2017 - MB Real Estate

CHICAGO CBD MARKET OVERVIEW & SNAPSHOTS FIRST QUARTER

2017

RESEARCH

FIRST QUARTER 2017 | CHICAGO MARKET OVERVIEW

181 WEST MADISON STREET, SUITE 4700, CHICAGO, ILLINOIS 60602 | (312) 487-5977 | MBRES.COM

1

F I R S T Q UA RT E R

2017

CHICAGO

MARKET OVERVIEW

TABLE OF CONTENTS SE C TIO N O N E

CHICAGO ECONOMY 01 Economic Analysis SE C TIO N TWO

CHICAGO CENTRAL BUSINESS DISTRICT 02 Chicago CBD Executive Summary SUPPLY 03 New Development 04 Sublease Space 05 Large Blocks of Direct Availability DEMAND 06 Vacancy Rates 07 Large Deals 08 Absorption FEATURES 09 10 11 12

Lease Comparables Investment Sales Forecast Market Statistics

SE C TIO N TH RE E

CENTRAL BUSINESS DISTRICT SNAPSHOTS The Chicago Market Overview is published quarterly by MB Real Estate Services Inc. To obtain additional copies or for further information, please contact: Caitlin Ritter, Research Manager 181 West Madison Street, Suite 4700 Chicago, Illinois 60602 (312) 487-5977 [email protected] www.mbres.com

CBD SUBMARKET SNAPSHOTS 13 14 15 16 17 18 19

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

SE C TIO N FO U R

ADDITIONAL INFORMATION 20 Glossary 21 About MB Real Estate

CHICAGO ECONOMY ECONOMIC ANALYSIS Total nonfarm payroll employment increased nationally by 560,000 in the first quarter of 2017, bringing the unemployment rate down to 4.5 percent overall at the end of March. According to the Bureau of Labor Statistics, first quarter job gains occurred primarily in professional and business services. According to the Illinois Department of Employment Security’s (IDES) latest figures, the February 2017 unemployment rate for Chicago’s total MSA, including parts of Northwest Indiana and Southern Wisconsin, was 5.3 percent, down from 6.5 percent in February 2016. Chicago’s total MSA nonfarm payroll employment increased by 40,500 during the same time period, with gains occurring primarily in government and the financial sector.

CHICAGO ECONOMIC ANALYSIS

SECTION ONE

In March, the Federal Reserve increased interest rates for the second time in three months. The 25 basis point increase, from a range of 0.5 to 0.75 percent to a range of 0.75 to 1.0 percent, was widely expected. Two additional quarter point interest rate increases are projected for 2017. HISTORIC UNEMPLOYMENT RATE 12.0% 10.0% 8.0% 6.0% 4.0% 2.0%

Chicago MSA Unemployment Rate

2017

2016

2015

2014

2013

2012

0.0% National Unemployment Rate

CHICAGO MSA EMPLOYMENT CHANGE BY INDUSTRY (FEBRUARY 2016 - FEBRUARY 2017) Government

11,900

Financial activities

11,200

Education and health services

9,500

Construction

7,000

Leisure and hospitality

3,000

Trade, transportation, and utilities

2,000

Information

800

Other services

(500)

Manufacturing Professional and business services

(700)

(3,700)

Source: Bureau of Labor Statistics


1

CENTRAL BUSINESS DISTRICT EXECUTIVE SUMMARY The first quarter of 2017 was an exciting start for Chicago’s CBD office market, which saw the vacancy rate at an exceptionally low 11.1 percent and 733,832 square feet of positive absorption. Tenants are moving into two of the first new office towers to have been developed since 2009, 444 W. Lake and 150 N. Riverside. The resulting shadow inventory is expected to cause vacancy rates to rise slightly by the end of the year, but increasing demand has left little doubt that Chicago’s downtown office market will continue to grow. Key Indicators:

CHICAGO ECONOMIC ANALYSIS

SECTION TWO

• Large deals signed in the first quarter by rapidly expanding businesses indicate that Chicago’s CBD is well positioned to absorb the additional 2.2 million square feet of office space that is currently under construction. • Chicago’s CBD continues to attract corporations from the suburbs and other cities. Nielsen announced that it would be consolidating its suburban operations to its existing office in the CBD, which will expand by 144,000 square feet. Additionally, Kellogg announced that they opened a new office for about 50 employees in its global growth and IT departments at The Merchandise Mart, and Hickory Farms announced that it will relocate its headquarters from Toledo, Ohio to a 7,300 square foot office at 311 S. Wacker. • Howard Hughes Corporation and Riverside Investment & Development released plans for a new 1.35 million square foot office tower at 110 N. Wacker, the site of GGP’s current headquarters. • The sublease market decreased by 111,212 square feet in the first quarter of 2017, bringing the total amount of available sublease space down to 3,944,077 square feet. • Chicago’s investment sales market started the year with another slow quarter. There were only four sales transactions completed with a total of 1.7 million square feet and $549 million in total sales volume. • MBRE will no longer track the South Loop as a separate submarket. All buildings that were tracked as part of the South Loop submarket have been consolidated into the Central or East Loop submarkets. CBD VACANCY AND FIRST QUARTER ABSORPTION SUMMARY Direct Vacancy 1Q2017 Central Loop East Loop N. Michigan Ave. River North West Loop River West Chicago CBD Total Net Absorption 1Q2017 Central Loop East Loop N. Michigan Ave. River North West Loop River West Chicago CBD Total

