Mid-Year Economic Update: 2010

The United States and California

Presented at
The Cushman & Wakefield Bay Area Brokers Meeting

on June 8, 2010

by Kei Matsuda
Director of Economic Research, Union Bank

3 Please consider the impact on the environment before printing this document.
The Global Economy
 BTMU Global Economic Outlook

Real GDP Growth (%) Consumer Prices Growth (%)

2009 2010 2011 2009 2010 2011
USA -2.4 3.1 2.6 -0.4 2.0 1.7
Euro Zone -4.0 0.6 0.9 0.3 1.2 1.4
Germany -4.9 1.0 1.3 0.2 1.0 1.1
France -2.2 1.3 1.4 0.1 1.3 1.5
Italy -4.8 0.6 1.0 0.8 1.5 1.7
UK -4.9 0.8 1.3 2.2 3.0 1.7
Japan -5.2 3.1 1.4 -1.3 -1.1 0.1
China 8.7 10.2 9.1 -0.7 3.0 2.6
India 6.9 8.4 8.2 12.3 8.2 4.5

Forecasts and estimates by the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), as of

3| May 28, 2010.
The U.S. Economy
 GDP Expanded by 3.0% in the 1st Quarter

Quarterly Real GDP Growth: The United States

8%

6% 5.6%

4% 3.0%

2%

0%

-2%

-4%

-6%

-8%
05 06 07 08 09 10

Percent change of Gross Domestic Product (GDP) from preceding period.

5| Seasonally adjusted at annual rates. The first quarter 2010 second estimate.
Source: U.S. Bureau of Economic Analysis (BEA).
 Strongest Consumption Growth Since 2007

Share of
Growth By Component (%)
GDP(%)
2009 4Q09 1Q10 1Q10
Total GDP -2.4 +5.6 +3.0 100.0
Personal Consumption -0.6 +1.6 +3.5 71.0
Business Investment -17.8 +5.3 +3.1 9.4
Housing Investment -20.5 +3.8 -10.7 2.4
Exports -9.6 +22.8 +7.2 11.8
Imports -13.9 +15.8 +10.4 -15.3
Government Spending +1.8 -1.3 -1.9 20.4

Growth: Percent change from preceding period, seasonally adjusted at annual rates.
6| Share: Calculated from current-dollar estimates. Percentage shares do not add up to
100 because of rounding, and exclusion of inventory change. Source: BEA.
 U.S. GDP Data: Property Investment Growth

30%

20%
10%

0%

-10%

-20%
-30%

-40%

-50%
05 06 07 08 09 10
Residential Non-Res. Structure

Percent change from preceding period. Seasonally adjusted at annual rates.

7| The first quarter 2010 second estimate. Source: BEA.
 Payroll Employment Increased by 431,000 in May

Employment Change: The United States

600

400
Unit: Thousand Jobs

200

-200

-400

-600

-800
05 06 07 08 09 10

Monthly Change 3-Month Moving Average

As of May 2010. Nonfarm payroll employment. Monthly changes. Seasonally

8| adjusted data. Source: Bureau of Labor Statistics (BLS).
 12-Mo. Payroll Employment Change (May 2010)

The United States

Education & Health Serv. 355
Government 340
Prof. & Business Serv. 78
Mining & Logging 23
Leisure & Hospitality -23
Other Services -27
Wholesale Trade -44
Information -83
Retail Trade -94
Transp. & Utilities -103
Finance & Real Estate -171
Manufacturing -235
Construction -507

-600 -400 -200 0 200 400

Unit: thousand workers. Changes in payroll jobs between May 2009 and 2010.
9| Not seasonally adjusted. Source: BLS.
 This is a “Man-Cession”

Worker Percentages by Sex

Total Nonfarm 49.8% 50.2%

Education & Health

77.3% 22.7%
Services

Government 56.9% 43.1%

Prof. & Business

44.5% 55.5%
Services

Manufacturing 28.5% 71.5%

Construction 13.2% 86.8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Women Men

10 | As of May 2010. Source: BLS.

 Unemployment for Men, Women, and All Workers

Unemployment Rate
12%
11%
10.5%
10%
9.7%
9% 8.8%
8%
7%
6%
5%
4%
3%
05 06 07 08 09 10

All Workers Men Women

11 | As of May 2010. Source: BLS.

