las vegas commerce office market review

3800 Howard Hughes Pkwy, Suite 1200

Las Vegas, NV 89169

Tel: (702) 796-7900

Fax: (702) 796.7920

Website: www.comre.com

Our VisionWe are the firm of choice - a real estate advisor and principal - the global standard for knowledge, service, and execution.

Our ValuesThese 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

Office Market IndicatorsCurrent

1Q10Change Since

1Q09Vacancy 23.05%Lease Rates (FSG) $2.06Net 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

National and State Employment and Unemployment Overview

Las Vegas Market OverviewOverall 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 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)

As we start the New Year, the big question on everyone’s minds is what is going to happen next and will the signs of recovery start to show and what will it look like for the Las Vegas Market. Experts around the nation believe that recovery will start to show by early 2011 and in some areas may have already hit rock bottom. UNLV Economics Department Chairman, Dr. Stephen Miller says “improvements in taxable sales, gaming revenue and McCarran Airport passenger counts are good indicators of an improving economy (for the Las Vegas market).” Miller goes on to state that “a lot of things are happening locally that are suggestions that the economy is trying to reach bottom and turn around.” While Southern Nevada’s local economy may be starting to see the bottom of the commercial recession period, some experts are still worried about the commercial real estate market and are analyzing declining property values, maturing commercial loans, ownership vs. leasing, the benefit of receiverships and the local business activity.

According to Kenneth P. Riggs, President and CEO of RERC, “The past decade has served up some tough lessons about acting on our gut instincts and about what makes sense and what simply does not fit with sustainable practices. But for investors seeking to seize market opportunities, 2010 is time to gear up for a possible once in-a-lifetime opportunity to snag key long term investments in commercial real estate.” In 2010, with leasing activity lagging, we are seeing more landlords willing to hang “For Lease” and “For Sale” signs on their buildings. John Kulper, president of Commercial Alliance of Realtors, wrote “While lenders generally are avoiding investment real estate, owner-

-1%1%3%5%7%9%

11%13%15%

Las Vegas -13.9%

Nevada - 13.2%

US - 9.7%

Unemployment Rates 1Q10

occupied commercial real estate is beginning to look attractive again.” Real Capital Analytics also agrees stating that “owner-occupied purchase now represent almost 10% of global transactions and will be involved in a greater share of property deals.” In a recent study, most commercial brokerage firm’s executives believe that “real estate prices now make it more financially advantageous to buy rather than lease.” In the Las Vegas market, commercial property values and asking rates continued to fall this quarter which may help with the decision to either buy or lease.

The Federal Government is also monitoring the weakness of the commercial real estate market. The Feds believe that the weakness of commercial loans is a very serous problem because the whole economy could be hit, much like the housing bust has caused. Troubled commercial real estate loans could be the primary force behind bank failures this year. Elizabeth Warren, chair of the TARP Congressional Oversight panel stated that “around half of all commercial mortgages will be underwater by the end of 2010, posing a very serious problem for the economy over the next three years.”

With the growing number of troubled properties and commercial foreclosures, the art of the Receivership business is growing. Hiring a Receivership specialist to manage a bank-foreclosed building is a great benefit to all parties. To help landlords preserve the value of an asset after default, the receivership will quickly identify all of the problems, restructure their finances, acquire tenants and liquidate assets so that they can help produce a quick sale of the property. In today’s marketplace, these services are valuable and essential parts of the new age of real estate operations.

Office Market IndicatorsCurrent

1Q10Change Since

1Q09Vacancy 23.05%Lease Rates (FSG) $2.06Net 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

National and State Employment and Unemployment Overview

Las Vegas Market OverviewOverall 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 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)

As we start the New Year, the big question on everyone’s minds is what is going to happen next and will the signs of recovery start to show and what will it look like for the Las Vegas Market. Experts around the nation believe that recovery will start to show by early 2011 and in some areas may have already hit rock bottom. UNLV Economics Department Chairman, Dr. Stephen Miller says “improvements in taxable sales, gaming revenue and McCarran Airport passenger counts are good indicators of an improving economy (for the Las Vegas market).” Miller goes on to state that “a lot of things are happening locally that are suggestions that the economy is trying to reach bottom and turn around.” While Southern Nevada’s local economy may be starting to see the bottom of the commercial recession period, some experts are still worried about the commercial real estate market and are analyzing declining property values, maturing commercial loans, ownership vs. leasing, the benefit of receiverships and the local business activity.