A

Change from 3Q16

B

Change from 3Q16

C

Change from 3Q16

Total

Change from 3Q16

10.4% 8.7% 19.3% 5.1% 9.6% 1.0% 9.9%

2.0% 0.1% -1.1% -0.2% -0.1% 0.0% 0.1%

12.3% 14.0% 8.6% 10.8% 13.7% 12.6%

-0.2% -1.1% 0.1% 0.2% -0.6% -0.4%

9.8% 12.5% 10.2% 12.4% 11.1% 9.8% 11.2%

0.1% -0.2% -1.8% -0.5% -0.1% 0.1% -0.4%

11.1% 12.6% 12.4% 9.8% 10.8% 7.1% 11.1%

0.7% -0.5% -0.9% -0.2% -0.3% 0.3% -0.2%

A

B

C

Total

(138,965) (5,034) 42,323 9,201 533,669 0 441,194

24,364 109,954 (2,642) (21,101) 70,713 181,288

24,111 9,233 70,049 27,336 6,020 (25,399) 111,350

(90,490) 114,153 109,730 15,436 610,402 (25,399) 733,832 Numbers in parentheses are negative


2

TENANTS MOVE INTO NEW WEST LOOP OFFICE TOWERS • Tenants are moving into two of the first new office towers to have been developed since 2009, 444 W. Lake and 150 N. Riverside. These developments will add a combined 2.3 million square feet to Chicago’s office market.

% Leased (Avg)

2000 - 2017 INVENTORY ADDITIONS 2000 - 5 Properties 2001 - 2 Properties 2002 - 2 Properties 2003 - 0 Properties 2004 - 1 Property 2005 - 2 Properties 2006 - 2 Properties 2007 - 0 Properties 2008 - 2 Properties 2009 - 3 Properties 2010 - 1 Expansion 2011 - 0 Properties 2012 - 0 Properties 2013 - 0 Properties 2014 - 0 Properties 2015 - 1 Property 2016 - 1 Property 2017 - 1 Property

• There are four additional developments currently under construction. Fulton West, Sterling Bay’s development under construction at 1330 W. Fulton in River West, is expected to be completed in July of 2017. Sterling Bay is also building 1045 W. Randolph, McDonald’s new corporate headquarters, which is expected to be completed in July of 2018. John Buck’s new development at 151 N. Franklin and White Oak Realty’s new development at 625 W. Adams are also expected to be completed in 2018.

2,870,576 904,436 2,236,364 0 1,300,000 2,500,143 1,320,498 0 728,254 3,652,913 933,710 0 0 0 0 531,190 1,073,100 1,229,064

Total - 23 Properties

• Howard Hughes Corporation and Riverside Investment & Development released plans for a new 1.35 million square foot office tower at 110 N. Wacker, the site of GGP’s current headquarters. The Chicago Plan Commission approved the plans in March and construction is expected to begin in October of this year.

sf sf sf sf sf sf sf sf sf sf sf sf sf sf sf sf sf sf

95.8% 86.9% 94.6% 0.0% 100.0% 97.4% 96.9% 0.0% 70.6% 81.4% 92.9% 0.0% 0.0% 0.0% 0.0% 93.5% 78.7% 81.7%

CENTRAL BUSINESS DISTRICT : SUPPLY

NEW DEVELOPMENT

19,280,248 sf

UNDER CONSTRUCTION/ANNOUNCED 151 N. Franklin 1045 W. Randolph 625 W. Adams 1330 W. Fulton

% Leased

820,000 608,000 443,645 287,928

Total

sf sf sf sf

48.6% 92.8% 2.0% 47.7%

2,159,573 sf

2000-2017 INVENTORY ADDITIONS Delivered (2000-2009) Delivered (2010-2016) Delivered (2017)

15,513,184 sf 2,538,000 sf 1,229,064 sf

Total

19,280,248 sf

Under Construction/Announced

2,159,573 sf

NEW DELIVERIES WILL CONTRIBUTE OVER FOUR MILLION TO INVENTORY BY 2018 20%

4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 (500,000) (1,000,000) (1,500,000)

