MARKET FOCUS:

SUBLEASE EXPIRATION WAVEAPPROACHES IN THE U.S.

Most major markets in the United States have experienced a significant increase in available space during the past twoyears, largely in the form of sublease space offered bybusinesses that overestimated their growth.

As the economy slid into recession and subsequent economicsoftness, vast numbers of businesses across the United Statesdownsized, consolidated or failed. In many cities, millions of square feet of office space have been returned to themarket as sublease space. In fact, some cities have seen theamount of available sublease space double, triple and evenquadruple.

Global Market Statistics

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Covering the World of Real Estate and Property

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MARKET FOCUS:

EUROPEAN TAX CHANGESBRING MIXED NEWS

Alterations to the taxation of commercial property in someEuropean countries have brought swift market reactions. In December 2002, the French parliament approved achange in tax law to give French property companies a tax-transparent structure that is similar to the Belgian, Dutchand German systems. Listed property companies no longerhave to pay corporate taxes and can now distribute 85% of their income and 50% of their capital gains in dividends.These companies also pay a one-off exit tax on unrealizedcapital gains of 16.5% over a four-year period. This newstructure, known as SIICs, and the resulting changes arelikely to stimulate the market as a new wave of indirectinvestment through SIICs occurs.

In Greece, operational sale-leaseback transactions involvingowner-operators of properties and leasing companies are no longer subject to transfer tax, prompting a number ofcorporations to enter into this type of arrangement.

Recent tax changes announced in Ireland’s budget for 2003sent a shock wave through the country’s commercial

VOL. 2 ISSUE 1 www.globalpropertyalliance.com Winter / Spring 2003

(continued on page 12)

Designs by Studio Libeskind and THINK are the two finalistsin the World Trade Center site design competition.Courtesy of Lower Manhattan Development Corp.

$/ C=/ $/ C=/ $/ C=/City Yield1 sq. ft. sq. mtr. sq. ft. sq. mtr. sq. ft. sq. mtr.

Amsterdam 6.5% $31.38 C= 315 $159.41 C= 1,600 $9.96 C= 100

Athens 7.8% $31.88 C= 320 $368.63 C= 3,700 $8.47 C= 85

Atlanta 10.1% $22.03 C= 221 $18.28 C= 183 $8.38 C= 84

Bangkok 8.0% $12.95 C= 130 $51.81 C= 520 $3.99 C= 40

Barcelona 6.5% $29.89 C= 300 $59.78 C= 600 $7.97 C= 80

Beijing 12.0% $27.90 C= 280 $109.59 C= 1,100 $11.96 C= 120

Berlin 5.0% $29.29 C= 294 $239.11 C= 2,400 $5.48 C= 55

Brussels 6.5% $24.91 C= 250 $129.52 C= 1,300 $6.48 C= 65

Buenos Aires 7.0% $8.97 C= 90 $13.95 C= 140 $2.39 C= 24

Chicago 9.7% $29.78 C= 299 $145.00 C= 1,455 $7.50 C= 75

Dallas 10.4% $19.36 C= 194 $19.60 C= 197 $7.70 C= 77

Denver 9.5% $21.99 C= 221 $37.00 C= 371 $7.07 C= 71

Dublin 6.0% $47.62 C= 478 $538.00 C= 5,400 $10.96 C= 110

Hamburg 5.0% $26.30 C= 264 $199.26 C= 2,000 $8.37 C= 84

Hong Kong 7.5% $52.60 C= 528 $452.12 C= 4,538 $6.38 C= 64

Houston 10.2% $23.57 C= 237 $27.65 C= 278 $6.18 C= 62

Kuala Lumpur 7.0% $10.86 C= 109 $63.76 C= 640 $4.78 C= 48

Lisbon 7.5% $25.11 C= 252 $94.65 C= 950 $10.16 C= 102

London 6.0% $106.20 C= 1,066 $807.00 C= 8,100 $21.92 C= 220

Los Angeles 9.0% $22.23 C= 223 $230.00 C= 2,309 $12.10 C= 121

Madrid 6.5% $32.38 C= 325 $89.67 C= 900 $8.97 C= 90

Manchester 7.0% $40.85 C= 410 $448.33 C= 4,500 $8.97 C= 90

Mexico City 12.0% $27.90 C= 280 $39.85 C= 400 $5.98 C= 60

Miami 9.9% $29.95 C= 301 $32.23 C= 323 $7.63 C= 77

New York 9.4% $54.33 C= 545 $296.00 C= 2,971 $12.22 C= 123

Paris 6.0% $68.74 C= 690 $797.03 C= 8,000 $5.48 C= 55

Philadelphia 10.3% $24.44 C= 245 $70.00 C= 703 $9.91 C= 99

Prague 9.0% $22.12 C= 222 $155.42 C= 1,560 $5.98 C= 60

San Francisco 9.6% $28.72 C= 288 $185.00 C= 1,857 $13.56 C= 136

Santiago 5.0% $17.14 C= 172 $15.24 C= 153 $4.78 C= 48

Seoul 8.0% $29.89 C= 300 $75.32 C= 756 $2.99 C= 30

Shanghai 9.0% $24.91 C= 250 $159.41 C= 1,600 $5.48 C= 55

Singapore 4.0% $37.86 C= 380 $308.85 C= 3,100 $15.14 C= 152

Taipei 6.0% $25.90 C= 260 $89.67 C= 900 $7.97 C= 80

Tokyo 4.0% $45.13 C= 453 $57.29 C= 575 $13.75 C= 138

Warsaw 9.5% $33.87 C= 340 $35.87 C= 360 $6.58 C= 66

Washington, D.C. 9.1% $42.53 C= 427 $61.40 C= 616 $13.30 C= 133

Office Rent2 Retail Rent2 Industrial Rent3

Notes:1The yield used is the office yield.2Rents quoted are maximum prime rents.3For Industrial Rents in the U.S., rents shown are for flex space.4Figures quoted in graphs and narrative are dollars per square foot per year and euros per square meter per year.

