January 14, 12:06 pm ET 

Analysis of Market Strength Places Atlanta in Top Three Markets 'Most Likely To Perform' for Investors Across All Sectors

NORTHBROOK, Ill., Jan. 14 Grubb & Ellis Company (OTC Bulletin Board: GBEL - News), one of the leading providers of integrated real estate services, today released its 2004 national real estate forecast, which indicates that all segments of the commercial real estate industry should fare well during 2004 thanks to a stronger economy.

"Virtually all economic indicators point to improving conditions," said Robert Bach, National Director, Market Analysis for Grubb & Ellis. "Real estate is on the upswing, although it will take some time to fully reverse the effects of the 2001 recession and the job-loss recovery of 2002 and 2003."

Increases in U.S. worker productivity combined with the outsourcing of jobs to India, China and other low-wage markets are the primary reasons new job creation has been a challenge -- trends many countries around the world share with the United States. But a healthy expansion is expected to create domestic jobs, spur leasing activity in commercial real estate and boost investor confidence during the next 12 months. A summary of Grubb & Ellis' forecast by sector follows.

Office Market Fights Back

Although the office investment market remained surprisingly firm during 2003, office leasing deteriorated throughout the year and the national vacancy rate stood at 17.6 percent at year-end. As the economy picks up in 2004, leasing activity should increase and, by the second half of the year, landlords will see their negotiating power slowly begin to improve. However, an abundance of sublease space combined with an unknown quantity of phantom space will restrain the recovery and it will take several quarters -- or even years -- before asking lease rates make a complete turnaround.

Atlanta, Los Angeles and Riverside-San Bernardino, Calif., have been identified as the office markets most likely to perform for investors over the next five years based on Grubb & Ellis' proprietary analysis of market strength. Of the top 10 markets, three are in southern California, three are in the Southeast, two are in the Southwest and two are in the Northeast/MidAtlantic regions, indicating prospects for growth throughout the country in the office sector. (Lists follow release.)

Industrial Market Turns Challenge into Opportunity

While increased worker productivity hurt the office sector over the past few years as businesses produced an equal or greater quantity of goods with less labor, it spurred the need for modern industrial space as companies optimized distribution networks and consolidated multiple facilities into state-of-the-art buildings. This tempered the negative impact the recession had on the overall industrial vacancy rate, which ended 2003 at 9.7 percent. Although the manufacturing sector continued to post low levels of leasing activity, distribution space remained in demand due to robust consumer spending. Companies engaged in trade, transportation and utilities accounted for nearly half of all activity in 2003.

Indicators such as rising factory orders, low inventories and a weakening dollar should continue to encourage demand for industrial space in 2004, pushing the vacancy rate to just above 9 percent by year-end. However, the recovery will not be strong enough to boost rental rates for warehouse- distribution space, except perhaps in a few markets, such as Los Angeles. R&D-flex rents could soften further by the end of 2004.

Investors have been attracted to the "slow but steady" returns offered by industrial properties and this trend is expected to continue. Grubb & Ellis' analysis of market strength predicts that New Jersey, Atlanta and Washington, D.C. will offer the greatest returns for investors over the next five years.

Retail Market Puts Investors' Fears to Rest

Ironically, the retail market, which was viewed with suspicion during the 1990s amid concerns of overbuilding and the Internet frenzy, performed exceptionally well through the 2001 recession and the jobless recovery that followed. Strong consumer spending and a housing market fueled by low interest rates have kept demand for retail real estate going strong. Grocery- anchored centers, power centers and even unanchored strip centers will continue to be snatched up by investors as suburbs grow and cities of all sizes continue to pour money into downtown revitalization projects.

According to Grubb & Ellis' analysis of market strength, Atlanta, Austin, Texas, and Phoenix top the list of markets that will provide strong returns for investors of retail real estate over the next five years due to the rapidly growing population in these cities.

