Blackstone appears to be the clubhouse leader for the Equity Office Portfolio (EOP). Here in Austin that means, with the previous CarrAmerica purchase, they will control about 30 percent of the Class A Market citywide.

In the Austin CBD, EOP's portfolio is about 30 percent of the total market and well over 50 percent of the Class A CBD product. This will mean even more upward pressure on rental rates in our CBD and less predictability in operations as the purchaser may very well be a seller in many EOP markets and Austin. The net result: we expect to see a new group of new owners, which will produce more competition.

We expect all these things to occur in a two- to five-year time frame, with nothing but additional pressure on rents, expenses and parking costs due to increased demand from professional services job growth. High construction costs, high purchase prices, continued parking shortages and price increases will add to occupancy costs due to user demand and the removal of surface parking lots due to residential development.

Austin's continuing CBD revitalization will produce a stronger, more diversified core, but the impact on office users will be increased prices in the near term.

So, let's repeat the mantra "A rising tide lifts all boats" and continue to be optimistic for 2007!

Remember when you hit adolescence--the time about junior high, when the long slacks your family just bought became too short and when you kept bumping into everything because you were not yet used to your new size? If you want to see that scenario applied to Austin, just look at what is going on with real estate.

It's not about pants that don't fit; at city scale, adolescence is about roads that don't fit. It's the weekly announcements of new and taller structures that give a clue to growth. The development of new arteries has long been avoided, but the need for additional circulation requires that this be addressed, as the city is doing with toll roads and transit plans.

With over 50,000 new jobs forecast for 2007-2008, and an average of 70 people moving to Austin every day, city leaders are recognizing that the alternative to endless sprawl is not only acceptance but encouragement of new building heights. Rapid growth strains all parts of a city's infrastructure and increases the need for well-located business sites, efficient lease space, enjoyable housing, and a reasonable home-to-work trip time.

Austin is not as old as Boston or London, and it is an adolescent in terms of developmental maturity when compared to other metropolitan centers worldwide. Because it is young, our city can be encouraged to become an even greater place, or mismanaged to allow problems to become critical. To have a viable downtown there must be a balance of uses besides commercial and State offices, and this has led to support for new housing in significant quantity. New forms of housing in the central area will provide the needed buying power for new retail--and it is the new retail and support services that begin to make housing and offices attractive beyond the views afforded.

A look across our downtown skyline, based on knowledge of announced projects, indicates a new phenomenon: the residential structures are taller than the office workplaces. . . .

AUSTIN POISED TO BUCK NATIONAL TRENDS

AngelouEconomics is predicting strong continued growth through 2008. Austin's real estate market is poised to be one of the hottest in the United States, bucking trends elsewhere, according to Angelos Angelou, founder of AngelouEconomics and leading economic development consultant.

In his annual Austin forecast event, Angelou reported that central Texas will continue to defy national real estate slowdowns and remain a sellers' market for the next several years. "Many sectors are driving growth in Austin," he said. "We are firing on all eight cylinders."

Highlights of the annual forecast for Austin include the following:

· In 2006 office market vacancies fell to 13 percent, the lowest since 2001. Strong growth in professional services and software design are reasons for the increased absorption.

· Rental rates have risen to $21.88 per square foot. The Southwest and Northwest office markets are the strongest, with the Central Business District at 22 percent vacancy.

· The Austin industrial market remains at a 15 percent vacancy rate, unchanged from 2005, though rates have increased and now average $6-$7 per square foot. Austin's North market is the weakest with high vacancy rates due to the substantial availability of flex and R&D space.

·Across all markets, large tracts of space are disappearing, but several announced projects are planned in the next 18 months.

· Domestic and international migration are spurring growth. Population growth has taken quantum leaps; from approximately 850,000 in 1990 to the current 1.5 million. Approximately 70 people per day are moving to the Greater Austin area.

· Job growth is keeping real estate hot and people flocking to the area. Angelou predicts 24,400 jobs will be added to the economy in 2007 and 26,100 in 2008. All major industries in Texas' capital are slated to expand, particularly in the retail, hospitality, professional services and information sectors.

QUICK STATS

Office market vacancies 13%

Rental rates $21.88 per sq. ft.

Industrial market vacancies 15%

Rental rates $6-7 per sq. ft.

Large tracts disappearing across all markets

70 people/day moving to Greater Austin area

24,400 new jobs in 2007