Chicago, which recorded 6.2 million square feet of subleasespace on the market at year-end 2000, posted a high of 14.2 million square feet of available sublease space in thefirst quarter of 2002 before gradually receding during therest of the year. New York City saw its sublease space totalsballoon from 3.2 million square feet in the fourth quarter of2000 to slightly more than 20 million square feet at year-end2002. Denver sublease space totals rose from 1.6 millionsquare feet at year-end 2000 to a high of 6.3 million squarefeet in the third quarter of 2002.

The rate at which sublease space has been entering themarket has slowed during the past year. Chicago actuallysaw sublease space levels recede. New York City has seen the quantity of available sublease space increase, but at a lower rate. New York picked up just 2 million square feetin all of 2002 compared to the addition of 11 million squarefeet of subleases in 2001. And in Denver, sublease spacelevels started to decrease in the fourth quarter, fallingnearly 400,000 square feet from the third quarter.

The influx of sublease space has not ended, however, and some markets expect further increases from strugglingindustry sectors. Further complicating the situation forowners is “shadow space,” sublease space that is not on the market but which could be made available under theright terms. Yet another factor that will have a real impacton the market is the quantity of sublease space that expiresduring the next several years coming back onto the books of property owners.

So far, building owners have continued to receive rent onpreviously leased space, either from the primary tenant orfrom a sublessee. However, during the next three years, anenormous quantity of leases underlying sublease space willbegin to expire, converting to direct space. When thisoccurs, property owners – particularly those in Atlanta,Denver, New Jersey and Dallas – will stop receiving rent andfind themselves with significant inventory in a soft market.

2

MAJOR MARKET COMPARISON MARKET FOCUS: UNITED STATESSUBLEASE EXPIRATION WAVE APPROACHES(continued from front cover)

3

WAVE OF SUBLEASE SPACE EXPIRATIONS TO HIT U.S. MARKETS

Although the influx of sublease space has slowed to a trickle or stopped throughout the U.S., a vast quantity of space remains available. The primary leases onmillions of square feet of available sublease space are set to expire by 2005. Once these primary leases expire, the sublease availabilities will convert to directspace and building owners will no longer receive rent.

Available Sublease Space Expiration AnalysisMarket sf Expir. % Expir. sf Expir. % Expir. sf Expir. % Expir. Total Total % of Total Inventory

By 12/03 By 12/03 By 12/04 By 12/04 By 12/05 By 12/05 Sublease sf Inventory Expir. By 12/05(1)

Atlanta 1,427,419 17.4% 2,380,272 29.1% 4,247,768 51.9% 8,184,134 131,047,156 3.2%Chicago Downtown 311,576 5.4% 860,663 15.0% 1,586,984 27.7% 5,729,589 121,387,431 1.3%Chicago Suburban 1,414,268 20.3% 1,863,265 26.8% 2,692,842 38.7% 6,962,329 103,669,255 2.6%Chicago Total 1,725,844 13.6% 2,723,928 21.5% 4,279,826 33.7% 12,691,918 225,056,686 1.9%Dallas 1,924,216 18.8% 3,331,535 32.5% 5,160,069 50.3% 10,258,964 184,634,086 2.8%Denver 1,123,839 18.2% 1,954,941 31.7% 3,177,615 51.5% 6,174,440 99,704,034 3.2%South Florida 453,005 16.2% 817,196 29.2% 1,485,479 53.1% 2,799,937 96,212,902 1.5%Houston 1,065,999 21.4% 1,952,111 39.1% 3,068,213 61.5% 4,989,335 171,800,627 1.8%Los Angeles 959,693 11.6% 2,382,002 28.8% 3,618,630 43.8% 8,260,368 205,507,715 1.8%New Jersey 1,926,673 16.5% 3,017,845 25.8% 4,523,878 38.7% 11,676,758 155,348,160 2.9%New York 1,150,537 5.9% 1,983,067 10.2% 3,384,454 17.4% 19,448,350 403,573,759 0.8%Orange County 486,076 13.5% 1,090,889 30.2% 1,646,248 45.6% 3,606,560 86,561,255 1.9%Philadelphia CBD 161,978 13.2% 330,293 26.9% 539,474 44.0% 1,226,048 38,315,186 1.4%Philadelphia Suburban 373,217 14.7% 598,617 23.6% 959,199 37.8% 2,535,942 56,813,424 1.7%Philadelphia Total 535,195 14.2% 928,910 24.7% 1,498,673 39.8% 3,761,990 95,128,610 1.6%San Francisco 315,969 5.7% 939,197 17.0% 1,650,172 29.9% 5,510,612 77,383,106 2.1%Northern VA 1,289,767 13.6% 2,257,025 23.8% 3,429,005 36.2% 9,464,017 144,245,525 2.4%Washington, D.C. 228,314 8.4% 477,635 17.5% 778,252 28.5% 2,729,260 100,333,191 0.8%

(1)Represents the availability rate of sublease space expiring by December 2005 as a percentage of the overall building inventory.

By year-end 2005, the primary leases on 51.9% of Atlanta’savailable sublease space will expire, representing 3.2% ofthe city’s entire office inventory. In Denver, the primaryleases on 51.5% of its available sublease space will expire,equal to 3.2% of the market’s inventory. New Jersey andDallas face a similar fate by year-end 2005. In New Jersey,the primary leases on 38.7% of the state’s available subleasespace will expire, equaling 2.9% of its office inventory. InDallas, the primary leases on 50.3% of the area’s availablesublease space will expire, representing 2.8% of the city’soffice inventory.

