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News release

San Francisco

JLL REPORT:  San Francisco Market Shows Signs of Slowing

Year-end reports conducted by firm’s Northern California-based operation confirm that familiar

national trends are now developing locally

San Francisco, CA – February 5, 2009  - After posting positive absorption of office space for 11 of the last 12 quarters, San Francisco’s CBD has now experienced its second straight quarter of negative absorption, according to Jones Lang LaSalle’s fourth quarter real estate market report
released today.
Although office leasing activity in San Francisco’s CBD over the last year has slowed to a trickle in the fourth quarter of 2008, and rents have also declined for a second straight
quarter -- down 10.7% from this time last year, Jones Lang LaSalle researchers confirm that, as expected, landlords are doing what they always do in this part of the real estate cycle – retain tenants by offering concession packages, lowering asking rates and offering broker bonus commissions. 
On another positive note, San Francisco did enter the current downturn with sub-10 percent direct vacancy at the end of the third quarter and, as a result, has had limited new supply
delivered to the market.  What’s more, that condition is not likely to change anytime soon. Most of San Francisco’s office development plans have been shelved indefinitely.  In one such case, Beacon Capital Partners had gone as far as ordering steel and driving piles for its 535 Mission Street development. Alexandria Real Estate Equities, sensing the recessionary trends in the life sciences sector, also elected to put on hold two projects at its Mission Bay development sites.
As might be expected, downsizing companies paired with sluggish tenant demand will cause downward pressure on rental rates in the coming year.  As a result, barring an unexpectedly rapid recovery, overall market fundamentals in 2009 are expected to trend downward. 
The report was also accompanied by another report  -- the San Francisco Skyline Report- which uses building profile graphics and updated floor-by-floor tenant space usage numbers in San Francisco’s trophy buildings to show large tenant movements and changes in occupation in many of
the cities top high rise office towers. 
Combined, the two reports also show that:
• The financial services industry in San Francisco continues to feel the strain of the downturn, as many companies are in financial distress or have gone out of business.  Deteriorating
business conditions have now spread beyond financial services, leaving no sector unexposed. The state and local governments, unable to balance budgets are calling for broad cuts in programs and personnel.  Frozen credit markets coupled with poor revenue performance and losses of key
partners forced law firms, Heller Ehrman and Thelen Reid to be dissolved. 
• The addition of over one million vacant square feet of space in the fourth quarter has continued to push San Francisco CBD market conditions to favor tenants. Re-trades appear to be bringing landlords and tenants to the negotiating table, and tenants are having some success applying downward pressure on asking rents. Unlike 2007, when vacant space was viewed as an opportunity, empty office space today is felt by many owners to be a liability. Recently, more tenants seem to be taking a "wait-and-see" approach, executing short-term renewals to put off
longer-term commitments.
• The nationwide financial crisis has also hit San Francisco’s law firms and financial institutions hard.  As an example, unable to stay afloat, law firms Thelen Reid and Heller Ehrman, chose to dissolve, adding almost 400,000 square feet of vacant space to the market.  On the other hand, J.P. Morgan Chase’s purchase of Washington Mutual and Wells Fargo’s purchase of Wachovia, has, at least thus far, had little impact on San Francisco CBD occupancy.  However, once the two purchasing banks have a chance to digest their newly acquired square footage, more sublease space may be added to the market.
• In the San Francisco office investment market - another important market health indicator -- transaction activity -- has decreased dramatically from 2007.  In fact, out of the 14 buildings brought to market in 2008, only one closed.
• One of the recent deals -- TA Associates’ recent purchase of 235 Pine Street for $375/sf -- indicates that pricing for Class A assets has already declined 20-30%.   

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2008 global revenue of $2.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.3 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $46 billion of assets under management. For further information, please visit our Web site,