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2013

CENTRAL BUSINESS DISTRICT

SECTION #

CHICAGO

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FIRST QUARTER 2013 | CHICAGO MARKET OVERVIEW

1


F I R S T Q UA RT E R

2013 CHICAGO SUBMARKET SNAPSHOTS MARKET OVERVIEW

TABLE OF CONTENTS­ SE CT ION ONE

CHICAGO CENTRAL BUSINESS DISTRICT CBD SUBMARKET SNAPSHOTS 01 02 03 04 05 06 07

Central Business District Map Central Loop East Loop North Michigan Avenue River North South Loop West Loop

SE CT ION T WO

SUBURBAN CHICAGO SUBURBAN SUBMARKET SNAPSHOTS

2013

08 09 10 11 12

Suburban Map East-West North Northwest O’Hare

SE CT ION T H RE E

ABOUT MB REAL ESTATE 13 Company Overview

The Chicago Market Overview is published quarterly by MB Real Estate. To obtain additional copies or for further information, please contact:

SCOTT MASON Research Coordinator

181 West Madison Street, Suite 4700 Chicago, Illinois 60602 (312) 726-1700 www.mbres.com


CENTRAL BUSINESS DISTRICT

CENTRAL BUSINESS DISTRICT MAP

SUPPLY SUBMARKET SNAPSHOTS FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

11


Availability increases after a strong 2012 One of the strongest performing submarkets in 2012, the Central Loop saw direct vacancy increase in Class A, B and C buildings for the first time in two years, causing overall direct vacancy to increase 60 basis points to 13.8 percent. In its worst quarter since the recession, the Central Loop was one of two submarkets to experience net negative absorption, erasing the net occupancy gain from the previous quarter.

LARGEST BLOCKS OF DIRECT AVAILABILITY

Building Address

Building Class

222 N LaSalle St *

199,132

B

10 S Dearborn St *

139,165

A

1 N Dearborn St

97,261

B

120 S LaSalle St *

94,995

B

200 N LaSalle St

94,875

B

175 W Jackson Blvd

68,539

B

175 W Jackson Blvd *

67,794

B

175 W Jackson Blvd

67,725

B

77 W Wacker Dr

67,342

A

175 W Jackson Blvd *

65,930

B

* Indicates future available space

In a quarter that saw few new lease transactions over 20,000 square feet, Responsys signed a new lease for 24,000 square feet at 111 West Jackson. The marketing software company will relocate from 225 West Washington in April. Two buildings traded in the first quarter: Harbor Group International sold 111 West Washington to the Shidler Group for $94.6 million and the Canadian Imperial Bank of Commerce sold 123 West Madison to Cagan Management Group for approximately $4.9 million. Tishman Speyer brought 161 North Clark to the market after Grant Thornton signed a 137,000 square foot lease at the end of 2012. Chicago Public Schools is marketing 125 South Clark for sale but is also entertaining leasing its unused space and remaining in the building.

SUBMARKET SNAPSHOTS

The Central Loop saw sublease vacancy increase as well, up 50,000 square feet to 957,000 square feet. Much of this can be attributed to the law firm Winston & Strawn, which is now marketing a 75,000 square foot block at 35 West Wacker. With the second highest percentage of sublease vacancy in the CBD at 2.6 percent, the Central Loop continues to struggle with large blocks of sublease space, including United Airlines 130,000 square foot block at 77 West Wacker.

Size (sf)

CENTRAL BUSINESS DISTRICT

CENTRAL LOOP

The Central Loop’s boundaries are the Chicago River (North), Wells Street (West), State Street (East), and Van Buren Street (South).