While New York and Washington, D.C. will also see a waveof expirations, those two markets will be least affected as a percentage of total inventory. In New York, the primaryleases on 17.4% of the city’s available sublease space willexpire by the fourth quarter of 2005, equaling 0.8% ofManhattan’s total inventory. Washington will see theprimary leases on 28.5% of its available sublease spaceexpire, representing 0.8% of the District’s total inventory.

The approaching wave of available space and the so-called“jobless” recovery that many economists now expect may

signal limited new absorption in the next 12 to 18 months.This, combined with low interest rates, is prompting ownersto shore up their portfolios now, embracing renewals andincreasing occupancy to refinance at favorable rates.Although this may be one of those rare times when renewalleases appear to be beneficial to both sides of the ledger,enabling tenants and owners to pursue their interests at the same time, some tenants remain unwilling to make a decision until they have a better idea of their prospects for the future.

Markets across the United States stand at different stages of the recovery process. Some regions have yet to hitbottom, others believe that they have seen the worst of the downturn and a few areas appear to be improving.Given the uneven state of the recovery it is likely that it will take several quarters at least before activity increases inthe commercial real estate markets across the U.S. Buildingowners and tenants are taking this into consideration asthey position themselves for an uncertain 2003, a year thatmay hold opportunities if geo-political unrest quiets and theeconomy gets back on track.

4

Corporate leaders have suffered from indecision during thepast 18 months. Recession, terrorism, corporate fraud andthe prospect of war have caused many to question majorcapital investments and expansion plans. However, while itmay have seemed that new economic problems loomedaround every corner in 2002, it appears that we may havereached bottom and could see some improvement in 2003.

In the space of two short years, most major U.S. marketshave gone from near-record tightness to near-recordsoftness. In fact, in eight of the 13 markets tracked by Julien J. Studley Inc., Class A availability rates were greaterthan 20% at year-end 2002. In five of those 13 markets –Atlanta, Suburban Chicago, Dallas, Denver and OrangeCounty – Class A availability rates surpassed 23%.

Class A asking rents fell considerably in 2002, with New YorkCity experiencing the greatest decline. Midtown Class Arents dropped from $71.46 in the first quarter to $60.96 at the end of the year. In the same time period, Class A rents in Lower Manhattan dropped from $52.02 to $44.95, SanFrancisco Class A rents fell from $31.89 to $28.72, LosAngeles Class A rents decreased from $24.50 to $22.23 and Northern Virginia Class A rents slipped from $27.38 to $25.76.

Atlanta: The city weakened further as local corporationscontinued to retrench. Market indicators in Atlanta havereached levels not seen since the early 1990s. The region’soverall availability rate topped 24% in the fourth quarter of 2002, with Class A availability rates at just under 26%.Landlords have increased concession packages and becomemore flexible on a variety of lease negotiation issues. Withlandlords competing to outdo each other to lure newtenants and hang on to existing ones, space users haveincreasingly found themselves with a large variety ofattractive alternatives.

Chicago: The fourth quarter of 2002 was full of newsabout the progression of Hyatt Center, a new office tower in Chicago’s West Loop, and the completion of several largeleasing transactions. Another new trend in Chicago was the presence and growth of underlying available space – atleast 3.4 million square feet has been identified downtown –that has not been formally marketed or posted on listingservices. The Class A availability rate jumped 8.3% from the third quarter, ending the fourth quarter at 17.0%. Rents continued to gradually slip, with a 2.9% dip for ClassA rents in the fourth quarter, ending the year at $29.78 persquare foot.

Dallas: The fourth quarter of 2002 wrapped up a yearcharacterized by mounting levels of available space in theDallas/Fort Worth region. A handful of developers haveaggressively marketed proposed office buildings for theUptown submarket that totals 1.5 million square feet. TheDallas CBD, which had seen growing tenant interest, posteda combined Class A and B availability rate of 24.6%, one ofthe highest among major U.S. cities. Rental rates for Class Aspace in Dallas dropped $0.37 to $19.36 per square foot.Average availability rates rose to 27.8% overall, with Class Aproduct posting an availability rate of 26% and Class B spaceat 29.4%.

Denver: The status of the metro Denver office marketremained relatively unchanged in the fourth quarter of2002. Aggressive landlords have offered effective rents $2 to $4 per square foot below asking rates and a host ofconcessions not seen since the early 1990s. Demandremained tepid, however, resulting in elevated availabilityrates and declining rents. Although the sublease glutpeaked earlier in the year, 6 million square feet of subleasespace remained available. The continued health of Denver’scentral business district may be affected by two variables:Gates Rubber Co.’s potential lease of the entire 285,000-square-foot Legacy Plaza building and the financialcondition of Qwest Communications.

Houston: Ongoing negative economic news andcorporate restructuring and downsizing have driven theHouston market to new lows. The overall availability raterose 1.1 percentage points to just under 20% in the fourthquarter, with the Class A availability rate increasing to18.9%. Average asking rental rates in Houston continuedtheir downward trend. Class A average asking rents fell

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$1.12 per square foot to $23.57, while non-Class A askingrents fell slightly to $18.09. Sublease space comprised 5.3million square feet, adding 3.3 percentage points to theavailability rate and bringing the combined availability rate to 19.6%.

Los Angeles: Los Angeles tenants have been busyrenewing their leases and negotiating flexible long-termdeals. Steady activity pushed down the Class A availabilityrate to 20% in the fourth quarter. The large number ofspace users electing to renew and expand at their currentlocations kept net absorption at less than 10%. With largeamounts of available space remaining throughout the LosAngeles region, rental rates fell in all building classes in thefourth quarter of 2002. Overall rents have fallen more than6.4% in the past year, dropping from $25.96 per square footin the first quarter to $24.29 in the fourth quarter. Class Arents have slipped about 7.3% in the same time period,decreasing to $22.23.

