PricewaterhouseCoopers 4Q 2007 Korpacz Real Estate Investor Survey Finds Challenges...

PricewaterhouseCoopers 4Q 2007 Korpacz Real Estate Investor Survey Finds
Challenges Ahead for Buyers and Sellers

NEW YORK, Jan. 7, 2008 (PRIME NEWSWIRE) -- Continued instability in the
financial markets and ongoing uncertainty about the state of the U.S. economy
will challenge investors throughout the commercial real estate industry during
the next year, according to the 4Q 2007 edition of PricewaterhouseCoopers
Korpacz Real Estate Investor Survey(r).

"The recent subprime mortgage upheaval and the resulting global credit crisis
are causing many players to be in limbo about pricing and about committing to
new investments," said Tim Conlon, U.S. Real Estate leader for
PricewaterhouseCoopers. "As a result, many respondents are suggesting that in
2008 we may see a period of time in which fewer transactions are completed,
underwriting standards tighten, marketing times increase, and cap rates and
sales prices undergo requisite adjustments."

At the same time, the degree to which these events affect individual markets --
as well as specific properties -- will vary greatly depending on underlying
fundamentals and property characteristics, the report notes.

"One of the key challenges that buyers and sellers will face in 2008 is how to
deal with the current price correction taking place," said Susan M. Smith,
editor-in-chief of PricewaterhouseCoopers Korpacz Real Estate Investor Survey(r)
and manager in PwC's real estate business advisory services group. "The fact is,
the commercial real estate industry's fundamentals have remained relatively
healthy -- something that tends to be overshadowed by the current debate
regarding price corrections -- but which could actually help soften the
correction over the long term."

While it is still too early to determine the extent to which property values
will correct, for now it appears that stabilized, quality assets are receiving
the most attention from buyers, and are seeing little, if any, adjustments in
cap rates and sales prices, the report notes.

Other key findings include:

* Thanks to continued low vacancy rates and limited additions to supply, tenants
in many markets are left with only limited options for relocating. As a result,
tenant retention percentages increased in 17 of the surveys' 21 markets during
the past year, with the largest gains being realized in San Francisco and
Houston. Overall, office markets that reported the lowest average underlying
vacancy rate and credit loss this quarter were Washington, DC, northern Virginia
and suburban Maryland.

* Central business district (CBD) markets that endured some of the highest
increases in overall vacancy between the second and third quarters of 2007
included Orange Country, CA, Fort Lauderdale and Fairfield Country, CT. By
comparison, CBD markets that posted some of the highest decreases in vacancy
included Silicon Valley, Baltimore and Orlando. Suburban markets that endured
some of the highest overall vacancy increases included California's Inland
Empire, Orange County and Oakland. By comparison, suburban markets that posted
some of the highest decreases included the San Francisco peninsula, Seattle and
Boston.

* Overall capitalization rates (OARs) remain low in most markets, compared to
last year. Although most average OARs saw declines on a quarterly basis, the
amount of the decrease has shrunk considerably over the past few quarters. At
the same time, the average OAR has held steady over the past three months in
some of the best-performing office markets, such as Manhattan and southeast
Florida.

Additional findings by sector include the following:

Retail

Rising amounts of personal debt, combined with higher gasoline and energy costs,
have finally slowed down the spending habits of most consumers, especially those
in the middle-class and lower-end ranges. As a result, many investors are opting
away from investments involving older Class-B and Class-C regional malls. At the
same time, high-end "true luxury" retailers that cater to the ultra-wealthy will
probably see continued strong growth, while "affordable luxury" retailers that
target both wealthy and middle-income consumers will see a drop-off, the report
notes.

A drop in consumer spending is also having negative effects in the national
power center market, although properties located in high-growth locations and
affluent areas should fend better. Accordingly, a number of big-box retailers
reportedly are making downward adjustments to their retail sales expectations.

An uptick in U.S. retail vacancies, combined with a decline in consumer
spending, is giving would-be investors in the national strip shopping center
market increasing concern. During the third quarter of 2007, the vacancy rate
for U.S. strip centers rose to 7.4%, as compared to 7.3% in the second quarter
of 2007 and 6.9% in the first quarter of 2006. With as much as 26.2 million
square feet of additional new space expected to come on line by the end of 2007
-- and with a slowdown in absorption expected thanks to the drop in consumer
spending -- that vacancy rate is not expected to decline anytime soon.

Office

Despite a slowdown in leasing activity and net absorption, the national CBD
office market remains in good condition thanks to high construction costs and
limited additions to supply. In 24-hour cities with high barriers to entry and
strong diverse employment bases, such as Manhattan, Boston, Seattle and
Washington, DC, overall vacancy rates remain in the single digits.

In the national suburban office market, many landlords have see a slowdown in
activity from both new and existing tenants -- a factor that compels a number of
respondents to anticipate rising levels of overall vacancy in the sector. At the
same time, cap rates have remained relatively steady across the board with some
movement apparent in select individual markets. During the next 12 months,
survey respondents expect property values to increase as much as 5 percent in
the national suburban office market. The report suggests that some of the best
office investment opportunities in the near term exist in Boston, Seattle,
southern California, Bellevue, WA, and northern Virginia.