CENTRAL LOOP SUMMARY

A

B

C

Total

13,575,094

14,263,388

8,627,220

36,465,702

(32,312)

(29,491)

(116,136)

(177,939)

Direct Vacancy Rate

9.2%

16.1%

17.1%

13.8%

Total Vacancy Rate (Direct + Sublease)

13.2%

18.8%

17.4%

16.4%

Inventory (square feet) Year to Date Absorption (square feet)

Numbers in parentheses are negative

CENTRAL LOOP SUBMARKET HISTORICAL DIRECT VACANCY 20% 18% 16% 14% 12% 10% 8%

15.2%

11.8%

11.4%

12.7%

13.6%

13.8%

13.2%

13.8%

0%

17.5%

2%

15.2%

4%

14.7%

6%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

2


Class A buildings lead sharp decline in direct vacancy The East Loop saw 177,000 square feet of net positive absorption, which is more than it experienced in all of 2012. This led direct vacancy to fall 70 basis points to 19.0 percent, which is the largest decrease of the CBD’s submarkets. Class A buildings made up more than half of the net positive absorption with Class B buildings posting positive absorption for the first time in over a year, though almost a quarter of its inventory remains vacant.

Size (sf)

Building Class

200 E Randolph St

306,163

A

130 E Randolph St *

256,720

B

303 E Wacker Dr

174,125

B

130 E Randolph St *

155,829

B

130 E Randolph St

128,948

B

333 S Wabash Ave *

112,000

B

401 S State St

110,898

C

33 S State St

70,107

C

111 E Wacker Dr

67,216

B

233 N Michigan Ave

67,028

B

* Indicates future available space

One building was put up for sale in the first quarter. Joseph Chetrit is attempting to sell the 260,000 square foot Class C building at 360 North Michigan. The building is currently 7.0 percent leased as it is being emptied to convert to an alternative use. Michael Silberberg and Mark Karasick are still under contract to invest $100 million into the two-building Prudential Plaza (130 East Randolph and 180 North Stetson) in exchange for a controlling interest in the property. The asset has contributed to the submarket’s high vacancy in recent quarters due to its lack of capital and subsequent inability to attract new tenants.

SUBMARKET SNAPSHOTS

The construction firm Clayco expanded by 30,000 square feet at 35 East Wacker for a total of 70,000 square feet. The Unite Here Union relocated over 22,000 square feet from 55 West Van Buren to 218 South Wabash. The labor union will consolidate its union and labor management trust fund into two floors. Despite some large tenant activity there are still seven contiguous blocks of at least 100,000 square feet in the East Loop, the second highest concentration of blocks of this size in the CBD.

LARGEST BLOCKS OF DIRECT AVAILABILITY

Building Address

CENTRAL BUSINESS DISTRICT

EAST LOOP

The East Loop is bordered by the Chicago River (North), State Street (West), Lake Shore Drive (East), and Van Buren Street (South). It is inhabited mostly by advertising, media firms and corporate tenants.

EAST LOOP SUMMARY Inventory (square feet)

A

B

C

Total

4,048,035

10,559,292

8,375,098

22,982,425

Year to Date Absorption (square feet)

93,566

76,447

6,996

177,009

Direct Vacancy Rate

15.5%

24.2%

14.2%

19.0%

Total Vacancy Rate (Direct + Sublease)

17.5%

25.5%

15.0%

20.3%

EAST LOOP SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%

22.4%

19.1%

14.2%

12.1%

16.3%

20.2%

19.3%

19.7%

19.0%

0%

18.4%

5%

17.2%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

3


Woes return for CBD’s second smallest submarket After experiencing two consecutive quarters of positive absorption for the first time since 2008, the North Michigan Avenue submarket saw direct vacancy increase once again, up 30 basis points to 20.8 percent. Class A buildings were the only segment to experience a decline in direct vacancy after posting 31,000 square feet of positive absorption. Total sublease vacancy continued to increase as well, adding over 70,000 square feet to a sublease market that already constitutes over 2.0 percent of total inventory.

