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Office Officeffkkmarke t repor t Omarke t repor tmarke t repor tOfficeOfficeOfficeOfficeOfficeOfficeOfficemarke t repor tmarke t repor tmarke t repor tmarke t repor tPORTLAND METRO AREA

Second Quarter2006

Market suMMary AVAILABLE** %** NET** UNDERSUBMARKET INVENTORY SQUAREFEET VACANT ABSORPTION CONSTRUCTION

Central City*CentralBusiness 14,250,943 1,625,726 11.41 68,322 0Lloyd 2,087,070 240,068 11.50 11,938 0Northwest 2,427,050 338,919 13.96 49,838 0TOTAL 18,765,063 2,204,713 11.75 130,098 0

Suburban*SunsetCorridor 3,173,148 700,112 22.06 77,810 57,514Central217 1,673,040 269,984 16.14 28,137 0Southern217 940,876 62,250 6.62 9,227 0BarburBoulevard 581,268 99,194 17.07 (5,003) 0Beav-Hillsdale/Sylvan 773,809 153,176 19.80 7,570 0CentralBeaverton 623,431 93,860 15.06 17,924 0I-5South 1,662,225 145,412 8.75 60,212 128,621SWWaterfront/JohnsLndg 1,105,097 112,580 10.19 5,927 0KruseWay 2,068,258 118,078 5.71 (1,206) 107,490LakeOswego/WestLinn 506,935 48,896 9.65 (12,974) 81,000North/Northeast 896,532 148,362 16.55 3,720 99,558Central205 1,215,433 176,456 14.52 14,797 0Southeast 656,253 19,634 2.99 109,088 30,000TOTAL 15,876,305 2,147,994 13.53 315,229 504,183Vancouver 3,524,286 681,073 19.33 (83,126) 75,748

*Additions and Subtractions to the numbers above are in our detailed report.**Numbers only reflect direct space.

VACANCY COMPARISON

ABSORPTION COMPARISON

MARKET HIGHLIGHTS Vacancy rates in the Central City office market are trending towards

single digits. Overall vacancy dropped from 12.27% to 11.75% and 130,098 square feet (sf ) were absorbed this quarter. The market experienced healthy activity in both high-end and lower-quality properties. This was due to several factors, most importantly, a revitalized economy. We are seeing upward pressure on rates. Certain Class A buildings in the Central Business District (CBD) have increased rates by as much as $2.50/sf already this year.

The suburban market saw a decrease in vacancy from 15.26% last quarter to 13.53% currently and the absorption of 315,229 sf. Class A space is very tight in the suburban market and the squeeze on inventory is driving rental rates up. There are only 3 submarkets with vacancies higher than 6%. Class B inventory has been reporting higher vacancy rates as many tenants upgraded space in the last few quarters, but we are starting to see greater absorption this quarter. Currently, Class B space is absorbing more square footage than either Class A or Class C.

The Vancouver office market experienced a negative absorption of

83,126 sf, but added 64,975 sf of inventory this quarter. Though vacancy is at 19.33%, it is interesting to note that Vancouver’s market has experienced some of the most growth over the past year. Since second quarter of 2005, the Vancouver market has added over 400,000 sf of office space, making it the largest market of the Suburban submarkets.

SIGNIFICANT DEALS Laika Inc., Phil Knights animation studio, announced on June 23

its expansion into a 60,000 sf Northwest Portland office building

a few blocks away from the Laika’s current headquarters on Northwest 22nd Ave and Pettygrove Street.

IPERS Nimbus Oaks-Oregon, Inc. has purchased 171,828 sf of office space at 9000 – 9560 SW Nimbus Avenue, referred to as Nimbus Oaks Office Park, for

$25.125 million from Schnitzer Investment Corporation.

John Neimeyer has sold the Convention Plaza, located at 123 NE 3rd Ave. in Portland, for $8.866 million. The Portland Development Commission purchased the 96,000 sf of office building.