According to Kenneth P. Riggs, President and CEO of RERC, “The past decade has served up some tough lessons about acting on our gut instincts and about what makes sense and what simply does not fit with sustainable practices. But for investors seeking to seize market opportunities, 2010 is time to gear up for a possible once in-a-lifetime opportunity to snag key long term investments in commercial real estate.” In 2010, with leasing activity lagging, we are seeing more landlords willing to hang “For Lease” and “For Sale” signs on their buildings. John Kulper, president of Commercial Alliance of Realtors, wrote “While lenders generally are avoiding investment real estate, owner-

-1%1%3%5%7%9%

11%13%15%

Las Vegas -13.9%

Nevada - 13.2%

US - 9.7%

Unemployment Rates 1Q10

occupied commercial real estate is beginning to look attractive again.” Real Capital Analytics also agrees stating that “owner-occupied purchase now represent almost 10% of global transactions and will be involved in a greater share of property deals.” In a recent study, most commercial brokerage firm’s executives believe that “real estate prices now make it more financially advantageous to buy rather than lease.” In the Las Vegas market, commercial property values and asking rates continued to fall this quarter which may help with the decision to either buy or lease.

The Federal Government is also monitoring the weakness of the commercial real estate market. The Feds believe that the weakness of commercial loans is a very serous problem because the whole economy could be hit, much like the housing bust has caused. Troubled commercial real estate loans could be the primary force behind bank failures this year. Elizabeth Warren, chair of the TARP Congressional Oversight panel stated that “around half of all commercial mortgages will be underwater by the end of 2010, posing a very serious problem for the economy over the next three years.”

With the growing number of troubled properties and commercial foreclosures, the art of the Receivership business is growing. Hiring a Receivership specialist to manage a bank-foreclosed building is a great benefit to all parties. To help landlords preserve the value of an asset after default, the receivership will quickly identify all of the problems, restructure their finances, acquire tenants and liquidate assets so that they can help produce a quick sale of the property. In today’s marketplace, these services are valuable and essential parts of the new age of real estate operations.

Office Market - VacanciesThe 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

8.69% 9.5

7% 10.32

89% 12.13%

12.45% 13.

18% 13.66% 14

.80% 16

16.98% 17

.30% 19.

83% 20.11

50%20.

79%23.

Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

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

Q308 Q408 Q109 Q209 Q309 Q409 Q110

Professional Office: Inventory (SF) and Vacancy Rate (%)

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

Professional Office: Office Employment vs Vacancy Rate (%)

10.88% 13.22%

17.30%

20.79%

23.05%

200,000

225,000

250,000

275,000

300,000

325,000

350,000

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

200,000

400,000

600,000

800,000

1,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

10.88% 13.22%

17.30%

20.79%

23.05%

200,000

225,000

250,000

275,000

300,000

325,000

350,000

Professional Office Submarket - Direct vs Sublease Vacancy

44.38%

15.15%

21.39%18.88%

20.32%

25.81% 25.79%22.69%

19.74%

23.05%

0.05% 1.22% 1.32% 0.10%1.49% 1.27% 0.72% 0.78% 0.56% 0.89%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

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%

Northwest DowntownCentral

EastCentral West West Southwest Airport Southeast North

Las Vegas Area Total

Professional Office: Building Class

Class A

Class B

Class C

Sublease SF 313,88436,232836,26

Vacancy 1,309,654 3,981,911 4,612,677

Existing SF 4,142,378 17,391,835 21,431,514

C ssalCB ssalCA ssalC

Office Market - VacanciesThe 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

8.69% 9.5

7% 10.32

89% 12.13%

12.45% 13.