Size (sf)

Building Class

515 N State St *

350,906

A

435-445 N Michigan Ave *

316,190

C

101 E Erie St *

217,569

A

410 N Michigan Ave *

214,849

B

401-465 E Illinois St

210,000

C

401 N Michigan Ave

104,990

B

455 N Cityfront Plaza Dr

89,854

A

360 N Michigan Ave

76,855

C

444 N Michigan Ave

67,575

B

980 N Michigan Ave

62,384

A

* Indicates future available space

The North Michigan Avenue submarket has an abundance of large availabilties, the two largest being the 351,000 square foot block at 515 North State and the 316,000 square feet at Tribune Tower (435-445 North Michigan). Because of this, it has struggled to bring down its direct vacancy, the second highest in the CBD, and compete with the overall market in general. The North Michigan Avenue submarket is home to retailers, hotels, restaurants, entertainment venues, advertising and marketing agencies, and the large Northwestern Memorial Hospital campus. Its borders include Division Street (North), State Street (West), Lake Michigan (East), and the Chicago River (South).

NORTH MICHIGAN AVENUE SUMMARY Inventory (square feet)

A

B

C

Total

3,949,554

4,716,413

4,292,873

12,958,840

Year to Date Absorption (square feet)

31,239

(53,942)

(34,652)

(57,356)

Direct Vacancy Rate

17.1%

24.7%

20.1%

20.8%

Total Vacancy Rate (Direct + Sublease)

21.5%

25.6%

21.7%

23.1%

SUBMARKET SNAPSHOTS

Large deals remained scarce with no new lease transactions over 20,000 square feet signed in the first quarter. Despite having six contiguous blocks of at least 100,000 square feet, constituting over 10.0 percent of its inventory, the submarket has lagged other submarkets in attracting new, large tenants.

LARGEST BLOCKS OF DIRECT AVAILABILITY

Building Address

CENTRAL BUSINESS DISTRICT

NORTH MICHIGAN AVENUE

Numbers in parentheses are negative

NORTH MICHIGAN AVENUE SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%

14.0%

14.0%

11.8%

11.4%

16.7%

18.2%

19.5%

20.5%

20.8%

0%

12.7%

5%

10.8%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

4


Direct Vacancy continues to decrease in CBD’s most in demand submarket Class A and B buildings continue to drive declines in direct vacancy in the River North Submarket. Dropping another 30 basis points to 8.8 percent, direct vacancy in the River North Submarket is now over 6.0 percent below the overall market. In addition, River North saw its sublease vacancy drop almost 100,000 square feet decreasing total vacancy 110 basis points to 13.2 percent, which is lower than the direct vacancy rate seen in all other submarkets. Even so, large sublease availabilities exist. AT&T, Level 3 Communications and Career Education Corporation are all marketing their respective spaces of 50,000 square feet or greater of sublease space at 350 West Mart, 600 West Chicago and 222 Merchandise Mart.

LARGEST BLOCKS OF DIRECT AVAILABILITY

Building Address

Size (sf)

Building Class

350 W Mart Ctr *

87,404

B

350 W Mart Ctr

87,393

B

222 Merchandise Mart Plz

68,829

B

350 W Mart Ctr

64,661

B

321 N Clark St

61,431

A

* Indicates future available space

There were no sales in the first quarter, but two properties remain on the market. KBS REIT 2 is selling up to a 49 percent stake in the trophy tower at 300 North LaSalle, which could fetch upwards of $600 per square foot. Joseph Lagoa is asking $8.5 million for a loft building at 540 North LaSalle that is completely vacant. The borders of the River North submarket are defined as Division Street (North), Racine Avenue (West), State Street (East), Fulton Street, and the Chicago River (South). It has historically been home to small, older buildings catering to art galleries, furniture studios, and small businesses, but has recently seen an influx of technology, law, trading, and financial firms.

A

B

C

Total

3,992,461

3,738,159

5,542,742

13,273,362

53,842

13,412

(18,335)

48,919

Direct Vacancy Rate

9.8%

6.2%

9.7%

8.8%

Total Vacancy Rate (Direct + Sublease)

9.9%

17.4%

12.7%

13.2%

Inventory (square feet) Year to Date Absorption (square feet)

SUBMARKET SNAPSHOTS

Due to the lack of available blocks of direct space greater than 20,000 square feet, the River North Submarket experienced no large lease transactions, and much of the absorption came from small requirements.