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PORTLAND METRO AREA Second Quarter

2006Industrial/Flex Industrial/ddmarke t repor tImarke t repor tmarke t repor tIndustrial/Industrial/Industrial/Industrial/Industrial/Industrial/Industrial/

Market suMMary AVAILABLE** %** NET** UNDERSUBMARKET INVENTORY SQUAREFEET VACANT ABSORPTION CONSTRUCTION

Industrial & Business Parks*North/Northeast 17,403,481 2,305,110 13.20 13,971 390,466Northwest 1,642,488 85,993 5.20 50,283 0Southeast 5,823,203 635,293 10.90 (9,677) 317,895Southwest217 3,129,225 580,829 18.60 5,182 28,586SouthwestI-5 8,137,100 723,528 8.90 327,537 40,300SouthwestSunset 2,936,874 678,312 23.10 15,365 50,000Vancouver 8,236,895 480,868 5.80 170,630 0TOTAL 47,309,266 5,489,934 11.60 573,291 827,247

Flex*North/Northeast 354,366 88,233 24.90 16,811 n/aSoutheast 145,704 31,100 21.34 0 n/aSouthwest217 2,360,307 294,938 12.50 10,114 n/aSouthwestI-5 1,174,439 127,322 10.84 21,186 n/aSouthwestSunset 5,517,697 1,376,314 24.94 (96,346) n/aVancouver 757,719 135,017 17.82 21,699 n/aTOTAL 10,310,232 2,052,924 19.91 (26,536) n/a

* Additions and Subtractions to the numbers above are in our detailed report.** Under construction numbers for industrial also include flex buildings.

VACANCY COMPARISON


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IndustrialFlex

MARKET HIGHLIGHTS The Southwest I-5 submarket saw the absorption of 327,537 square

feet (sf ) this quarter, a significant portion of the overall market’s positively absorbed 573,291 sf. Overall vacancy rose slightly from 10.2% to 11.6%. This was mainly due to the addition of 1,371,316 sf to the market this quarter: 713,470 sf added in the North/Northeast submarket, increasing vacancy there to 13.2% and 449,080 sf added to Southwest I-5. The Northwest submarket has the lowest vacancy of all the submarkets at 5.2%.

The Vancouver market has seen robust absorption as well. Year to Date, Vancouver has absorbed 218,665 sf - 170,630 sf were absorbed this quarter. Along with the submarkets North/Northeast and South I-5, the Vancouver market is seeing a large amount of new development coming online. In this quarter, 100,000 sf of inventory was added and close to 2 million sf are proposed for Vancouver.

The flex market has been defined by high overall vacancy rates, but high occupancy in individual business parks. Several flex parks like International Corporate Center in the North/Northeast submarket have 4 of their 6 buildings at 100% occupancy, as well as the 48,930 sf Beaverton Tech Center in the Southwest 217 submarket. The 508,519 sf Creekside Corporate Park only has 46,045 sf available.

MARKET TRENDS A gap is growing between user demand and available inventory

due to soaring construction costs. Costs are up as much as 20-30%, causing developers to rethink new projects. Likewise, these increasing costs are translating into significantly higher rental rates and the sticker shock may make businesses more uncomfortable.

Even though high construction costs are slowing new development, users need space and many are looking for existing properties. Once this inventory becomes too tight, users will have to look to new

development and those who have made land investments today will reap rewards tomorrow.

SIGNIFICANT DEALS ON Semiconductor Corp. purchased the 506,363 sf LSI

Logic Fabrication Industrial Park in Gresham for $105 million.

SKB-QW, LLC purchased 5950 NE 122nd Ave., 143,664 sf, in Portland, for $17.585 million.

Harsch Investment Properties purchased the 125,000 sf, Greentree West Business Center in Beaverton for $9 million.



Retail Retaileekkmarke t repor t Rmmmarke t repor tmarke t repor tRetailRetailRetailRetailRetailRetailRetailmarke t repor tmarke t repor tmarke t repor tmarke t repor tPORTLAND METRO AREA

Second Quarter2006

Market suMMaryRetail* AVAILABLE % NETQTR. UNDERSUBMARKET INVENTORY SQUAREFEET VACANT ABSORPTION CONSTRUCTION

122nd/Gresham 5,494,959 369,326 6.7 30,387 150,000

CentralCity 2,570,772 106,228 4.1 845 28,500

Southeast/E.Clackamas 5,199,976 100,519 1.9 2,273 144,419

Eastside 4,797,151 255,752 5.3 58,966 74,463

SunsetCorridor 4,842,491 183,520 3.8 20,727 40,000

Southwest 9,485,670 435,159 4.6 (12,991) 145,900

Vancouver 7,244,465 438,063 6.0 (46,061) 842,834

TOTAL 39,635,484 1,888,567 4.8 54,146 1,426,116

* Additions and Subtractions to the numbers above are in our detailed report.