18% 13.66% 14

.80% 16

16.98% 17

.30% 19.

83% 20.11

50%20.

79%23.

Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

200,000

400,000

600,000

800,000

1,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

10.88% 13.22%

17.30%

20.79%

23.05%

200,000

225,000

250,000

275,000

300,000

325,000

350,000

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

200,000

400,000

600,000

800,000

1,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Q308 Q408 Q109 Q209 Q309 Q409 Q110

10.88% 13.22%

17.30%

20.79%

23.05%

200,000

225,000

250,000

275,000

300,000

325,000

350,000

44.38%

15.15%

21.39%18.88%

20.32%

25.81% 25.79%22.69%

19.74%

23.05%

0.05% 1.22% 1.32% 0.10%1.49% 1.27% 0.72% 0.78% 0.56% 0.89%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

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%

Class A

Class B

Class C

Sublease SF 313,88436,232836,26

Vacancy 1,309,654 3,981,911 4,612,677

Existing SF 4,142,378 17,391,835 21,431,514

44.38%

15.15%

21.39%18.88%

20.32%

25.81% 25.79%22.69%

19.74%

23.05%

0.05% 1.22% 1.32% 0.10%1.49% 1.27% 0.72% 0.78% 0.56% 0.89%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

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%

Class A

Class B

Class C

Sublease SF 313,88436,232836,26

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)

Medical Office Market

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.

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.

Professional Office Submarket - Rates

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

Northwest Downtown Central East

Central West West Southwest Airport Southeast North Las Vegas

Area Total

buSweNecapS ssorGecapS teNdennalP.tsnoC rednUgnitsixEfo .oNBldgs. SF SF SF SF Rate Occupied Leased Supply Lease Low High W Avg.

57tsewhtroN 2,070,473 - 166,046 203,376 9.82% 28,234 45,788 - 1,506 $1.30 $2.13 $1.892nwotnwoD 29,985 - 1,679,040 - 0.00% - - - - 25tsaE lartneC 1,876,846 - - 301,600 16.07% (1,324) 14,154 - - $1.60 $1.75 $1.6986tseW lartneC 1,742,095 - - 126,922 7.29% (45,064) 1,892 - 20,962 $1.40 $2.00 $1.7644tseW 1,436,170 447,072 18.85% (17,563) 12,917 - 720 $0.99 $2.25 $1.7735tsewhtuoS 1,576,427 193,829 730,557 328,701 20.85% 13,293 22,841 - 21,167 $2.40 $2.40 $2.408tropriA 82,043 - 16,034 19.54% 230 2,750 - - $1.25 $1.85 $1.9978tsaehtuoS 1,893,365 27,025 324,638 428,590 22.64% 6,481 38,454 - 8,937 $1.75 $3.00 $2.3341htroN 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

PricingAsking Rent (FSG)Vacancy

ylppuS & dnameDycnacaVyrotnevnI

Medical Buildings

Commerce / Cushman & WakefieldLas Vegas Office Market Report Q1 2010

44.38%

15.15%

21.39%18.88%

20.32%

25.81% 25.79%22.69%

19.74%

23.05%

0.05% 1.22% 1.32% 0.10%1.49% 1.27% 0.72% 0.78% 0.56% 0.89%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

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%

Class A

Class B

Class C

Sublease SF 313,88436,232836,26

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)

Medical Office Market

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.

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.