RIVER NORTH SUMMARY

CENTRAL BUSINESS DISTRICT

RIVER NORTH

Numbers in parentheses are negative

RIVER NORTH SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%

14.5%

12.6%

10.6%

9.2%

15.8%

13.6%

11.7%

9.1%

8.8%

0%

19.3%

5%

11.9%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

5


Limited options hamper recovery in the CBD’s smallest submarket With less total inventory than other submarkets, the South Loop is subject to large swings in vacancy rates. As such, direct vacancy fell 150 basis points down to 25.8 percent after increasing 100 basis points in the previous quarter.

LARGEST BLOCK OF DIRECT AVAILABILITY

Building Address

Size (sf)

Building Class

440 S LaSalle St *

162,517

A

619 S LaSalle St

89,000

C

Leasing at the South Loop’s only Class A Building, 440 South LaSalle 440 S LaSalle St * 55,475 A (One Financial Place), comprised the majority of the submarket’s 440 S LaSalle St * 53,143 A positive absorption. However the building is still struggling with the loss of former tenant MF Global in the second quarter of 2012, and * Indicates future available space vacancy remains elevated at 27.9 percent. The resulting three blocks of available space ranging from 53,000 to 163,000 square feet constitute well over half of the building’s remaining vacancy.

The boundaries of the South Loop include Van Buren Street (North), I-90/I-94 (West), Lakeshore Drive (East), and 16th Street (South). The South Loop is populated primarily with education, small businesses, and converted residential properties.

SOUTH LOOP SUMMARY Inventory (square feet)

A

C

Total

1,019,325

1,155,967

2,175,292

Year to Date Absorption (square feet)

18,513

6,044

24,557

Direct Vacancy Rate

27.9%

24.0%

25.8%

Total Vacancy Rate (Direct + Sublease)

29.0%

24.0%

26.3%

SUBMARKET SNAPSHOTS

Despite its direct access to CTA trains and the LaSalle Street Metra Station, the South Loop in general has struggled to attract tenants looking for top-quality space. This is due in large part to the fact that Class C buildings make up over half of its inventory, with the remaining 1,000,000 square feet coming from 440 South LaSalle. The South Loop submarket will continue to trail the recovery as tenants leave its Class C buildings in an effort to upgrade their office space to take advantage of attractive rents.

CENTRAL BUSINESS DISTRICT

SOUTH LOOP

SOUTH LOOP SUBMARKET HISTORICAL DIRECT VACANCY 30% 25% 20% 15%

16.3%

12.3%

14.5%

14.5%

12.9%

18.6%

23.0%

27.3%

25.8%

0%

19.1%

5%

20.5%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

6


Construction speculation heats up as Class A market tightens With positive absorption of 159,000 square feet, West Loop Class A buildings continue to lead the recovery in the submarket and the CBD in general, experiencing the largest decline in vacancy across all submarkets. Class B and C buildings erased most of this positive absorption, posting net negative absorption of 153,000 square feet. This disparity between Class A buildings and the rest of the submarket caused overall direct vacancy to remain virtually unchanged at 13.9 percent.

LARGEST BLOCKS OF DIRECT AVAILABILITY

Building Address

Size (sf)

Building Class

500 W Monroe St

338,131

A

233 S Wacker Dr *

285,994

A

540 W Madison St *

250,553

A

311 W Monroe St *

214,490

C

300 S Riverside Plz *

198,302

B

111 N Canal St

176,520

C

111 N Canal St

131,250

C

With its proximity to major transportation, relatively low vacancy, and developable parcels, the West Loop submarket has become the focus of new development speculation. 444 West Lake is the only development to have broken ground, and has received a signed letter of intent from McDermott Will & Emery to occupy 225,000 square feet. But there are nine other West Loop sites with varying proposed building sizes that have been courting potential anchor tenants.

