7.0 EDSR 03-12-2007 - Laserfiche WebLink

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Page 2 of 2 holding closer to quoted rates. The higher cost of new construction will put upward pressure on rental rates across the board, which we are starting to see in select instances. Tenants Moving Cautiously Companies are taking more time to assess the market before making space decisions, primarily due to higher rates on new construction, which are in the $12 (office) and $6 (warehouse) range. Some users are signing short-term renewals. This is especially true in the western suburbs. Tenants need additional space, but they are waiting until they're more confident in the economy. Many landlords currently can't pressure tenants to sign longer-term leases. By second-half 2007-as vacancies continue to tighten-landlords will be in a better position to push longer-term leases or wait for the next deal. Landlords in the Northwest, however, have maintained strong rates with few concessions on renewals, and in some cases they have pushed rates. This is likely because their rates are still lower than newer, higher-image buildings. Eventually, however, growing companies will need more space and thus will have to pay new construction rates, do a build-to-suit or settle for less-functional space. Once tenants are willing to pay the higher rates needed for new construction, more pending speculative development will move forward. Repositioning Properties An ongoing trend, particularly in the Northeast, is single-user buildings being converted to multi-tenant buildings. Aurora Industrial Center in Roseville was acquired by AMB Properties, which undertook extensive renovations to reposition it as multi-tenant. The building is being marketed toward distribution users to take advantage of the tight bulk market. Other single-user properties being repositioned include Royalston Business Center and the American Importing Building, both in Minneapolis. The Outlook Another 2.4 million square feet could be absorbed in 2007. The Northwest is expected to lead absorption and could report single- digit vacancies next year. As the market continues to tighten, landlords will push rental rates. Rate increases are expected across the board with fewer concessions on all product types. Users will continue to evaluate limited options and determine how to deal with decreasing supply and increasing rates. Functional bulk product will continue to be scarce, leading to leasing activity at more obsolete bulk buildings. Large office showroom space is difficult to find, which is why speculative showroom development has taken off. Print this Page Close Window http://outlook.uproperties.com/PagePrinter.aspx?InstanceID=983 d899c-6805-4988-bf~0-41... 3/7/2007