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Segments of the Greater Des Moines Commercial Market at Various Points of the Real Estate Cycle

WEST DES MOINES, Iowa (March 31, 2005) – CB Richard Ellis/Hubbell Commercial, the leading commercial real estate broker in Iowa, announced today results of its eighth annual Greater Des Moines real estate market survey prepared by Frandson, Knapp & Associates, L.C. and the 35th annual Metro Des Moines Apartment Survey, prepared by Carlson, McClure & Associates, Inc. Results of the presentations by the CB Richard Ellis/Hubbell Commercial brokers indicate that the main property types that make up the Greater Des Moines Commercial market are at various stages within the commercial real estate cycle. The industrial real estate market remains in a recession cycle, while the apartment market shows signs of recovery. Some segments of the office market are moving from a recovery cycle into a growth cycle and retail is clearly growing. In addition, investment properties remain highly desirable. Gregory Vorwaller, President of Investment Properties for CB Richard Ellis, addressed hundreds of city and business leaders gathered in West Des Moines regarding the state of the national and global investment properties market. Vorwaller directs all operations of the CB Richard Ellis Investment Properties Group. Last year the group represented clients in selling approximately $40 billion in income-producing properties worldwide, and ranked as the number one sales advisor in the United States. Vorwaller joined CB Commercial in 1993 as Senior Vice President and Regional Manager for the Midwest Region. Other featured presenters included: · Jan Berg, CCIM, SIOR Senior Broker Associate, CB Richard Ellis/Hubbell Commercial Office Market Analysis · Arnold Engman, CCIM Sales Associate, CB Richard Ellis/Hubbell Commercial Industrial Market Analysis · Colleen Johnson Retail Sales Associate, CB Richard Ellis/Hubbell Commercial Retail Market Analysis · Linda Gibbs, CCIM, SIOR Vice President, CB Richard Ellis/Hubbell Commercial Private Client/Investment Analysis · Tim Sharpe, CCIM, SIOR Vice President, CB Richard Ellis/Hubbell Commercial · Private Client/Investment Analysis · Tom DeWaay Sales Associate specializing in multi-family real estate, CB Richard Ellis/Hubbell Multi-Family Market Analysis “We understand the information that city and business leaders, property owners and managers need,” said Rick Tollakson, President and CEO of CB Richard Ellis/Hubbell Commercial. “It is important for decision-makers to look at the entire real estate picture when evaluating the condition of the market. We offer a complete snapshot of the condition of the commercial real estate market in the Greater Des Moines area,” Tollakson said. “The Commercial Real Estate Market Survey and the Apartment Survey are strong indicators of Greater Des Moines’ economic condition,” said Kyle Gamble, Senior Vice President and Managing Director of CB Richard Ellis/Hubbell Commercial. “We view this detailed analysis of the commercial real estate market as an important resource for leaders in this community.” COMMERCIAL MARKET Conducted for CB Richard Ellis/Hubbell Commercial by Frandson, Knapp & Associates, an appraisal and consulting firm, the commercial real estate market survey analyzes office, flex, industrial and retail space by geographic market area in Greater Des Moines. Information was gathered from owners, managers and brokers throughout the Greater Des Moines area during the first quarter of 2003, 2004 and 2005 to provide business and city leaders current and useful commercial real estate information such as lease rates, occupancy trends and major events impacting their local commercial real estate decisions. OFFICE The 2005 market survey contains a segment detailing the competitive office market. This separate analysis consists of buildings considered by the market to be competing for tenants. “The competitive office market analysis is important to our clients because it helps to clarify the office market landscape with regard to competitive building vacancy rates and absorption,” Gamble said. “We are in a recovery cycle with evidence seen in improved market activity,” said Jan Berg. “Improved activity beginning in mid-2004 has continued into the first quarter of 2005. Much credit can be given to improved economic confidence, but decent absorption of class A product and aggressive landlord incentives for class B and C have played a major role in fueling a comeback,” adds Berg. Highlights: o The overall occupancy rate for the Greater Des Moines Office market remains fairly constant, hovering at 90 percent, as has been the case for the past three years. o Lease rates have trended downward in all classes of office space – A, B and C – from 2004 levels. Lease rate historical data over the past 15 years indicates no positive change in lease rates. o Westown Parkway continues to be the identified address as the Class A Western Suburban Office Corridor. As available lots disappear, speculative and owner occupied development heads south on Jordan Creek Parkway, and also south of the new Jordan Creek Mall on Mills Civic Parkway. o The CBD Core continues to develop new and expanded headquarters for insurance companies and financial institutions. o A new office market is expected to take shape on the I-80/I-35 Urbandale Corridor as