SUBMARKET SNAPSHOTS

The two largest new lease transactions include Guggenheim signing 233 S Wacker Dr * 125,553 A a 76,000 square foot lease at 227 West Monroe and Associated 222 S Riverside Plz * 103,128 B 227 W Monroe St * 103,122 A Bank signing a 35,000 square foot lease at 525 West Monroe. Plante Moran consolidated multiple offices into 85,000 square feet at 10 * Indicates future available space South Riverside, where it has the ability to expand into additional Italicized addresses indicate new blocks this quarter space. W.W. Grainger signed a lease expansion at 500 West Madison, increasing its square footage from 15,000 square feet to 36,000 square feet. SNR Denton is in advanced negotiations to lease 125,000 square feet at 233 South Wacker (Willis Tower).

CENTRAL BUSINESS DISTRICT

WEST LOOP

Investment activity showed no signs of slowing in the first quarter with Beacon Capital Partners selling 550 West Washington to Metlife for $111 million or $298 per square foot. Additionally, in what would be the largest transaction of the quarter, Mirae Asset Global Investments recently agreed to purchase 225 West Wacker for $218 million or $335 per square foot from J.P. Morgan Chase & Co. The West Loop’s borders are defined as the Chicago River (North), I-94/I-90 (West), Wells Street (East), and Van Buren Street (South). WEST LOOP SUMMARY

A

B

C

Total

27,147,296

9,735,921

6,349,076

43,232,292

158,864

(46,916)

(106,593)

5,354

Direct Vacancy Rate

14.0%

11.3%

17.4%

13.9%

Total Vacancy Rate (Direct + Sublease)

17.2%

13.0%

18.8%

Inventory (square feet) Year to Date Absorption (square feet)

16.5%

Numbers in parentheses are negative

WEST LOOP SUBMARKET HISTORICAL DIRECT VACANCY 20% 18% 16% 14% 12% 10% 8%

11.5%

10.2%

11.8%

16.6%

15.8%

14.2%

13.9%

13.9%

0%

17.3%

2%

14.4%

4%

14.6%

6%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

7


SUBURBAN CHICAGO

SUBURBAN MAP

SUBMARKET SNAPSHOTS FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

81


Class A buildings see occupancy increase once again After seeing occupancy decrease three of the last four quarters, the East-West submarket started 2013 strong with 170,000 square feet of positive absorption. Its Class A buildings saw positive absorption that was greater than the net absorption of any other submarket. Yet Class B buildings offset part of these gains as the only class in the submarket to see occupancy levels decrease. Despite this the East-West submarket saw direct vacancy decrease 40 basis points to 22.0 percent.

LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address

City

Size (sf)

Building Class

700 Oakmont Ln

Westmont

256,767

A

2400 Cabot Dr

Lisle

217,718

A

3075 Highland Pky *

Downers Grove

88,576

A

535 E Diehl Rd

Naperville

83,792

A

500 Joliet Rd

Willowbrook

78,400

B

2000 S Finley Rd

Lombard

78,300

B

With 30 large blocks greater than 50,000 square feet of direct vacant space and another seven of sublease availability, landlords continue to lower asking rental rates, down another 2.8 percent on a year-over-year basis. Class A buildings feature 20 of the 30 such blocks in the East-West submarket.

SUBMARKET SNAPSHOTS

The East-West submarket experienced strong demand from 2655 Warrenville Rd Downers Grove 76,691 A the healthcare industry with four such companies signing 2245 Sequoia Dr * Aurora 76,126 A large lease transactions in the first quarter. Advocate Health 4343 Commerce Ct * Lisle 74,855 A Care relocated 140,000 square feet from Oak Brook to 3075 3050 Highland Pky * Downers Grove 74,319 A Highland Parkway in Downers Grove and Patterson Medical * Indicates future available space relocated 53,000 square feet from Bolingbrook to 28100 Torch Italicized addresses indicate new blocks this quarter Parkway in Warrenville. These relocations were within the EastWest submarket and highlight the “musical chairs” issue facing the Suburban market. The 37,000 square foot new requirement signed by Molina Healthcare at 1520 Kensington Road in Oak Brook and the expansion to 46,000 square feet, more than doubling its requirement, by Loyola University Medical Center at 1-5 Westbrook Corporate Center, Westchester brought true positive absorption for the submarket.