Professional Office Submarket - Rates

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

Northwest Downtown Central East

Central West West Southwest Airport Southeast North Las Vegas

Area Total

57tsewhtroN 2,070,473 - 166,046 203,376 9.82% 28,234 45,788 - 1,506 $1.30 $2.13 $1.892nwotnwoD 29,985 - 1,679,040 - 0.00% - - - - 25tsaE lartneC 1,876,846 - - 301,600 16.07% (1,324) 14,154 - - $1.60 $1.75 $1.6986tseW lartneC 1,742,095 - - 126,922 7.29% (45,064) 1,892 - 20,962 $1.40 $2.00 $1.7644tseW 1,436,170 447,072 18.85% (17,563) 12,917 - 720 $0.99 $2.25 $1.7735tsewhtuoS 1,576,427 193,829 730,557 328,701 20.85% 13,293 22,841 - 21,167 $2.40 $2.40 $2.408tropriA 82,043 - 16,034 19.54% 230 2,750 - - $1.25 $1.85 $1.9978tsaehtuoS 1,893,365 27,025 324,638 428,590 22.64% 6,481 38,454 - 8,937 $1.75 $3.00 $2.3341htroN 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

PricingAsking Rent (FSG)Vacancy

ylppuS & dnameDycnacaVyrotnevnI

Medical Buildings

Medical Office Submarket - Rates

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

Northwest Downtown Central East Central West West Southwest Airport Southeast North Las Vegas

Area Total

Outlook

Performance by Product Type & Classification

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.

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.

NorthwestClass TTA 1 186,300 - - 186,300 100.00% - - - - $2.20 $2.35 $2.15Class LTA 1 126,915 - - 88,976 70.11% - - - - $2.10 $2.35 $2.23Class TTB 1 49,532 - - 30,858 62.30% (14,910) - - - $2.15 $2.35 $2.08Class LTB 28 948,309 - 70,875 387,015 40.81% (11,283) 5,468 - - $1.00 $3.25 $2.08Class TTC 74 1,233,425 - - 436,077 35.35% (5,363) 25,141 20,895 1,375 $1.50 $1.50 $1.50Class 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

DowntownClass TTA 3 655,254 - - 37,963 5.79% (5,410) - - 6,123 $2.50 $3.00 $2.78Class LTA 1 103,951 - - 12,123 11.66% (12,123) - - - $2.50 $2.75 $2.63Class TTB - - - - - 0.00% - - - - Class LTB 10 459,277 - - 149,653 32.58% (13,445) 900 - 16,317 $1.50 $2.85 $2.85Class TTC 4 152,562 - - 25,598 16.78% (2,974) - - 1,997 $1.20 $2.60 $2.60Class LTC 37 631,421 - - 78,083 12.37% (11,941) 1,500 - - $0.95 $2.25 $2.10Total 55 2,002,465 - - 303,420 15.15% (45,893) 2,400 - 24,437 $0.95 $3.00 $2.59

Central EastClass TTA 5 995,120 - 184,200 129,925 13.06% (7,628) - - 43,449 $3.05 $3.55 $3.11Class LTA 5 387,590 - - 105,183 27.14% (18,539) - - 8,938 $2.65 $3.00 $2.76Class TTB - - - - - 0.00% - - - - Class LTB 6 529,138 - 39,963 192,126 36.31% (19,230) 1,664 - 19,506 $1.00 $1.65 $1.12Class TTC 81 2,718,485 - - 652,499 24.00% (174,204) 12,150 - - $0.99 $1.85 $1.29Class LTC 49 1,171,471 - - 161,404 13.78% (13,007) - - 4,500 $0.80 $1.60 $0.98Total 146 5,801,804 - 224,163 1,241,137 21.39% (232,608) 13,814 - 76,393 $0.80 $3.55 $1.69

Central WestClass TTA - - - - - 0.00% - - - - Class LTA 1 157,624 - - 10,534 6.68% - - - - $2.80 $2.90 $2.85Class 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 $1.66Class TTC 122 3,100,237 - - 690,210 22.26% (186,486) 82,038 - 6,628 $1.00 $1.60 $1.38Class LTC 52 780,205 - - 122,343 15.68% (7,785) 6,656 - - $1.65 $1.65 $1.65Total 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

