First Quarter Commercial Real Estate: Vacancy rate decreases in office market, but increases in industrial market

First Quarter Market Report: Vacancy rate decreases in office market, but increases in industrial market

CB Richard Ellis (CBRE) has released its first-quarter 2008
market analysis for the St. Louis area, which shows availability rates on the rise in the
industrial market but vacancy rates decreasing in the office sector.

The first-quarter 2008 industrial availability rate for the St. Louis area was 11.37%, up from
10.89% in the fourth quarter of 2007. Availability rates were lowest in the Fenton
sub-market, at 5.38%, and highest in the Metro East market, at 19.82%.

The high availability rate in Metro East was the direct result of a huge construction boom in
that submarket over the last several quarters, according to CBRE – St. Louis industrial
brokers. This boom is continuing, with more than 1.2 million square feet of industrial space
under construction during the first quarter in the submarket, which had positive absorption
of more than 950,000 square feet during the quarter, easily outpacing every other
submarket. Absorption is defined as the change in occupied space from one period to the
next, including new leases and companies that leave space. The availability rate measures
space being marketed for lease, including both vacant space and space where leases are
due to expire. The figures include both direct and sublease space available.

“The Metro East is the clear leader for industrial space,” Allen Klippel, SIOR, first vice
president in CBRE’s St. Louis office, said. “The built-out of speculative space has caused a higher availability rate temporarily, but the positives of the Metro East for industrial tenants, including proximity to interstates, are such that we believe much of that space will lease up or be sold very quickly.”

On the office side, overall vacancy was 14.54%, which represented an improvement from
the fourth-quarter 2007 vacancy rate of 14.99%. The South County submarket had the
lowest vacancy rate, at 8.87%, including an exceptionally low 4.24% vacancy rate in the
Class A, or high-end, sector of the market. Downtown had the highest vacancy rate, at nearly 21%. The office report also shows that average asking lease rates are slowly creeping upward, to
$19.99 per square foot in the first quarter.

Despite the national economic slowdown, caused in large part by the problems with the
subprime mortgage crisis, CBRE reported that the St. Louis market continues to show strong fundamentals.

“On the office side, we’re seeing very little new speculative construction,” said Lynn
Schenck, SIOR, senior vice president of CBRE – St. Louis. “That’s certainly helping with
vacancy rates. It’s good to see that the market is holding steady, and even improving, in a
tough economic time nationally.”

CB Richard Ellis also has released its national report for the first quarter, covering both the
industrial and office markets. Nationally, the office vacancy rate was 13.2%, up from 12.8% in the fourth quarter of 2007. The industrial availability rate was 10.5%, up from 10.2%.

CB Richard Ellis’ Industrial MarketView tracks all competitive industrial buildings 10,000
square feet or greater in size. The Office MarketView tracks buildings of 10,000 square feet
or greater, with the exception of medical offices, owner-occupied buildings and
government-leased or government-owned facilities.

The quarterly reports also include lists
of the largest sale and lease transactions that took place during the quarter.

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