SUBURBAN CHICAGO

EAST-WEST

Investment activity continued at a moderate pace in the first quarter. The largest being Adventus Realty Trust purchasing the four property Oak Brook Office Center (2707-2809 Butterfield Road) from Inland Group for $106 per square foot. The East-West submarket encompasses Cook, DuPage, Kane, Kendall, and Will Counties, with major cities including Downers Grove, Lisle, Naperville, and Oak Brook. EAST-WEST SUMMARY

A

B

C

Total

20,663,569

14,511,106

5,166,726

40,341,401

239,844

(99,158)

29,585

170,271

Direct Vacancy Rate

20.1%

23.7%

25.0%

22.0%

Total Vacancy Rate (Direct + Sublease)

24.3%

27.1%

25.1%

25.4%

Inventory (square feet) Year to Date Absorption (square feet)

Numbers in parentheses are negative

EAST-WEST SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%

19.3%

17.1%

17.2%

18.9%

21.5%

22.1%

21.6%

22.4%

22.0%

0%

20.1%

5%

22.6%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

92


Class A buildings continue to lag After a strong performance in the fourth quarter of 2012, the North submarket experienced negative net absorption of 62,000 square feet, the only submarket to experience negative absorption in the Suburban market. While Class B and C buildings experienced net positive absorption of 94,000 square feet, Class A buildings continue to be one of the worst performing segments of any submarket. Overall direct vacancy in the North submarket increased 20 basis points to 20.9 percent because of its Class A buildings, which have posted positive quarterly absorption only three times since the beginning of 2008.

LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address

City

Size (sf)

Building Class

600 N US Highway 45 *

Libertyville

1,121,186

A

300 Tower Pky * 1000 Milwaukee Ave

Lincolnshire

175,545

A

Glenview

114,144

A

1 Overlook Pt

Lincolnshire

111,327

A

3 Parkway Blvd N

Deerfield

107,625

A

2355 Waukegan Rd

Bannockburn

106,495

A

25 Tri State International *

Lincolnshire

95,771

A

75 Tri State International *

Lincolnshire

86,036

A

Large lease activity was muted in the first quarter. Pet Factory and The Alternative Source Medical will relocate within the North submarket into 30,000 square feet each at 1700 South Butterfield Road in Mundelein. They are coming from 845 East High Street, Mundelein and 1566 Barclay Boulevard, Buffalo Grove respectively. Blue Chip Marketing expanded its space by 43 percent to 30,000 square feet at 650 Dundee Road, Northbrook.

SUBMARKET SNAPSHOTS

Despite owning the lowest direct vacancy rate, the North direct 544 Lakeview Pky Vernon Hills 84,237 B market has struggled in recent quarters due to high sublease 2-4-6 Genesee St Waukegan 75,996 C availability of 4.8 percent, the highest in the Suburban market. * Indicates future available space Italicized addresses indicate new blocks this quarter Class A buildings have especially struggled with sublease vacancies, its 1.1 million square feet or 7 percent of Class A inventory is the highest in the Suburban market.

SUBURBAN CHICAGO

NORTH

Kraft completed a sale-leaseback of its 679,000 square foot headquarters at 3 Lakes Drive in Northfield to W.P. Carey & Co. for $106 per square foot, allowing them to reinvest in their business and employees. Google has put Motorola Mobility’s 1.1 million square foot corporate campus at 600 North U.S. 45 in Libertyville on the market. This space also constitutes the largest block of direct contiguous space available for lease in the suburbs. The North submarket is located within portions of Cook and Lake Counties, with major cities including Bannockburn, Deerfield, Evanston, Glenview, Highland Park, Lake Forest, Northbrook, and Vernon Hills. NORTH SUMMARY

A

B

C

Total

16,867,586

7,368,595

2,512,716

26,748,898

(156,305)