Miami: After enduring declining market conditions,South Florida appears to have reached a state ofequilibrium. Availability rates fell an average of one-half a percentage point overall for the region at year-end 2002.Landlords have been slow to adjust to indications of astrengthening market, and tenants have taken advantage of this by structuring innovative transactions. Overallaverage asking rents decreased in Miami-Dade County by$0.52 per square foot to $24.09, while falling only slightly in Broward County to $21.41 and remaining basicallyunchanged in Palm Beach County at just under $23.00.

New York: The increasing quantity of “shadow space” in New York City has added yet another layer ofconsideration for tenants in the market. The presence ofshadow space expands options for tenants and furtherenhances their leverage with building owners. New YorkCity saw Class A availability rates increase by more than 55% in 2002, from 7.2% in the first quarter to 11.2% in the fourth quarter. Meanwhile, overall availability rates rose from 9.2% in the first quarter to 11.0% in the fourthquarter, a rise of nearly 20%. Accordingly, asking rents havedecreased in every quarter. Class A rents in New York Cityhave dropped more than 6% in 2002, slipping from $61.40per square foot in the first quarter to $54.33 in the fourthquarter.

Philadelphia: The region’s office market remainedstatic in the fourth quarter of 2002 compared to earlier in the year, with an overall availability rate of 18.2%. The strong leasing performance posted by some Philadelphia

area submarkets may be a harbinger for 2003. Moretransactions were being closed and less sublease space wascoming to market in the final quarter of 2002. Although the Philadelphia region suffered rising vacancies andminimal leasing activity in 2002, investors poured moneyinto local properties. The CBD recorded building sales inexcess of $800 million, surpassing the previous high forinvestment sales set in 1998.

San Francisco: San Francisco leasing activity has risen for three consecutive quarters, as tenants cash in on low rents and generous concessions. Class A asking rents dropped to $28.72 in the fourth quarter of 2002,representing the eighth consecutive quarterly decline. It is expected that Class A rents will remain in the $20s for allof 2003. Availability rates maintained a level in 2002 notseen in more than three decades. After two years of freefall,the San Francisco market stabilized at about 80% occupancyin the second half of 2002. Although availability rates mayhave found a temporary ceiling between 19% and 20%, the supply/demand imbalance is likely to remain for the next several years.

Washington, D.C.: While the D.C. market posted a slight increase in available space at the close of 2002, the city still boasted the nation’s lowest availability rate at7%. Major leasing activity in the fourth quarter continued to be dominated by government users and law firms. Slowactivity, minimal private-sector tenant growth and below-market sublease offerings may force landlords to be moreflexible with rental rates. Five buildings scheduled to bedelivered in late-2003 will add more than 1.5 million squarefeet to the market. The downtown sales market enjoyed ahigh level of activity in 2002 as investors sought well-leasedbuildings with creditworthy tenants.

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A majority of the European markets experienced asignificant downturn in office property demand in 2002.Supply increased as many corporations sought to offloadsurplus space, often competing head-to-head with brand-new space. Although tenant demand was down overall,deals were still being made. Banks, law firms andengineering groups all signed leases for big spaces inLondon, Paris and Madrid during the last quarter of 2002.

The confirmation of European Union accession for another10 members (subject to ratification) will focus investors on opportunities in those countries, particularly in Poland, Hungary and the Czech Republic. Infrastructureimprovements are expected to create new retailopportunities. The capital markets are finally beginning to reflect tenant sentiment, with investors taking a morecautious approach. This was especially evident in countriessuch as France and Belgium, where short lease terms exposereduced demand. Even so, the appeal of bricks and mortar,and the continued lackluster performance of equities, will help make real estate an attractive alternative for many investors.

Amsterdam: The performance of the real estatemarket in Amsterdam has not changed significantly sincethe first half of 2002. The Dutch economy continued tostruggle through a slowdown, with the effects particularlyevident in Amsterdam. The stagnant information technologysector showed little sign of improvement, which hascontributed to an increase in the office availability rate to10%. Prime market office rents decreased slightly to C=315per square meter. There were no major changes in the retailand industrial markets, with retail and industrial rentsremaining stable at C=1,600 per square meter and C=100 persquare meter, respectively. Investment in Amsterdam realestate remained positive. German investors such as CommerzGrundbesitz Investmentgesellschaft GmbH (CGI) were active.CGI bought part of the Mahler 4 development for C=295million. Very little new construction is expected this year for the city.

Athens: Despite an improving Greek economy, thecommercial real estate market slowed and demandweakened at the beginning of 2003. The office sectorwitnessed a significant decrease in demand, with office rentsdecreasing slightly to C=320 per square meter. Internationalrequirements were rare and domestic tenants wereincreasingly cost sensitive. While landlords have not yetshown flexibility in terms of lower asking rents or increasedincentives, these measures may become necessary to attract

new tenants. There was no major change in theperformance of the retail sector and retail rents in primelocations remained stable at C=3,700 per square meter. Rental levels have also remained steady in the industrialsector, although there remains a lack of available well-located modern warehouse space. The main Greek bankswere the most active investors in the market in the secondhalf of 2002, and legal changes facilitated the establishmentof real estate open-ended funds with major tax advantages.

Barcelona: The city’s new stock of office supply, coupledwith the reduction in global economic activity, contributedto a continued shift in the office sector in favor of tenantsand buyers. Torre Agbar in Laytena, a fully pre-leased officecomplex, is expected to become a new architecturallandmark in Barcelona. Office rents and yields remainedstable at C=300 per square meter and 6.5%, respectively.Demand for industrial parks located close to Barcelona wasstable, and no new large industrial developments areexpected anytime soon. Retail sector activity is expectedfrom the consolidation of existing retail centers and thedevelopment of new shopping centers, as the city’s centralstreets can no longer provide new retail space. The level ofinvestment in Barcelona increased in the second half of2002, with buyers acquiring office and industrial propertiesto diversify their traditional retail and residential portfolios.