the infrastructure is completed to allow for access to land zoned and ready for development. o In 2005, we can expect the following: constant rental rates, new construction of owner occupied facilities, continued conversions and redevelopment of Class B and C properties, aggressive landlord incentives for Class B and C properties, continued development of available land and higher construction costs influencing rates and/or squeezing potential profits. INDUSTRIAL “There are two conclusions that can be reached from our study, neither of which show us a very positive trend,” states Engman. “First, there is little chance that there will be a major change in occupancy in the industrial sector, without the addition of new players in our market place. Second, we should expect vacancies to remain at approximately 15 percent in warehousing for the foreseeable future.” · Highlights: o Firestone completed its 850,000 sq. ft. warehouse and distribution facility located at NE 66th and Delaware Avenues. The impact of their consolidation created large vacancies around the market in warehouses that previously stocked Firestone’s finished inventory of tires. o 342,000 square feet of new warehouses opened in 2004, adding to an already over-supplied market place. Manufacturing inventory remained flat, while vacancy actually decreased last year. RETAIL “Retail continues to be the growth market in commercial real estate,” said Johnson. “Jordan Creek Town Center is one of the finest examples in the nation of the evolution of regional malls. Recently considered the dinosaurs of retail, regional mall developers are holding onto shoppers and retailers through incorporation of lifestyle and entertainment components, multiple exterior accesses and inclusion of big box and strip center retailers on their plush campus settings,” Johnson added. Highlights: · Significant collateral retail development is set to emerge around Jordan Creek Town Center. · 2004 saw balanced retail growth throughout the metro area suburbs, particularly in Altoona and Ankeny. · With nearly three quarters of a million square feet of big box retail was developed throughout the metro area in 2004. Big box retail, a category that includes stores over 20,000 square feet, represents nearly half of the 17.4 million square feet of retail our market survey tracks. It is, and will continue to be a leading indicator of the health of retail real estate. INVESTMENT PROPERTIES “2004 was another banner year for investment properties,” states Linda Gibbs. “Due to the uncertainty in the equities market, investors continue to turn to commercial real estate for more predictable returns. Despite a slight up tick in the already historic low interest rates, the demand for real estate continued to exceed supply,” adds Gibbs. Highlights: · In spite of increasing short and long term rates, downward pressure on capitalization rates will remain; principally due to continuing high demand by the investors. · Office was the leading sector in the number of transactions that occurred in the local market, in part due to the desire of many small professional firms preferring to own rather than lease. · The average transaction size in the office sector was $142 per square foot at an average capitalization rate in the 9 percent range. · Multi-family, despite the high vacancy rates, continued to be a favorite among first time and seasoned investors with an average cap rate of 7.85 percent selling at an average of $40,351 per unit. · The retail sector also saw significant activity and the transactions occurred in the 9 percent capitalization rate range and averaged $100 per square foot. · A limited number of industrial transactions occurred, the largest being 5701 Park Avenue in Des Moines (former R&R Donnelly Printing facility) containing approximately 611,000 square feet. The average cap rate for this property segment was almost 10 percent and averaged $33 per square foot. “We will see more out of state investors moving money into the less competitive secondary and tertiary markets such as Des Moines,” stated Timothy Sharpe. “It will continue to be a seller’s market.” APARTMENT “When looking back on 2004 and seeing some of the signals and improving trends, it does appear that we have started to see a recovery in the Apartment sector. The biggest factor that will continue to negatively affect the market in the coming year will continue to be low home mortgage rates and the continued competition with new, affordable condominiums and townhomes, as well as smaller single family homes,” DeWaay said. · Overall apartment vacancy rate in Greater Des Moines is 9.5 percent, a .3 percent reduction from last year. Nationally the rate is slightly higher at 10 percent. · The highest vacancy rates occur on the south side of Des Moines (12.0%), Indianola (11.5%), the west “close-in” area (10.5%), and Altoona (10.5%). · Highest average rents occur in the west suburbs and high rise units. · Lowest average rent by unit type is Ankeny ($399 – efficiency), Indianola ($415 – 1-bedroom unit), east Des Moines ($554 – 2-bedroom unit), and east Des Moines ($687 – 3-bedroom unit). For more information on CB Richard Ellis/Hubbell Commercial, or for a complete copy of the 2005 Market Survey and the 35th Annual Apartment Market Survey, call (515)224-4900, or visit www.cbrehc.com.

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