96,264

(2,219)

(62,259)

Direct Vacancy Rate

22.6%

16.5%

22.8%

20.9%

Total Vacancy Rate (Direct + Sublease)

29.2%

18.2%

23.8%

25.7%

Inventory (square feet) Year to Date Absorption (square feet)

Numbers in parentheses are negative

NORTH SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%

16.5%

16.1%

12.5%

14.5%

17.5%

19.6%

20.6%

20.7%

20.9%

0%

17.6%

5%

17.5%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

10 3


Small lease transactions lead rebound in most distressed submarket The Northwest submarket, the most distressed in the Suburban market, saw its direct vacancy rate decrease 80 basis points to 25.0 percent, the largest drop of any submarket. Class B buildings rebounded with their strongest quarter since 2007, posting 133,000 square feet of net positive absorption.

LARGEST BLOCKS OF DIRECT AVAILABILITY City

21440 Lake Cook Rd

Deer Park

351,425

A

1299 Algonquin Rd

Schaumburg

195,393

C A

Size (sf)

Building Class

5550 Prairie Stone Pky

Hoffman Estates

193,601

1701 Golf Rd

Rolling Meadows

183,506

A

3501 Algonquin Rd

Rolling Meadows

156,140

C B

3890 Salem Lake Dr

Long Grove

150,000

3333 Beverly Rd

Hoffman Estates

129,000

A

2895 Greenspoint Pky

Hoffman Estates

127,941

A

700 N Wood Dale Rd

Wood Dale

125,328

B

200 N Martingale Rd

Schaumburg

109,716

A

The Multi-Employer Property Trust sold the almost entirely unoccupied three property Greenspoint Office Park in Hoffman Estates (2800 West Higgins Road, 2800-2820 Greenspoint Parkway) to the Lincoln Property Company for $47 per square foot. CWCapital Asset Management put the 911,000 square foot Continental Towers Complex in Rolling Meadows (1701 Golf Road) on the market, the complex is less than 60.0% occupied. The Northwest submarket is located within the portions of Cook, Kane, Lake, and McHenry Counties, with major cities including Arlington Heights, Itasca, Rolling Meadows, and Schaumburg.

NORTHWEST SUMMARY Inventory (square feet)

A

B

C

Total

18,497,893

9,652,179

2,356,537

30,506,609

Year to Date Absorption (square feet)

54,107

133,249

32,169

219,525

Direct Vacancy Rate

20.8%

32.1%

28.9%

25.0%

Total Vacancy Rate (Direct + Sublease)

22.8%

33.5%

29.8%

26.7%

SUBMARKET SNAPSHOTS

Lease transactions above 20,000 square feet were nonexistent in the Northwest submarket. With 28 direct contiguous blocks of at least 50,000 square feet available for lease, 15 of which are greater than 100,000 square feet, finding large tenants to fill space has proven troublesome. Landlords have decreased rents due to this large glut of space, down 4.3 percent on a year-over-year basis.

Building Address

SUBURBAN CHICAGO

NORTHWEST

NORTHWEST SUBMARKET HISTORICAL DIRECT VACANCY 30% 25% 20% 15%

16.5%

18.1%

18.8%

21.3%

22.7%

24.4%

27.7%

25.8%

25.0%

0%

15.2%

5%

18.8%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

11 4


Little activity in smallest submarket After a strong fourth quarter in which Suburban Chicago’s smallest submarket outperformed the overall market, O’Hare saw decreased activity and net positive absorption of only 2,000 square feet. Class A and B buildings made up for slow quarters in C buildings, offsetting their negative absorption with 13,000 square feet of net positive absorption. Albeit slight, this marks the first time since before the recession that the O’Hare submarket experienced four straight quarters of net positive absorption.