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

2007

2008

2009

2010

New Construction Delivery (square feet)

2011

2012

2013

2014

Absorption (square feet)

2015

2016

2017 YTD

Direct Vacancy Rate %


3

SUBLEASE MARKET CONTRACTS • The sublease market decreased by 111,212 square feet in the first quarter of 2017, bringing the total amount of available sublease space down to 3,944,077 square feet. This is the second quarter in a row that the sublease market inventory has contracted after reaching a seven year high in the third quarter of 2016. • The only large block of sublease space new to the market in the first quarter of 2017 is Papyrus-Recycled Greetings’ 58,073 square feet at 111 N. Canal. • Three large blocks of sublease space were taken off the market in the first quarter. Citadel and Sprout Social’s spaces at 131 S. Dearborn reached the end of their lease term and are now available as direct space. Tressler’s 51,137 square feet of sublease space at 233 S. Wacker was also taken off the market.


SUBLEASE SPACE

4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000

2,404,109

3,158,562

4,201,801

3,576,846

2,897,711

3,214,365

3,060,757

3,161,152

3,351,486

4,055,289

3,944,077

1,000,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD

500,000 0

LARGE BLOCKS (MORE THAN 50,000 SQUARE FEET) OF SUBLEASE SPACE CURRENTLY AVAILABLE CLASS A Building Address

Size (sf)

Occupancy

Expiration

Floor(s)

Sublandlord

71 S. Wacker 233 S. Wacker 200 W. Madison 123 N. Wacker 161 N. Clark 500 W. Monroe

214,069 80,383 68,605 67,798 61,326 57,176

June 2017 Vacant Vacant March 2017 Vacant Negotiable

Feburary 2020 September 2019 September 2018 September 2022 October 2019 November 2027

10-17 46-47 2-4 24-27 6-7 12-13

Hyatt Hotels Corporation Chubb Harrington College of Design Morton Salt GE Capital Rail Services GE Healthcare

Floor(s)

Sublandlord

Total - 6 Spaces

549,357

CLASS B Building Address 225 W. Randolph 225 W. Randolph 141 W. Jackson 222 W. Merchandise Mart 1 N. Dearborn 225 W. Randolph 111 N. Canal 435-445 N. Michigan

Total - 8 Spaces

Size (sf)

Occupancy

Expiration

265,244 156,364 130,426 113,260 105,151 53,110 58,073 66,270

Vacant Negotiable 120 Days 30 Days 60 Days Vacant June 2017 30 Days

December 2022 November 2022 May 2027 June 2028 December 2025 November 2022 October 2018 June 2018

22-25, 27 17-19 2-6, 9 17 12-13 28-29 7 2

AT&T AT&T CME Group Motorola Pierce & Associates Avant Credit Papyrus-Recycled Greetings Chicago Tribune

947,898


4

INCREASE IN LARGE BLOCKS OF DIRECT VACANCY • The largest block of directly available space is still the 432,709 square feet at 625 W. Adams, which has been under construction since May of 2016, but has yet to pre-lease any of its space. • The number of direct blocks of available space increased to 79 in the first quarter of 2017 from 75 in the first quarter of 2016. There is a total of 13 direct blocks larger than 200,000 square feet, up from 10 a year ago. • Of the roughly 10 million square feet of available direct large blocks, about 4.8 million are currently vacant and about 5.2 million have future availability dates. • MBRE has identified at least 54 tenants actively seeking 50,000 square feet or more in the CBD.

CLASS A Building Address

Size (sf)

Availability

Submarket

625 W. Adams

432,709

April 2018

West Loop

200 E. Randolph

354,127

August 2018

East Loop

203 N. LaSalle

277,349

Vacant

Central Loop

151 N. Franklin

257,016

June 2018

West Loop

71 S. Wacker

246,872

March 2020

West Loop

227 W. Monroe

188,346

June 2017

West Loop

515 N. State

166,082

Vacant

North Michigan Avenue

233 S. Wacker

165,153

Vacant

West Loop West Loop

CLASS B Building Address

Size (sf)