VACANCY COMPARISON


MARKET HIGHLIGHTS Second Quarter’s overall retail vacancy rate is at 4.8%, a slight

increase over last quarter’s 4.6%. 122nd/Gresham submarket saw an additional 30,387 sf absorbed this quarter, bringing the submarket’s YTD absorption to 90,777 and reducing vacancy to 6.7% from 6.9%. Currently 122nd/Gresham has the highest submarket vacancy and the greatest absorption rate in 2006, perhaps this is an indication of the increasing population density of the area, as well as the lack of retail space in all the submarkets (especially the Southeast/East Clackamas submarket at 1.9% vacancy), forcing retailers to look at different areas.

New construction demand has been high to alleviate tight product availability. The retail market added 124,071 sf this quarter and nearly half that square footage was absorbed overall this quarter, and in most cases, having little impact on vacancy. Vancouver was the only submarket to add new construction and have negative absorption. Vancouver added 27,420 sf to inventory but negatively absorbed 46,061 sf. It can be assumed that a significant portion of the negative absorption was due to new construction and not vacancy.

NOTEWORTHY NEWS National indicators show a decline in consumer confidence, but the

Portland Metropolitan retail market still shows robust activity fueled by increasing national retailer attention, low vacancy rates, limited inventory and continued consumer spending. New developments like Cascade Station, near the Portland International Airport, are drawing in retailers like IKEA and Costco. The area is also seeing the continued momentum of boutique retailers in extremely desirable locations like the Pearl District and in the lifestyle centers, Bridgeport Village and the Streets of Tanasbourne.

The rapid development of Columbia Tech Center in Vancouver, Washington has attracted several large retailers to the area including Wal-Mart and Home Depot as well as Kohl’s who entered the Portland-Vancouver market this quarter with multiple grand openings. Furthermore, the Columbia Crossings project will be developed just west of Kohl’s, adding more retail opportunities in Vancouver.

SIGNIFICANT DEALS Foundation Real Estate Development purchased the

197,327 sf Mountain View Ice Area in Vancouver , WA for $4.8 million.

Eton Lane, LLC, purchased the 19,000 sf Furniture Outlet in McMinnville for $2.55 million.

Dollar Tree Stores leased 1,200 sf at 6100 SE King Road in Portland.

West Coast Bank, leased 11,400 sf of retail space at 1234 SE Martin Luther Blvd. in Portland.

CSK Auto, Inc., leased 11,500 sf at the Cort Furniture Building in Portland.

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Multifamily Multifamuumarke t repor tM ppMultifamMultifamMultifamMultifamMultifamMultifamMultifamPORTLAND METRO AREA

Second Quarter2006

Market suMMaryMultifamily AVERAGERENTPERUNIT %SUBMARKET 1BD/1BTH 2BD/1BTH 2BD/2BTH 3BD/2BTH VACANTDowntownPortland $877($1.25) $1,130($1.24) $1,477($1.24) $2,472($1.32) 1.44SoutheastPortland $594($0.89) $684($0.78) $738($0.74) $879($0.76) 2.71North/NortheastPortland $619($0.91) $709($0.78) $825($0.83) $785($0.68) 1.84SouthwestPortland $618($0.89) $668($0.77) $1,013($0.89) $839($0.71) 4.18Gresham/Troutdale $565($0.82) $621($0.73) $690($0.72) $822($0.72) 4.21LakeOswego/WestLinn $749($0.96) $805($0.89) $996($0.90) $1,095($0.81) 4.26Wilsonville $607($0.85) $684($0.75) $737($0.76) $859($0.75) 3.07Tigard/Tualatin $599($0.88) $666($0.78) $776($0.77) $890($0.76) 3.13Beaverton/Aloha $621($0.89) $689($0.77) $787($0.79) $934($0.79) 3.96Hillsboro $679($0.92) $730($0.78) $836($0.79) $1,015($0.78) 2.77Clackamas/OrCty/Mlwk $584($0.83) $664($0.75) $722($0.76) $866($0.72) 3.21Vancouver $584($0.82) $649($0.72) $743($0.72) $845($0.71) 3.58OVERALL $638($0.91) $708($0.79) $830($0.80) $955($0.77) 3.09

VACANCY COMPARISON

AVERAGE RENT COMPARISON

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Overall Newer Seasoned

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MARKET HIGHLIGHTS The Multifamily market is reporting an overall average vacancy

rate of 3.09% and every submarket except Southwest Portland has reported a drop in vacancy. Last quarter, there were some submarkets with sub-2% vacancy in new units, but we are now seeing sub-2% vacancy rates for seasoned units this quarter, indicating how tight supply is.