Industrial

The national flex/R&D market is seeing added interest from some investors,
thanks to a spurt in activity in the high-tech sector and the existence of
supply-demand imbalances that favor landlords in many warehouse and suburban
office markets. Of particular interest to investors are flex/R&D properties
located in long-established tech markets such as Austin, Silicon Valley, La
Jolla and Seattle.

Fundamentals in the national warehouse market remain relatively balanced thanks
in large part to continued global demand for U.S. manufactured goods. Although
the weakness of the U.S. dollar makes it more expensive for U.S. distributors
and consumers to import goods, it helps boost demand for U.S. exports. As a
result, domestic manufacturers with international operations continue to perform
well and require warehouse space. Top markets in this sector are global pathway
markets that feature access to dominant ports, a vast interstate highway system
and close proximity to international airports, including Portland, northern New
Jersey and South Florida.

Apartments

An emerging "shadow market" -- shadow rentals undertaken by owners of condos and
single-family homes thereby diluting the rental pool for apartments -- has
already impacted many metro area apartment markets, the report notes. The
effects are most severe in areas that have already gone through the condo craze
and are experiencing condo reversion, as well as in metro areas with an
oversupply of single-family homes thanks to the recent subprime crisis and
resulting distressed residential market. Even so, many investors still prefer
apartments as an asset class for solid long-term returns. While third-quarter
sales volume for the apartment sector was down 8 percent compared to September
2006, sales volume was down 40 percent for the office, retail, and industrial
sectors during the same period. Regions with the greatest dollar volume of sales
through third quarter 2007 were the northeast and the southwest, led by
Manhattan and Phoenix.

Net Lease

Higher debt costs and increasing economic uncertainty has raised concern that
the pool of buyers could diminish in the near future, the report notes. As a
result, the number of assets available for sale in the national net lease market
(24,224 properties) grew 14 percent in the third quarter of 2007 -- nearly
double the growth reported for the previous quarter. Retail properties led the
way (12,182 properties), followed by office (7,802 properties), and industrial
(4,240 properties). All told, the number of net lease properties sold increased
20 percent in the third quarter of 2007.

National Development Land

During the recent economic expansion the high cost of construction materials and
labor resulted in a relatively moderate development environment. As a result,
there exists a relatively healthy balance between supply and demand in most
property sectors. In the coming months, tighter debt markets and more stringent
underwriting standards should enable the industry to maintain its current
balance even amid an overall slowdown in tenant demand. In the coming year, the
following are "best bets" for development:

* Think Green: Development of state-of-the-art sustainable buildings.

* Focus on Mixed Use and Infill: More 24-hour residential environments closer to
work locations; pedestrian-friendly layouts offering varied living options --
condo, single-family, apartments, as well as service retail including grocery
stores, pharmacies, cleaners and restaurants.

* Build Transit-Oriented Development: Condominiums, apartments and retail near
light-rail or subway/trains stops -- a long-awaited response to growing traffic
jams and car-dependent lifestyles.

* Buy Residential Building Lots: In the current "down" residential market,
overly aggressive homebuilders are selling inventories of residential land
tracts for cents on the dollar.

PricewaterhouseCoopers Korpacz Real Estate Investor Survey(r), now in its 20th
year of publication, is one of the industry's longest continuously produced
quarterly surveys. The current report provides detailed overviews of 29 separate
markets, including the national retail markets (regional mall, power center and
strip shopping centers); overviews of 18 major office markets, including the
recently added markets of Charlotte (new this issue), Denver, Phoenix and San
Diego; and national overviews of the CBD and Suburban Office, Flex/R&D,
Warehouse, Apartment, Net Lease and National Development Land Markets, as well
as a special report on Medical Office Space. The report also features up-to-date
commentaries concerning Valuation Issues, Technology News and Trends and
Economic News. This edition also features guest commentaries on Real Estate
Capital Markets by Bob White, president of Real Capital Analytics, Inc., and the
Domestic Self-Storage Market, by Charles Ray Wilson, CRE, MAI and founder of
Self Storage Data Services, Inc.

Information about subscribing to PricewaterhouseCoopers Korpacz Real Estate
Investor Survey(r) can be found at www.pwcreval.com. Members of the media can
obtain an electronic copy of the full report by contacting Thomas Derr at
thomas.derr@us.pwc.com or (646) 471-8268.

PricewaterhouseCoopers real estate group is part of the U.S. firm's financial
services group, one of the leading providers of integrated professional services
to major financial services organizations. Its integrated approach to
problem-solving involves an international network of real estate accounting, tax
and business advisory professionals who can quickly mobilize to form highly
qualified teams to respond to a client's opportunity or challenge.

Its global real estate professionals offer in-depth experience in a wide range
of financial accounting and reporting issues; global tax solutions; investment
fund structuring; capital market transactions; securitization issues;
technological applications; systems and operations; due diligence and
transaction support; and valuation management.

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CONTACT: PricewaterhouseCoopers
Thomas Derr
646-471-8268
thomas.derr@us.pwc.com
Laura Schooler
646-471-3229
laura.schooler@us.pwc.com