Berlin: More German companies and institutions havemoved to Berlin to be near the central government, withmuch of their attention focused on the development of the East City. Investors were very active in this area, whereproperty prices are considerably lower than in primelocations and public transportation is excellent. Locations inthe West City remained resilient, although prime office rents

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fell to C=294 per square meter. Newly emerging officelocations such as the Postdamer Platz were well received by office tenants. The streets of Tauentzienstrasse andKurfuerstendamm remained the prime retail locations inBerlin, although Postdamer Platz in nearby Friedrichstrassehas also established itself as a popular area. Retail rentsremained stable at C=2,400 per square meter. The industrialsector did not improve in the second half of 2002. Large-scale manufacturers have moved to Brandenburg in theoutskirts of Berlin, causing average prime industrial rents to decrease to C=55 per square meter.

Brussels: There were no major changes in the Brusselscommercial property market into 2003. Central businessdistrict office buildings performed well due to continueddemand from the EU for office space. As a result, primeoffice rents increased slightly to C=250 per square meter. The office sector remained the most attractive to investors,particularly German investment funds such as DeutscheImmobilien Fonds AG, or DIFA, which acquired a 19,000-square-meter property called Le Mondrian. The officeavailability rate was 8.7% at the end of 2002, and the primeoffice yield remained at 6.5%. There was no notable changein the industrial or retail market, with rents remaining stableat C=65 and C=1,300 per square meter, respectively.

Dublin: Dublin is not expected to absorb a significantamount of the excess office space that has swamped the city over the past few years until at least the second half of 2003. The city center market, however, was not as badlyhit as the suburbs, and yields for well-leased propertiesremained at 6%. The retail sector continued to perform well and is likely to be the best performing sector in 2003supported by continued strong consumer and tenantdemand. Retail rents increased in the second half of 2002 to C=5,400 per square meter. An oversupply also existed inthe industrial sector, with weak tenant activity driving rentsdown. While low interest rates have fueled investmentactivity, an increase in the stamp duty to 9% reducedproperty values by 3%. This may inhibit future investmentparticularly from smaller investors. Many Irish investorscontinued to turn their attention to the United Kingdomand continental Europe.

Hamburg: Hamburg was one of Germany’s more stablemarkets compared to the performance of commercial realestate in other cities. However, Hamburg tenants still leasedapproximately 12% less office space in 2002 than they did in 2001, with the decline in the IT sector and portfolioadjustments carried out by insurance companies

contributing to the drop. The average prime office rentremained at C=264 per square meter and the office yielddecreased slightly to 5%. The high liquidity of Germanopen-ended funds contributed to a very active investmentsector. Transaction volume totaled approximately C=1.25billion in 2002, representing an increase of 60% from 2001.DIFA made two prominent retail acquisitions in Hamburg:The Herold Centre and Wandsbek Quarree. The number ofnew office developments increased toward the end of 2002,with projects such as Berliner Tor Centre and St. Georgpartially leased at between C=138 and C=144 per square meter.It is feared that the German economy’s continued poorperformance will have a negative impact on the market inthe first half of 2003.

Lisbon: Rental rates stabilized in Lisbon’s office, retailand industrial sectors in the second half of 2002, with minoradjustments bringing the average prime office rental rate to C=252 per square meter, to C=950 per square meter forprime retail and to C=102 per square meter for industrial. The retail sector proved attractive to major investors such as Akeler Holdings S.A. and Portuguese Property Funds, withparticular interest in shopping center projects. However, new office developments were only of interest to investors if they were pre-leased. In the main CBD submarkets ofAvenida de Liberdade and Avenida da Republica andparallel streets, there is approximately 34,000 square metersof new office space under construction. This new supply isexpected to put downward pressure on rental rates, withrent decreases projected for the first half of 2003.

London: The retail property market held up well in thesecond half of 2002 in central London despite a continued

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(continued on page 8)

reduction in tourism. Prime retail rental units remained indemand, although many believe London’s retail market haspeaked. Consumer spending is expected to fall by thesecond quarter of 2003. There is also evidence that supplyhas begun to overtake demand, especially in retail space onOxford Street. Average retail rents have decreased slightly toC=8,100 per square meter. Economic uncertainty and lowtenant demand have applied further downward pressure toboth the City and West End office markets, with rents fallingto C=1,066 per square meter in the West End and C=902 persquare meter in the City. With rents expected to decreasefurther, tenants with leases in Class A buildings have startedto view their occupancy in those properties as a liability.Tenants with the option to break their existing leases aretaking advantage of the opportunity. The only significantnew office developments expected in the West End areplanned for the Victoria submarket and are aimed at thegovernment sector. A number of pre-existing projects will becompleted in 2003 and 2004 in the City, fueling fears ofexcess supply and a prolonged downward slide.

Madrid: The real estate market performed well in thesecond half of 2002, fueling expectations that the city willbecome a premier global business center in the comingyears. The office market has recovered from a drop indemand experienced during the first half of 2002. There wasan increase in the quality of available space, particularly inthe new business districts on the outskirts of the city such asthe business parks Campo de Las Naciones and Arroyo de laVega. Investment activity also increased, with the largesttransactions being the sale of leased office buildings and thedevelopment of new business parks. Madrid has seen asurge in new combined shopping and entertainmentcenters, and the retail sector remained stable overall withprime retail rents remaining at C=900 per square meter.Demand for industrial space remained strong and is beingmet by ample new construction on land zoned for industrialuse throughout Madrid. The average industrial rentremained unchanged at C=90 per square meter. As inBarcelona, residential investments have produced thehighest profits for developers and speculative buyers since1998. The local government has been supporting thedevelopment of commercial real estate in Madrid, which hasgreatly contributed to its improved performance.

