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MARKET ANALYSIS INTRODUCTION In this section, market conditions that influence the subject property are considered. This analysis is based upon the competitive position of the subject properfy as defined by the locational and physical characteristics of the property discussed above. The major factors requiring consideration are the supply and demand conditions, which influence the competitive position of the subject property. The following supply and demand analysis looks at the Residential, Retail, and Office segments of the market separately with an overall conclusion drawn for each segment. MULTI-FAMILY RESIDENTIAL Supply - Residential uses in the area have been on the decline as the CBD expands the commercial base. Each year, original single family houses are being converted to office or retail users. According to the Salem Homeplace Community, published by the Salem Statesman Journal, there are 860 households in the neighborhood, down from 964 in 1990. There are 970 renter-occupied houses and apartments and 66 owner-occupied houses. There has been very little residential development in the CBD over the past 20 years and is generally limited to student housing at Willamette University and one newer project on the north fringe of the CBD. Demand - Apartment vacancy in the Central area, which encompasses the CBD, is reported to be 5.42~ for newer units (constructed after 1989) and 5.47~ for mature units (constructed prior to 1989), according to the Spencer Powell & Associates, Inc. - PGP, Inc. Salem/Keizer Aparfment Survey for Fall/Winter 1999. Vacancies for newer units have been steadily increasing from a low of 0.46% in 1996 to the most current figure of 5.42~. Mature units have been fluctuating between 4.02~ and 7.51 ~ since 1996. Rents in the Central area have been increasing. According to the same survey, average rents have increased 3.87% over the past 18 months. Rents for newer units range from $405/Month for a studio style with no amenities to $605/Month for a three bedroom with amenities. Conclusion -The expansion of commercial uses and unavailability of developable land has made development of new units in the Central area virfually nonexistent. Thus supply has remained fairly constant over the last several years. Vacancies have been fluctuating, however the current figures appear to indicate stability. In addition, increasing rents also indicate stable to favorable conditions. RETAIL Supply - The CBD retail market has been active and continues to grow with a distinct personality. Major retailers in the CBD include Nordstrom, Meier 8~ Frank, Mervyn's, and J. C. Penny. Salem Center contains 657,000 square feet of space, including 219,000 square feet of in-line shops. Many of the historic commercial buildings house retail tenants on the ground floor and office tenants on upper floors. The former Frederick and Nelson deparfment store at Liberty Street and Chemeketa Street has been redeveloped into Liberty Plaza with two floors of retail space and one floor of offices. In January of 1999 the Spencer Powell 8~ Associates, Inc. - PGP, Inc. Retail Survey looked at 398,922 square feet of downtown in-line space, with 5.4~ vacancy. This is up from 3.85% in 1997. For the purpose of this report, retail P99239 PALMER, GROr~ 8~ PiFrxn, INC. 18