 The Core Inflation Rate Is Lowest in Decades

U.S. Price Indices (12-Month Change)

6%
5%
4%

3%
2% 2.2%

1% 0.9%
0%
-1%
-2%
-3%
05 06 07 08 09 10

CPI "Core" CPI

As of April 2010. Not seasonally adjusted data. The Consumer Price Index (CPI) and
12 | the “core” CPI. The latter excludes food and energy items. Source: BLS.
 Timeline for Recovery (by BTMU, New York)

Housing
Job growth
starts bottom
resumes
Stock House prices
market resume
Foreclosures
Oil/Commodity bottoms? rising
peak
peak

08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4

US$ rises, Home sales Home Fed resumes

end of export bottom prices tightening
boom bottom Beginning of
Jobless rate self-sustaining
peaks expansion

Original chart prepared by Ellen Zentner at BTMU, Economic Research Group

13 | (New York). Reproduced by permission.
The California Economy
 CA Unemployment Rate Exceeds U.S. Average

Unemployment Rate
14%
12.6%
12% (Apr)

10% 9.7%
(May)
8%

6%

4%

2%

0%
05 06 07 08 09 10
US Average California

As of May 2010 for the nation; April 2010 for California.

15 | Seasonally adjusted data. Source: BLS.
 Nonfarm Payroll Employment Change (1)

4%
2.7%
1.8% 1.8% 2.1%
2% 1.7% 1.5%
1.1% 1.3%
0.8%
0.4%
0%
-0.6% -0.4%
-2% -1.3% -1.1%
-1.9%

-4%
-4.3%
-6% -5.2%
-6.0% -6.1% -6.5%
-8%
US Average CA Average SF Bay Area Central Valley LA Basin

2006 2007 2008 2009

Percent changes of nonfarm payroll employment, based on annual averages. Not

16 | seasonally adjusted. Source: BLS and CA Employment Development Dept. (CAEDD).
 12-Mo. Payroll Employment Change (April 2010)

California
Education & Health Serv. 34
Agriculture 20
Information 5
Mining & Logging -2
Other Services -15
Transp. & Utilities -17
Leisure & Hospitality -24
Finance & Real Estate -25
Retail Trade -27
Prof. & Business Serv. -29
Wholesale Trade -34
Government -41
Manufacturing -62
Construction -91

-100 -80 -60 -40 -20 0 20 40

Unit: thousand workers. Changes in payroll jobs between April 2009 and 2010.
17 | Not seasonally adjusted. Source: CAEDD.
 Building Employment 12-Month Change: California

20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
05 06 07 08 09 10

Residential Non-residential

18 | As of April 2010. Not seasonally adjusted. Source: CAEDD.

 Nonfarm Payroll Employment Change (2)

4%
2.6% 2.4%
2.3% 2.1%
2.0% 1.5%
2% 1.3%
0.8% 1.1% 0.7%
0.4% 0.3% 0.4%
0%

-2% -1.3% -1.1%

-1.7%
-2.2% -2.3%
-4%
-4.4%
-6% -5.5% -5.5%
-6.2%
-6.5%
-8% -7.2%
Marin-SF- Silicon Valley East Bay Napa- Solano Sacramento
San Mateo Sonoma

2006 2007 2008 2009

Percent changes of nonfarm payroll employment, based on annual averages.

19 | Not seasonally adjusted. Source: CAEDD.
 Payroll Employment 12-Month Change

4%

2%

0%
-0.4%
-2% -2.3%
-3.4%
-4%

-6%

-8%
05 06 07 08 09 10

US Average California SF Metro

As of May 2010 for the nation; April 2010 for California and SF Metro. Not
20 | seasonally adjusted. Source: BLS.
 12-Mo. Payroll Employment Change (April 2010)

SF Metro
Mining & Logging 0.1
Agriculture -0.2
Retail Trade -0.8
Leisure & Hospitality -1.0
Wholesale Trade -1.3
Transp. & Utilities -1.5
Information -1.5
Education & Health Serv. -1.6
Manufacturing -1.8
Other Services -2.3
Finance & Real Estate -3.8
Construction -4.0
Government -5.6
Prof. & Business Serv. -7.3

-8 -6 -4 -2 0 2

Unit: thousand workers. Changes in payroll jobs between April 2009 and 2010.
21 | Not seasonally adjusted. Source: CAEDD.
Real Estate Market Trends
 Four-Quarter Home Price Change (2010 Q1)

As of the first quarter 2010. Purchase-only index.