Manchester: The Manchester office sector experiencedrising demand and limited supply of office space in the CBD,which resulted in an increase in prime office rents to C=410

per square meter. While rents are likely to increase furtherin the first quarter of 2003, the city’s limited supply of officespace could eventually cause problems for the larger tenantsin the professional and service industries that may need tofill space requirements before new buildings are deliveredto the market. This may force some potential tenants tolook at surplus space that exists on the fringes of the cityand to property located south of the city. The industrialmarket was extremely competitive, with many tenantsreluctant to commit themselves long term due to theunpredictable economic climate. Supply and demand, whichwas finely balanced in mid-2002, has shifted in favor oftenants, with supply likely to outstrip demand. Although theaverage industrial rental rate remained stable at C=90 persquare meter, it is predicted to increase during the first halfof 2003.

Paris: Leasing activity within Paris CBD office buildingsincreased in the fourth quarter of 2002, however, tenantsstill took less space off the market in 2002 than they signedfor the previous year. Space users have continued to relocatefrom prime office space in traditional CBD locations such asLa Defense, helping to push down the average prime officerental rate to C=690 per square meter. Despite this drop inrents, the Paris office sector still remained attractive toinvestors seeking more stable returns than those providedby the weak equity markets. The prime office yielddecreased slightly to 6%. Cash-rich German funds, whichwere very active in the market in the first half of 2002,continued to invest in French commercial property. Therewas no major change in the retail or industrial markets, withcontinued reduced consumer activity resulting in a drop indemand from large retail users.

Prague: The historic floods that engulfed Prague inAugust 2002 have not affected the commercial propertymarket as negatively as was first feared. Overall marketsentiment has remained positive, although there has been areduction in leasing, and some planned developmentprojects close to the Vltava River have lost their tenants.Several new office developments broke ground in Prague inthe second half of the year. Phase 1 of Andel City, developedby investor United Business Machines, is due to becompleted in early 2003. The project comprises four officebuildings that contain a total of 11,500 square meters ofoffice space. Another 160,000 square meters of office spaceis projected to come on line this year, although demand isexpected to keep up with supply. Demand for retail space,however, has far outstripped supply, given the lack of primeretail space in Prague. With demand surpassing supply by

8

EUROPE (continued from page 7)

(continued on page 12)

LATIN AMERICA

After a decade of positive growth in Latin America duringthe 1990s, the business environment has become much morechallenging. For some Latin American countries such asBrazil, Colombia, Argentina, Uruguay, Peru and Ecuador, the worst political and economic conditions have passed.These six countries have begun to evolve toward more openeconomic and political systems and have slowly achievedpositive economic growth after experiencing periods ofdecline. From a political perspective, Brazil, Colombia andEcuador have great potential to prosper due to newdemocratic governments, all of which enjoy the support ofinfluential local and international business groups. By theend of 2003, Argentina, Uruguay, Peru and hopefullyVenezuela, are also expected to recover from their currentproblems and enjoy a period of sustained economic growth.

Mexico and Chile have successfully battled regional andglobal economic weakness. The political reforms initiated inMexico five years ago have helped the country perform wellin spite of its dependence on the U.S. economy. Chile,although small compared to other countries in the region,continues to be a good example for its neighbors. Chileenjoys a stable political system and has implementedmarket-friendly reforms.

Buenos Aires: The devaluation of the peso in 2001, an unstable political system and a poorly performing stockmarket continued to negatively affect Buenos Aires’commercial real estate in the second half of 2002. Manybanks dramatically reduced credit to companies, whichsignificantly weakened the office sector. Office prices havedeclined more than 50% (in U.S. dollar terms) since thedevaluation and remain at historically low levels. Althoughoffice rents have fallen to $8.97 per square foot andattracted interest from foreign investors, few deals wereclosed. Lack of activity has boosted the availability rate foroffice space to 25% and fueled a drop in office propertyyields to 7%. Conditions improved somewhat for the retailsector, with small well-located businesses performing well.Overall retail rents still dropped slightly to $13.95 per squarefoot. The industrial sector appears to provide the betteroption in the long term, with rental rates remaining at $2.39per square foot. Investors that left the industrial sector inthe 1990s have considered re-entering the market followingan increase in demand for industrial properties.

Mexico City: Demand for smaller, more cost-effectiveoffice space in Mexico City continued in the second half of2002, with numerous tenants relocating to take advantageof lower rents. The office sector, which has remained stablefor the past year, has proved an attractive option forinvestors, and office yields have increased to 12%. The retail

sector witnessed the biggest turnaround in the second halfof 2002, after suffering for much of the year through lowconsumer spending and little new construction. Several newretail developments recently broke ground, includingBosque Real, a residential and commercial property that hasalready leased 75% of its retail space. Consumer spendinghas increased and a number of international retailers haveopened new stores in Mexico City. Investors were particularlyinterested in properties leased to international tenants orlarge tracts of land that can be developed into shoppingmalls. The industrial market performed poorly in the secondhalf of the year, mainly due to restrictions placed onindustrial development in the city center.

