City's commercial rents the highest in the nation.

Most businesses have stopped shedding jobs. and real estate developers have generally been exercising relatively strong restraint.

As a result of a stronger economy, most of the nation's major office markets have begun to experience stronger demand. With little construction activity underway, market fundamentals are beginning to change--moving steadily towards greater equilibrium. This trend is reflected in the recent reversal in rental rate trends across the country's major office markets.

After three consecutive years of decline, according to the National

Total Rent Index in Studley Effective Rent Index 2005 (SERI), effective rents registered an increase in 2004. At $42.66, the National Total Rent index--which includes net rent, operating expenses, real estate taxes and electricity--posted an increase of 2.8% from 2003. Escalation in operating expenses, real estate taxes and electricity cost continued to be a common theme across the surveyed markets. In contrast, minimal changes occurred in concession package values, and net rent rose slightly.

"What we're seeing is a slow but steady improvement of rental rates in major CBD's across the country," said Mitchell Steir, Chairman and CEO of Studley. "Market fundamentals are slow to change, yet there is perceptible upward movement according to this year's report, although it will take some time for national rental rates to reach the all-time high of $51.18 as seen in the year 2000."

For 2004, the highest total rent was posted by Midtown New York ($66.27), followed in a distant second place by Washington, D.C. ($53.00). The lowest total rent occurred in Houston ($21.00), followed by Atlanta ($24.04).

However, the National Total Rent Index remains 17% below its 2000 peak. In fact, total rent was lower in 2004 than in 2000 for every market surveyed--except Washington, D.C. (+15.2%) and West Los Angeles (+15.2%). In 2004, Miami's total rent matched that of 2000.

* The greatest differential in total rent for the four-year period occurred in San Francisco (-55.0%), followed by Boston (-23.0%) and Houston (-23.0%);

* Dallas (-3.7%), Chicago (-4.6%) and Philadelphia (-6.0%) posed the smallest differential in total rent for 2004 compared to the peak rate in 2000.

After declining for three years, the National Tenant Effective Rent Index rose slightly to $34.31, an increase of 3.4% from 2003. Since it is calculated as total rent less concessions, the direction and rate of change in the nation's tenant effective rent were most strongly influenced by the magnitude of change in both net rent and in the value of the typical concession package.

For 2004, net rent increased in almost every market. Although the changes in concessions were less consistent, their value declined or remained unchanged in the majority of the markets. As a result, tenant effective rent increased for most markets.

* The largest declines in tenant effective rent were in Philadelphia (-14.6%) and Atlanta (-5.8%). Declines were also posted by Downtown New York (-3.1%), Houston (-3.0%) and Chicago (2.2%). The balance of the markets registered increases for the year.

* Northeast/Mid-Atlantic markets continue to post the highest tenant effective rent, with Midtown New York at $55.22, Washington, D.C. at $44.86 and Boston at $38.95.

* In contrast, the Southern markets of Houston ($15.82), Tampa ($16.67) and Atlanta ($19.60) posted the lowest tenant effective rents.

On an average annual basis, the National Tenant Effective Rent Index has grown over the last ten years at a rate of 3.3%--or about equal to the rate of inflation during the period--for a total increase of 39% since 1994. In contrast, the National Tenant Effective Rent Index dropped by 24% from its 2000 peak to $34.31 at year-end 2004.

* San Francisco continues to fall short of its peak tenant effective rent by the widest margin (62%).

* Houston was 38% below its peak, with Downtown New York following close behind at 32% below its peak.

* Only Downtown Los Angeles posted higher tenant effective rent in 2004 than in 2000.

Landlord Effective Rent Index

The National Landlord Effective Rent Index was $15.42, a minimal increase of 2.0% compared to 2003. Although a few markets posted significant gains, many markets continued to post lower landlord effective rent for the year.

* The greatest increases occurred in Miami (+24.8%), Dallas (+9.7%) and Midtown New York (+9.6%).