancy
25% Professional Office: Quarterly Vacancy
25% 1%
1% 3%

.1
.1 .8

20
20 19
3%

20%
0%
0% 8%
8% %

. 3. 8
. 9 . 80

179
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17 16
16 16
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4. 8
6% 8%

. 8 . 66
16
8% %

15%
5% 3%

.6 .1

1413
. 1 . 45
13 13
.4 .1
3%%

13 12

15%
9% 2%

12 12
. 1 . 89
2% %

.8 .3

1210
%

10 10
. 3 57
%%
% %
18 . 03

% %

57 69

10 9.

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69 9
49 18

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9
%

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8. 8.
03

%

10%
9.

8.

5%
5%

0%
0%
5 5

5 5

6 5

6 6

6 6

6 6

7 6

7 7

7 7

7 7

8 7

8 8

8 8

8 8

9 8

9 9

9
30 20

40 30

10 40

20 10

20
30 20

40 30

10 40

20 10

30 20

40 30

10 40

20 10

30 20

40 30

10 40

20 0
Q Q1

Q Q

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Q
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5
20
Q


LAS VEGAS | OFFICE SUBMARKET GRAPHS

Second Quarter 2009

Professional Office: Quarterly Absorption (SF)
1,500,000

1,000,000

500,000

-

(500,000)

(1,000,000)

8
7

7

7

8
5

5

5

6

6

6

6

7

9

9
8

8
10

20
30

40
30

40

10

20
20

30

40

10

40

10

20
20

30

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%
5

5

5

6

6

6

6

7

7

7

7

8

8

8

8

9

9
30

40

10

20
20

30

40

10

20

30

40

10

20

30

40

10

20
Q

Q

Q

Q
Q

Q

Q

Q

Q

Q

Q

Q

Q

Q

Q

Q

Q



Second Quarter 2009

Professional Office: Office Employment vs Vacancy Rate (%)
350,000 25%

325,000 20.11%
20%
19.83%
300,000
17.30% 15%
275,000
13.22%
8.47% 10.88% 10%
250,000

5%
225,000

200,000 0%
04

05

06

07

08

09
20

20

20

20

20

20
Las Vegas Professional Office Market Overview 1998-2009 YTD
10,000,000 22.00%
20.11%
9,000,000
17.30%
8,000,000 15.77% 17.00%
14.62% 14.42% 14.72% 15.28%
14.20% 13.61%
7,000,000
11.59%
11.48%
6,000,000 12.00%
Square Feet

Vacancy
9.32%
5,000,000
4,000,000 7.00%
3,000,000
2,000,000 2.00%
1,000,000
- -3.00%
18

20

22

21

25

30

48

45
12

14

15

17

,49

,02

,62

,75

,24

,19

,55

,44
,6

,8

,7

,3

Base
32

69

81

37

6,

0,

1,

2,

1,

9,

1,

6,
,04

,63

,03

,16

03

89

90

13

78

55

57

76
8

5

6

3

6

2

3

0
7

9

1

9

Ave. Lease Rate Sub
$1.92 $1.94 $2.00 $1.94 $1.88 $1.87 $1.91 $2.03 $1.86 $1.91 $2.34 $2.12
Ave. Lease Rate DT
$2.21 $2.19 $2.27 $2.26 $2.23 $2.16 $2.22 $2.36 $2.27 $2.29 $2.70 $2.42

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Built Net Absorption
Vacant Inventory Vacancy



Second Quarter 2009

Professional Office Submarket Demand and Supply

300,000

200,000

100,000
20.05% 12.07% 24.21% 23.59% 21.28%
18.12% 14.91% 17.57% 27.58%
0

-100,000

-200,000

-300,000
Northwest Downtown Central Central West Southwest Airport Southeast North
-400,000 East West

Net Absorption New Supply Vacacny %

Professional Office: Building Class

Sublease SF
90,924
Vacancy
Class C 3,642,769
Existing SF
18,052,053

Sublease SF
458,401
Vacancy Existing SF
Class B 4,786,862 25,189,871

Sublease SF
346,785
Vacancy
Class A
843,770
Existing SF
3,522,667


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. 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.


LAS VEGAS | OFFICE SUBMARKET MAP


COMMERCE CRG | FuLL SERVICE COMMERCIAL REAL ESTATE SOLuTIOnS
Commerce CRG has been among the top commercial real estate brokerage firms in the Intermountain West for 30 years. From
our headquarters in Salt Lake City and offices in Provo/Orem, Park City, Clearfield and St. George, Utah and Las Vegas, Nevada
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.

CuShMAn & WAKEFIELd ALLIAnCE
A number of Cushman & Wakefield offices, including Commerce CRG, are independently owned and connected with the
company by way of an international alliance. Cushman & Wakefield concentrates on larger markets like Los Angeles and New
York, and alliance members like Commerce CRG concentrate on developing secondary markets.

Together the geographic coverage is nearly universal. This enables Cushman & Wakefield to provide comprehensive services
for clients with local requirements as well as for those with more expansive national or international portfolios. In either case,
Cushman & Wakefield’s services are supported by the full integrated resources of the entire alliance.

Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. Founded in 1917, it has 230 offices
in 58 countries and more than 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
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Vienna* Pleven* Jersey* Lyon Cork* Drammen* Moscow
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Plovdiv*
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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
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Portugal Belgrade*
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Luxembourg Lisbon
Vancouver Moncton* Birmingham Munich Slovakia
Ontario Luxembourg*
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United States London
Newmarket
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Spain
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Detroit*
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Minneapolis Suburban
Pennsylvania
San Diego - Eastgate Philadelphia
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Latin America
Las Vegas* Melbourne*
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Denver Reno Sydney
Charleston* Auckland*
Connecticut Argentina Ecuador China Wellington*
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Brazil Mexico
New Jersey Guangzhou Karachi*
Memphis* Manaus Ciudad Juarez
Delaware East Rutherford Nashville* Rio de Janeiro Guadalajara* Hong Kong Philippines
Wilmington Edison São Paulo Mexico City Shanghai Manila*
District of Morristown Texas Monterrey Shenzhen
Columbia Austin* Chile Singapore
New York Dallas Santiago* Peru Fiji*
Washington, D.C. South Korea
Albany* Lima
Houston Colombia India Busan
Florida Binghamton*
San Antonio*
Buffalo* Bogota* Venezuela Bangalore Seoul
Ft. Lauderdale
Corning/Elmira* Caracas Chennai
Ft. Myers* Utah Gurgaon Taiwan
Jacksonville Islandia Clearfield/Ogden* Taipei*
Ithaca* Hyderabad
Miami Park City*
Kingston* Kolkata Thailand
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Melville, LI Mumbai – City Bangkok*
Palm Beach Gardens Salt Lake City*
N.Y. Downtown Mumbai – Suburbs
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Indonesia
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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*


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