Santiago: The retail sector in Santiago showed the greatest signs of improvement in the second half of2002. Investors remain confident that there will soon be a resurgence in consumer spending, which has remained at low levels for the past five years. This has driven theconstruction of a number of new shopping malls andcenters. The popularity of shopping malls, however, hasnegatively impacted street-level retail businesses inSantiago. One exception to this has been the developmentof high-end retail units in exclusive residential areas such as Alonso de Cordova and Nueva Costanera streets. Officebuilding construction has mainly been centered in thewealthy neighborhoods of the city, such as Vitacura and Las Condes. The office yield has decreased to 5%, althoughprime office rents have increased to $17.14 per square foot.The industrial market was the worst performing propertysector in Santiago. There were no new industrialdevelopments in the second half of 2002 and rental ratesfell to $4.78 per square foot as supply continued to exceeddemand.

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LATIN AMERICA PRIME OFFICE ASKING RENTAL COMPARISON

ASIA

Global uncertainty resulting from a possible U.S.-led waragainst Iraq and North Korea’s plans to restart its nuclearprogram clouded the outlook for the Asian propertymarkets in the second half of 2002. However, many stillhope for a peaceful resolution to these unstable situations.

Singapore is expected to record a lower-than-projectedgrowth rate – estimated at 2.2% – for its gross domesticproduct for 2002. Office availability rates are projected tosurge as major office projects are completed, creating anexcess supply of office space. The retail sector suffered asetback resulting from a January 2003 increase in the city’sgoods and services tax that further dampened retail sales.

China remained the most resilient market in Asia in 2002.Following the country’s entry into the World TradeOrganization, Shanghai was selected to host the 2010 WorldExpo, which should boost real estate investment anddevelopment within the city. Hong Kong has not benefitedmuch from the mainland’s high-flying performance, and itsoffice and industrial sectors continued their downward spiralin the second half of 2002. A weak office market prevailedin Malaysia and in Taipei, while Thailand benefited fromstrong demand for high-quality office buildings in primelocations. The Tokyo property market was sluggish, with nonear-term turnaround expected for Japan’s economy.

Bangkok: There was continued strong demand forprime office locations easily accessible by publictransportation. The occupancy rate for prime officebuildings within the central business district has increased,and most office properties located near Sky Train stationsare fully leased. Prime office rents increased to $12.95 persquare foot, with prime office yields rising to 8%. The high-profile Siam Paragon shopping center and hotel located inthe heart of Bangkok, adjacent to the Siam Center, is slatedfor completion at the end of 2005. The retail sector,however, saw average rents decrease to $51.81 per squarefoot. The industrial property market in Bangkok remainedstagnant toward the end of 2002 and into 2003, with veryfew industrial transactions recorded and little investment innewly constructed factories.

Beijing: Growth in demand for good-quality Beijingoffice space during the second half of 2002 was offset bynewly completed office developments. Single officebuildings in Beijing are gradually being replaced withmixed-use developments that offer office, retail and leisurespace – the under-construction Beijing Fortune Center is anotable example of an integrated retail and office project.The retail market in Beijing, while still in its infancy, has

displayed enormous potential. Traditional shopping areascomprised of small individual retail stores are expected to bereplaced by large shopping malls. Demand for retail serviceshas remained strong among newly-formed residentialcommunities, and these types of retail opportunities haveproved popular with investors.

Hong Kong: The retail sector performed strongly inHong Kong into 2003, pushing up prime retail rents to$452.12 per square foot. Two major new officedevelopments were completed in Hong Kong during thesecond half of 2002: the International Finance Center’s 1.5million-square-foot Tower 2 and Charter House, 11 CharterRoad. The Hong Kong Monetary Authority purchased340,000 square feet within Tower 2 for approximately $474million, and Nomura leased 65,000 square feet within thebuilding. Franklin Templeton Investments and JP Morganleased a combined 430,000 square feet of space withinCharter House. Average prime office rents decreased slightlyin the second half of 2002 to $52.60 per square foot. Theindustrial sector continued to perform poorly, with primeindustrial rents decreasing to $6.38 per square foot.

Kuala Lumpur: The office market remained weak inKuala Lumpur in the second half of the year as the marketcontinued to struggle with an oversupply of office space.There was approximately 15 million square feet of officespace available at the beginning of 2003, which will likelytake up to five years to be absorbed. Prime office rents,however, remained unchanged at $10.86 per square foot.Activity in the retail sector was mainly centered around twonew shopping malls – Maju Junction and Great EasternShopping Mall – both of which opened with above averageoccupancy rates. Despite previous optimism, it is predicted

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ASIAN PRIME OFFICE ASKING RENTAL COMPARISON

10

that the commercial property market will remain weak inthe coming months, with the economy growing at amoderate rate of 4%.

Seoul: The office market in Seoul, which was very healthyat midyear 2002, suffered through a decline in the secondhalf of the year. The availability rate increased due to SouthKorea’s recent poor economic performance, and will likelyincrease further following the completion of major officeblocks in Seoul such as Kyobo Life Insurance and PosteelCenter. Average office rents, however, remained stable at$14.49 per square foot. The retail sector, the star performerof the Seoul market in the first half of 2002, was alsoadversely affected, with average retail rents decreasing to$75.32 per square foot. The investment market was not veryactive, with yields decreasing to 8% for office, 12% for retailand 5% for industrial.

Shanghai: There was a surge in demand for Shanghaioffice space following China’s easing of some investmentrestrictions on insurance companies. The city’s selection ashost of the 2010 World Expo is further expected to boostproperty investment, development and values in the comingyears. The office occupancy rate in Shanghai at thebeginning of 2003 was 90%, and the average prime officerental rate was $24.91 per square foot. Shanghai’s industrialmarket was strengthened by an increase in export volume.However, the availability rate increased by one percentagepoint following the addition of 240,000 square meters ofnew industrial space at year-end 2002. The Bund, Huai HaiRoad and Nanjing Road remained Shanghai’s prime retaillocations, boasting average rents of $159.41 per square foot.The limited supply of retail properties in these popularlocations could cause prices there to escalate further.