23 | Source: U.S. Federal Housing Finance Agency (FHFA).
 Home Prices Are Stabilizing
Year-over-Year House Price Change
30%

20%

10%

0%
-4.8%
-6.2%
-10% -6.8%

-20%

-30%
97 98 99 00 01 02 03 04 05 06 07 08 09 10
US Average California SF Metro

As of the first quarter 2010. Year-over-year percent change.

24 | All-transactions index. Source: FHFA.
 Sales Volume Rebounded—Prices Rising Again

Home Sales and Prices: California

700,000

600,000

500,000

400,000

300,000

200,000

100,000
99 00 01 02 03 04 05 06 07 08 09 10

Median Price ($) Sales (Units)

As of April 2010. Sales volume data are seasonally adjusted annualized rates.
25 |
Source： CA Association of Realtors.
 Commercial Property Prices Have Fallen Dramatically

U.S. Commercial Property Price Index

2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
01 02 03 04 05 06 07 08 09 10

26 | As of March 2010. Source: MIT Center for Real Estate.

 Commercial Real Estate Expectations
Vacancy
Property Type 2007 2008 2009 2010 2011 2012 2013 2014
Apartment 7.9% 8.6% 9.5% 9.2% 8.7% 7.6% 7.2% 7.2%
Office 13.6% 15.6% 18.6% 18.4% 17.8% 16.5% 15.6% 15.0%
Retail 9.1% 11.1% 14.0% 14.7% 14.6% 13.6% 12.9% 12.3%
Warehouse/Industrial 8.0% 9.4% 11.8% 11.4% 10.5% 9.3% 9.0% 8.7%

Rent Growth
Property Type 2007 2008 2009 2010 2011 2012 2013 2014
Apartment 4.4% 1.6% -2.6% -0.7% 1.6% 3.5% 3.9% 3.8%
Office 10.3% 1.7% -8.9% -3.8% 0.7% 3.4% 4.5% 4.5%
Retail 2.3% -0.7% -4.3% -2.6% 0.5% 1.9% 2.5% 2.7%
Warehouse/Industrial 3.4% -1.2% -15.6% -3.0% 1.0% 2.7% 3.1% 3.5%

Cap Rate
Property Type 2007 2008 2009 2010 2011 2012 2013 2014
Apartment 4.9% 5.6% 6.7% 6.6% 6.4% 6.2% 6.0% 5.8%
Office 5.8% 6.3% 7.8% 7.8% 7.5% 7.2% 7.1% 6.9%
Retail 5.9% 6.9% 7.8% 7.8% 7.7% 7.5% 7.3% 7.1%
Warehouse/Industrial 6.0% 6.7% 7.9% 8.0% 7.9% 7.5% 7.4% 7.0%

Implied Property Value

Property Type 2007 2008 2009 2010 2011 2012 2013 2014
Apartment 6% -12% -19% 2% 6% 8% 7% 8%
Office 16% -10% -29% -3% 5% 9% 8% 7%
Retail 5% -16% -18% -4% 3% 6% 5% 7%
Warehouse/Industrial 6% -12% -31% -3% 3% 9% 5% 9%

Implied property values were derived from average vacancy, rent growth, and cap rate
27 | forecasts from the following sources: Property and Portfolio Research (May 2010) and
Rosen Consulting (March 2010).
 3 Take-away Points

• The U.S. economy seems to have bottomed mid-2009

• The only growth industry is healthcare
• Job growth to resume in 2010
• The housing-market is also approaching the bottom
• Commercial real estate is now experiencing stress from the
economy
• Economic growth in 2010 will be moderate
• Tailwinds: Natural bounce after a deep recession, expansionary
fiscal and monetary policy, and global economic growth
• Headwinds: Weakened financial sector, commercial real estate,
state and local government finance, and the European debt crisis

28 |
 DISCLAIMER:

The opinions expressed herein are those of the

presenter, Kei Matsuda, and do not necessarily
represent the views of Union Bank.

Union Bank does not warrant the accuracy or

completeness of information contained herein,
such information is subject to change, and is not
intended to influence your investment decisions.