The Downtown market leads the Multifamily market with vacancy rates for new units at 0.76% and seasoned units at 1.8%. Average rents for floor plans are beginning to rise. Though rates have been rising in some submarkets, the overall market has not risen uniformly. There has been some significant rate jumps for some floor plans, such as the average downtown 2-bedroom/2-bath apartment rental rate rising from $1,461/month to $1,477/month. this quarter.

MARKET TRENDS The Multifamily market is looking up for 2006. A dramatic increase

of effective rents is occurring due to lower vacancy and reduced concessions. Portland’s apartment market will see one of the largest growth rates of net operating income (NOI) of any western city through the end of 2006 and well into 2007.

A California investor paid nearly $35 million for downtown apartment complex, Ione Plaza. The price per unit for the 307-unit building was $113,000. This is an indication that there is still strong institutional interest in the Portland market. There has been a reduction in the numbers of smaller, out-of-state investors. The reason for these reduced numbers of investors is the increase of multifamily product in their own markets, especially in Arizona and parts of California.

In the last week of May, mortgage rates rose again. Freddie Mac reports that 30-year fixed-rate mortgages went up from 6.62% the week before to 6.67% and 15-year fixed-rates rose to 6.26% from 6.23%. 5-year adjustable-rate mortgages (ARMs) rose from 6.21% to 6.26% and one-year ARMs rose from 5.61% to 5.68%. At this time last year, these same mortgages were at least one percentage point lower. These higher rates compound the lack of affordability in the housing market and create more renters.

SIGNIFICANT SALES FPA/Azure Jefferson Assoc. LLC, purchased One Jefferson

Parkway from Salinas Investments (USA) Inc. The 342 units, located at 1 Jefferson Parkway in Lake Oswego, sold for $33.225 million.

Monterey Springs, LLC, purchased an apartment complex at 8620 SE Causey Ave. in Portland for $27.8 million. The 3390 units were sold by Prime Wellington, LLC.

Fairfield Preston’s Crossing LP, purchased Preston’s Crossing from Archstone-Smith Operating Trust. The 228 units sold for $17.4 million and are located in Beaverton.



Economic Econommarke t repor tEmarke t repor tmarke t repor tEconomEconomEconomEconomEconomEconomEconomPORTLAND METRO AREA

Second Quarter2006

SINGLE FAMILY HOME SALES COMPARISON

TREASURY YIELD CURVE COMPARISON

NATIONAL HIGHLIGHTS Wall Street analysts were surprised when the U.S. trade deficit

narrowed to $62 billion in March. Analysts had predicted that the trade gap would increase to $67 billion to reflect higher oil import volumes. Increasing exports and the weak dollar are believed to be contributors to the deficit’s reduction. March’s number reflects the second straight month of a lowered deficit.

The nation’s jobless rate slipped to 4.6% in May from 4.7% in April as more workers found jobs than those seeking them. Though unemployment has edged down, job growth has slowed and wages stalled, indicating that the economy may be cooling.

LOCAL HIGHLIGHTS The May 22, 2006, issue of Forbes magazine published a list of

the Top 200 Largest Metro Areas. Criteria included business costs, living costs, crime rate, number of college degrees, income and jobs. Portland ranked 20th out of the 200. Seattle was ranked 114th.

The University of Oregon’s Index of Economic Indicators, released on June 7, show that Oregon’s economy continues to remain healthy in the face of increasing national economic concerns. Initial unemployment claims, residential building permits and interest rate spread improved in April and nonfarm payrolls data remained relatively the same. A few indicators like consumer confidence and manufacturing orders declined. Oregon’s April monthly index of 107.5 (base 100) indicates solid economic growth for the next quarter.

The Portland Development Commission and Opus Northwest, LLC, inked a memorandum of understanding regarding the Burnside Bridgehead project. The $200 million development will

create 500 residential units, 100,000 sf of retail space, 125,000 sf of work space and over 1,000 structured parking spaces just north of the Burnside Bridge.

The fastest growing employment sector in Portland has been construction. For over 2 years, construction has outpaced

UNEMPLOYMENT COMPARISON - 2004 CONSUMER PRICE INDEx

Source:BureauofLaborStatisticsSource:U.S.DepartmentofLabor;OregonEmploymentDepartment

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(U.S.-May2006-202.5Portland-2ndHalf2005-197.5)

other sectors, indicating that businesses are confident about economic recovery. According to the Bureau of Labor Statistics, from April 2005 to April 2006, construction employment has risen 12 percent in Oregon.

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