Singapore: Rising global uncertainty and the regionaleconomic slowdown that most of Asia, with the exception ofChina, experienced in 2002 continued to affect Singapore’scommercial property market. Prime office prices decreasedby about 9% in the second half of 2002, and prime officerental rates fell by 6%. The retail market posted a decline inthe number of cash-rich tourists from Western countries,although they were replaced by tourists from the poorereconomies of China and India. The retail sector was alsonegatively affected by a January 2003 increase in the goodsand services tax from 3% to 4%, which will be followed byanother increase, to 5%, in January 2004. The investmentmarket was generally quiet in all property sectors, althoughan industrial real estate investment trust launched inNovember 2002 has attracted considerable interest frominvestors. Overall, the industrial sector was hurt by theslowdown in the world economy.

Taipei: Demand remained soft for office properties in the second half of 2002. Traditional business districts such as Tun Nan and Western experienced a decrease in leasingvelocity due mainly to the relocation of companies to theNeihu Technology Park. The availability rate for office spacein the CBD edged up to 9%, a record high for the past sixyears. Retail leasing in Taipei maintained its consistentperformance in the second half of 2002, proving that theretail sector had recovered and stabilized. Retail propertiesand hypermarkets were the most attractive opportunities for investors. The industrial market was underpinned byrelatively steady demand, which kept potential rentaldeclines to a minimum.

Tokyo: The office market’s performance was less thanstellar in 2002. A large number of new office projectscompleted in the second half of the year increased the office supply by a total of 494,500 square meters. It ispredicted that an additional 950,000 square meters of officespace will become available this year, which may push upthe availability rate from the 4.3% recorded at year-end2002 to 5.3% by the end of 2003. As no improvement isexpected in Japan’s struggling economy, supply is expectedto continue to outstrip demand, leading to a potentiallysteep drop in rents. The retail sector slowed somewhat asconsumers continued to reduce their spending. Sales ofretail outlets were down by an average of 4% in 2002compared to 2001 and the decline is expected to continue.Although the depreciation of the yen in 2002 contributed to an increase in car and electronics exports, the level ofexports fell by 6%. This had a negative impact on theindustrial sector in Tokyo, with rental rates decreasing.

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ASIAN PRIME OFFICE YIELD COMPARISON

11

12

Julien J. Studley, Inc.300 Park AvenueNew York NY 10022, USATel: +1 212 326-1000

Forcadell Plaza Universitat 3 Barcelona 08007, SpainTel: +34 93 496 5447

VigersStandard Chartered Bank Building4-4A Des Voeux Road Central21st Floor Hong KongTel: +852 2810 1100

Jacobus RecourtPrins Hendriklaan 191075 AZ Amsterdam The NetherlandsTel: +31 (0)20 675 0606

Lambert Smith HamptonMimosa House12 Princes StreetLondon W1B 2LL, United KingdomTel: +44 (0) 20 7494 4000

Angermann Global PropertyAlliance GmbHABC-Strasse 3520354 Hamburg, GermanyTel: +49 (0)40 349 140

Beltico 24 Avenue des Arts – Kunstlaan B7B-1000 Brussels, BelgiumTel: +32 (0)2 230 1111

Lipton109 Boulevard Haussman 75008 Paris, FranceTel: +33 1 5330 0033

For media inquiries contact Alison Miller at Julien J. Studley, Inc., tel: +1 212 326-1074 or email: amiller@studley.com.

The information in this report is obtained from sources deemedreliable. No representation is made as to the accuracy thereof.

U.S. statistics compiled with the support of CoStar Group.

Copyright © 2003 Global Property Alliance

Global Property Alliance is a strategic alliance between alimited number of prominent, independent real estatefirms worldwide.

www.globalpropertyalliance.com

property market. Irish Finance Minister Charlie McCreevyincreased the stamp duty on all commercial transactions over C=150,000 from 6% to 9%. The substantial increase intransaction costs will likely divert investment funds fromIreland to the United Kingdom where transfer taxes aremuch less. It is estimated that C=1billion will be invested byIrish investors in the U.K. property market in 2003.

Rumors that the German government will introduce atougher tax regime for commercial property sale transactionshave not helped the struggling German market. The world’sfifth largest retailer, German company Metro, halted the saleof a C=3 billion property portfolio amid fears that therumored tax changes would impact negatively on the deal.

MARKET FOCUS:EUROPEAN TAX CHANGES BRING MIXED NEWS(continued from front cover)

approximately 30%, average prime retail rental ratesincreased to C=1,560 per square meter. Phase I of MetropoleZlicin opened in October 2002, and Phase II will be the major new development in the Prague retail sector in 2003.Demand in Prague’s industrial sector remained stable forboth warehouse and industrial space, although olderindustrial and warehouse buildings in less desirable locationsare considered to be unsuitable for the requirements ofmodern-day warehouse users.

Warsaw: Office sector leasing in Warsaw in 2002dropped below 200,000 square meters, the lowest level ofleasing activity recorded since 1997. Economic uncertaintyled to a number of tenants postponing their spacerequirements, although it is hoped that these will bereconsidered in 2003. The retail sector continued to benefitfrom a high level of investment in the commercial realestate market. Heitman Capital Management, GE CapitalGolub Europe, ING Asset Management and Rodamco Europewere particularly active in the second half of 2002. Retailrents held steady at C=360 per square meter, principally dueto two dominant new developments: Wola Park and theopening of Phase II of Galeria Mokotow. Rodamco acquired50% of Galeria Mokotow at a yield of approximately10.25%. Clothing retailer H&M has committed to opening its first store of 1,300 square meters in Wola Park. Yields inall sectors fell slightly with the prime office yield decreasingto 9.5%. Industrial rents also stabilized due to weakeconomic growth.

EUROPE (continued from page 8)