WestClass TTA 1 143,633 - - 57,555 40.07% 5,380 5,380 - 4,128 $2.50 $2.85 $2.67Class LTA 3 293,255 - 641,960 55,220 18.83% 16,352 16,352 - - $1.95 $2.40 $2.23Class TTB 35 1,858,277 - - 419,271 22.56% (125,243) 4,393 - 42,273 $1.00 $2.60 $1.87Class LTB 121 2,434,220 40,000 903,441 385,644 15.84% (102,934) 11,633 - 40,552 $1.50 $2.50 $1.76Class TTC 179 2,536,944 - - 542,715 21.39% 16,803 97,156 - 25,060 $1.00 $2.15 $1.58Class LTC 11 245,699 - - 65,774 26.77% (7,571) - - - $0.81 $1.60 $1.51Total 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

SouthwestClass TTA - - - - - 0.00% - - - - Class LTA 2 336,140 70,000 323,412 229,816 68.37% 44,398 44,398 - - $2.60 $3.25 $2.96Class TTB 28 1,584,370 - - 535,016 33.77% (21,160) 49,021 - - $2.40 $2.45 $2.42Class LTB 102 1,797,248 738,826 958,554 276,905 15.41% 46,753 60,333 - 56,605 $2.44 $2.50 $2.47Class TTC 68 1,001,558 - - 170,216 17.00% (11,513) 31,966 - 4,750 $1.00 $2.85 $1.81Class LTC 6 114,542 - - 35,869 31.32% 1,520 2,400 - - $1.10 $2.75 $1.95Total 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

AirportClass TTA - - - - - 0.00% - - - - Class LTA 5 433,464 - - 227,525 52.49% (82,410) - - - $2.25 $2.85 $2.63Class TTB 17 1,157,337 - 333,494 281,144 24.29% (4,186) - - - $2.35 $3.55 $2.75Class LTB 35 1,675,945 161,523 433,915 324,191 19.34% (15,157) 23,231 - 32,481 $1.35 $2.35 $1.99Class TTC 153 1,769,918 - - 465,875 26.32% (18,981) 15,390 - 4,000 $0.55 $2.50 $1.86Class 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

SoutheastClass TTA - - - - - 0.00% - - - - Class LTA 4 323,132 - 1,168,000 168,534 52.16% - - - - $2.95 $2.95 $2.95Class TTB 23 1,238,237 - - 324,255 26.19% (8,339) 2,262 - 24,900 $2.95 $2.95 $2.95Class LTB 38 1,176,806 199,183 1,112,015 237,809 20.21% (11,117) 5,705 - - $1.69 $2.95 $2.32Class TTC 312 4,230,703 - - 850,579 20.10% 19,098 81,257 - 29,431 $1.05 $2.50 $1.18Class 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

NorthClass 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 $2.30Class TTC 69 1,427,822 - - 306,805 21.49% 7,167 20,370 - 10,572 $1.00 $2.65 $1.68Class LTC 19 316,522 - - 8,630 2.73% (4,630) - - - $1.35 $2.50 $1.92Total 92 1,878,262 - - 370,738 19.74% 9,521 27,354 - 10,572 $1.00 $2.65 $1.97

Las Vegas TotalClass TTA 10 1,980,307 - 184,200 411,743 20.79% (7,658) 5,380 - 53,700 $2.20 $3.55 $2.68Class LTA 22 2,162,071 70,000 2,133,372 897,911 41.53% (52,322) 60,750 - 8,938 $1.95 $3.25 $2.66Class TTB 104 5,887,753 - 333,494 1,590,544 27.01% (173,838) 55,676 - 67,173 $1.00 $3.55 $2.41Class 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 $2.06Class TTC 1,062 18,171,654 - - 4,140,574 22.79% (356,453) 365,468 20,895 83,813 $0.55 $2.85 $1.65Class LTC 174 3,259,860 - - 472,103 14.48% (43,414) 10,556 - 4,500 $0.80 $2.75 $1.69Total 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

Vacancy Asking Rent (FSG)gnicirPylppuS & dnameDycnacaVyrotnevnI

Professional Buildings