Multi Housing Market Will Benefit from Improving Economy

Thanks to the activity of private local buyers, investor demand for apartments stayed strong during the past few years. But, understandably, loss of jobs combined with a strong housing market had a negative effect on apartment leasing. As interest rates rise and new jobs are created, this trend should reverse. Longer term, Generation Y, the baby boomers' children, will make a significant positive impact on the market, as the number of people in their 20s and early 30s, prime renting years, will rise by 7 percent in the current decade and 6 percent in the next decade.

Los Angeles and New York hold the top spots in Grubb & Ellis' analysis of multi housing market strength. These markets are expected to provide excellent returns to investors due to their tight supply of apartment properties. In fact, six of the top 10 markets are in California, where a shortage of land has pushed up demand. Atlanta came in at No. 3 based on its considerable population growth.

Real Estate Industry Breathes a Little Easier

Although the 2004 forecast report offers good news for the commercial real estate industry, it also warns of challenges investors and users of real estate should watch for in the coming years. The industry will continue to feel the impact of global outsourcing and increasing worker productivity.

"In addition, the aging of the baby boom generation, increases in property taxes and property insurance, the cost and availability of energy, and the impact of massive budget deficits are other issues that may have a significant impact on demand for real estate in the future," Bach said.

Grubb & Ellis Company

With access to collective resources of more than 9,000 people in over 200 offices in more than 30 countries, Grubb & Ellis is one of the world's leading providers of integrated real estate services. The Company provides a full range of real estate services, including transaction, management and consulting services, to users and investors worldwide through its domestic offices and affiliates throughout the U.S. and Canada as well as with a global strategic alliance with Knight Frank, one of the leading property consulting firms in Europe, Africa and Asia Pacific. For more information, visit the Company's Web site at www.grubb-ellis.com .

    U.S. OFFICE MARKET STRENGTH FORECAST
    Top 10 Markets 2004-2008*

    United States                             Overall Score*           Rank
    Atlanta                                               70              1
    Los Angeles                                         70              2
    Riverside-San Bernardino, Calif.               69              3
    Washington, D.C., Md., Va.                    67              4
    Phoenix                                               66              5
    Las Vegas                                           65              6
    Orange County, Calif.                            65              7
    New Jersey - North & Central                  61              8
    West Palm Beach, Fla.                           61              9
    Orlando                                               59             10

    U.S. INDUSTRIAL MARKET STRENGTH FORECAST
    Top 10 Markets 2004-2008*

    United States                             Overall Score*           Rank
    New Jersey - North & Central                  81              1
    Atlanta                                               77              2
    Washington, D.C., Md., Va.                    77              3
    Orlando                                              76              4
    Los Angeles                                         72              5
    Phoenix                                               69              6
    West Palm Beach                                  69              7
    Tampa                                                 67              8
    Orange County, Calif.                             64              9
    Fort Lauderdale                                     63             10

    * Markets were ranked from 0 to 100 against 23 property, economic and
      demographic variables.

    U.S. RETAIL MARKET STRENGTH FORECAST
    Top 10 Markets 2004-2008*

    United States                             Overall Score*           Rank
    Atlanta                                               72              1
    Austin, Texas                                       67              2
    Phoenix                                               63              3
    Dallas-Ft. Worth                                   60              4
    Washington, D.C., Md., Va.                     59              5
    Oakland, Calif.                                      59              6
    Seattle                                                59              7
    Los Angeles                                          58              8
    Las Vegas                                            57              9
    Salt Lake City                                       57             10

    U.S. MULTI HOUSING MARKET STRENGTH FORECAST
    Top 10 Markets 2004-2008*

    United States                             Overall Score*           Rank
    Los Angeles                                         56              1
    New York, N.Y.                                     54              2
    Atlanta                                               51              3
    Riverside-San Bernardino, Calif.                50              4
    Washington, D.C., Md. Va.                      50              5
    San Diego                                            49              6
    Phoenix                                               48              7
    San Francisco                                       48              8
    San Jose, Calif.                                     47              9
    Orange County, Calif.                             46             10

    * Markets were ranked from 0 to 100 against 23 property, economic and
      demographic variables.

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Source: Grubb & Ellis Company