LARGEST BLOCKS OF DIRECT AVAILABILITY City

Size (sf)

Building Class

2350-2360 E Devon Ave 5450 N Cumberland Ave

Des Plaines

142,596

B

Chicago

134,525

B

8420 W Bryn Mawr Ave *

Chicago

104,164

A

8750 W Bryn Mawr Ave *

Chicago

102,498

A

4242 N Harlem Ave

Norridge

93,155

B

5100 River Rd *

Schiller Park

74,988

A

1350 E Touhy Ave

Des Plaines

71,367

B

9500 W Bryn Mawr Ave

Rosemont

69,701

A

10255 W Higgins Rd

Rosemont

69,695

A

8550 W Bryn Mawr Ave *

Chicago

66,895

B

* Indicates future available space Italicized addresses indicate new blocks this quarter

The largest lease transaction of the quarter involved the relocation of Association Management Center from the North submarket to 8735 West Higgins Road, Chicago where they expanded from 12,000 square feet to 47,000 square feet. There was one notable sale in the O’Hare submarket during the first quarter. Robert Kozonis sold a 240,000 square foot building at 2300 East Devon Avenue, Des Plaines to the Saban Capital Group for $163 per square foot.

SUBMARKET SNAPSHOTS

Landlords decreased rents a 6.0 percent on a year-over-year basis, the largest decrease in the Suburban market. Rental rates in Class A and B buildings saw the largest decreases of any segment in the market, down 7.4 and 7.9 percent, respectively. Interestingly, Class C buildings increased 5.1 percent, the only segment of the Suburban market where gross asking rents increased which was also accompanied by a slight increase in occupancy.

Building Address

SUBURBAN CHICAGO

O’HARE

The O’Hare submarket is located in northwestern Cook County surrounding O’Hare International Airport, with major cities including northwestern Chicago, Elk Grove Village, and Rosemont.

O'HARE SUMMARY Inventory (square feet)

A

B

C

Total 14,734,135

7,869,103

4,333,887

2,531,144

Year to Date Absorption (square feet)

9,719

3,880

(11,686)

1,913

Direct Vacancy Rate

18.1%

30.2%

37.3%

25.0%

Total Vacancy Rate (Direct + Sublease)

20.2%

31.3%

37.3%

26.4%

Numbers in parentheses are negative

O’HARE SUBMARKET HISTORICAL DIRECT VACANCY 30% 25% 20% 15%

20.8%

18.2%

19.0%

21.4%

27.3%

26.1%

26.0%

24.9%

25.0%

0%

19.4%

5%

20.0%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

YTD 2013

FIRST QUARTER 2013 | CHICAGO SUBMARKET SNAPSHOTS

12 5


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MB REAL ESTATE

ABOUT MB REAL ESTATE

At MB Real Estate, our corporate mission is to maximize the value of our clients’ real estate by creating timely and innovative solutions that meet their unique needs and objectives. We offer the highest level of real estate support with our team of committed, results-driven experts in asset and facilities management, leasing, tenant representation, development, project management, and investment services. Supported by dedicated accounting, marketing, human resources, and information technology teams, our unique full-service firm is an industry leader in local and national corporate real estate.

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DEPARTMENT LEADERSHIP PATRICIA ALUISI Executive Vice President & Chief Administrative Officer/General Counsel

MARK A. BUTH Executive Vice President & Managing Director of Leasing Services

ANDREW J. DAVIDSON Executive Vice President & Managing Director of Corporate Services & Tenant Advisory

GARY A. DENENBERG Executive Vice President & Managing Director of Leasing Services

DAVID R. GRAFF Senior Vice President of Project Services

COMPANY LEADERSHIP PETER E. RICKER Chairman & CEO

JOHN T. MURPHY President

MAUREEN G. GROVE Vice President & Managing Director of Accounting Services

DANIEL J. NIKITAS Executive Vice President of Corporate Services & Tenant Advisory Services

KEV­­­IN M. PURCELL Executive Vice President & Chief Operating Officer

PETER J. WESTMEYER Senior Vice President & Managing Director of Investment Services

FIRST QUARTER 2013 | CHICAGO MARKET OVERVIEW

13


MB Real Estate's 2013 1st Quarter Chicago Market Overview Submarket Snapshots