Availability

333 S. Wabash

366,506

June 2018

Submarket East Loop

300 S. Riverside

316,563

Vacant

West Loop

125 S. Clark

289,141

Vacant

Central Loop

2 N. LaSalle

241,265

Vacant

Central Loop

175 W. Jackson

228,226

Vacant

Central Loop River North

350 N. Orleans

217,822

Vacant

333 S. Wabash

209,432

June 2018

East Loop

222 N. LaSalle

165,866

June 2018

Central Loop

200 W. Monroe

158,698

January 2018

West Loop

1 N. Dearborn

156,612

Negotiable

Central Loop

222 W. Merchandise Mart

154,295

September 2018

River North

233 N. Michigan

154,082

Negotiable

East Loop

141 W. Jackson

144,404

Vacant

Central Loop

175 W. Jackson

135,369

July 2017

Central Loop

333 S. Wabash

130,895

June 2018

East Loop

120 S. Riverside

102,072

April 2018

West Loop

130 E. Randolph

99,064

Vacant

East Loop

2 N. LaSalle

84,135

Vacant

Central Loop

141 W. Jackson

82,268

Vacant

Central Loop

330 N. Green

76,432

Vacant

River West

303 E. Wacker

73,798

Vacant

East Loop

55 E. Monroe

73,145

Vacant

East Loop

100 S. Wacker

72,782

Vacant

West Loop

200 W. Jackson

70,193

Vacant

West Loop

175 W. Jackson

69,395

January 2018

Central Loop

330 N. Wabash

68,564

July 2017


120 N. Racine

65,716

Vacant

River West

33 W. Monroe

64,476

Vacant

Central Loop

120 S. LaSalle

62,557

Vacant

Central Loop

111 N. Canal

58,073

Negotiable

West Loop

1 S. Wacker

57,054

Vacant

West Loop


55,708

Vacant

River North

52,373

Vacant

Central Loop

1 N. Dearborn

33 Blocks

4,356,981

500 W. Madison

155,807

January 2018

200 E. Randolph

131,268

Vacant

East Loop

550 W. Jackson

130,413

July 2017

West Loop

30 S. Wacker

129,216

June 2017

West Loop

111 S. Wacker

112,052

January 2018

West Loop

1 S. Dearborn

106,624

January 2020

Central Loop

Size (sf)

Availability

Submarket

444 W. Lake

106,292

Vacant

West Loop

311 W. Monroe

363,204

Vacant

West Loop

222 W. Adams

104,057

September 2017

West Loop

200 W. Madison

96,395

September 2018

Central Loop

401 S. State

110,898

Vacant

East Loop

233 S. Wacker

91,807

Vacant

West Loop

1 N. State

98,212

Vacant

East Loop

71 S. Wacker

91,414

July 2017

West Loop

122 S. Michigan

91,636

November 2017

East Loop

131 S. Dearborn

91,392

July 2017

Central Loop

440 S. LaSalle

89,045

Vacant

South Loop

CLASS C Building Address

122 S. Michigan

79,045

November 2017

East Loop

435-445 N. Michigan

69,943

Negotiable


20 N. Wacker

68,137

March 2018

West Loop

540 N. LaSalle

61,820

Vacant

River North

123 N. Wacker

84,694

February 2018

West Loop

35 W. Wacker

75,000

Vacant

Central Loop

191 N. Wacker

70,794

Vacant

West Loop

151 N. Franklin

70,450

June 2018

West Loop

1 N. Wacker

68,922

Vacant

West Loop

1 N. State

52,569

October 2017

East Loop

131 S. Dearborn

64,311

Vacant

Central Loop

1 N. State

50,023

Vacant

East Loop

131 S. Dearborn

64,311

November 2017

Central Loop

10 Blocks

71 S. Wacker

63,317

October 2017

West Loop

161 N. Clark

61,326

November 2019

Central Loop

233 S. Wacker

60,992

Vacant

West Loop

20 W. Kinzie

58,805

Vacant

River North

150 N. Riverside

57,056

Vacant

West Loop

111 S. Wacker

55,644

January 2018

West Loop

77 W. Wacker

55,032

Vacant

Central Loop

455 N. Cityfront Plaza

52,045

Vacant


36 Blocks


LARGE BLOCKS OF DIRECT AVAILABILITY

1,045,487

4,486,135


5

CBD VACANCY RATES REMAIN LOW • The total direct vacancy rate in the CBD decreased by 21 basis points from 11.35 percent at the end of the fourth quarter of 2016 to 11.14 percent at the end of the first quarter of 2017. • The Class A vacancy rate increased by 10 basis points to 9.91 percent. • The Class B vacancy rate decreased by 43 basis points in the first quarter, bringing the rate down to 12.57 percent. • The Class C vacancy rate is 11.15 percent, a 39-basis point decrease from 2016 year-end.

HISTORIC DIRECT VACANCY : RATES CONTINUE STEADY DECLINE 18%

CENTRAL BUSINESS DISTRICT : DEMAND

VACANCY RATES

16% 14%

14.97%

16.56%

14.36%

11.67%

11.52%

15.32%

16.04%

15.41%

15.11%

14.54%

13.59%

12.03%

11.35%

11.14%

8%

14.08%

10%

13.57%

12%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD

HISTORIC YEAR-END DIRECT VACANCY MARKET BY CLASS : PATTERNS HOLD 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

2002

2003

2004

2005

Class A

2006

2007

2008

2009

Class B

2010

2011

2012

2013

2014

2015

2016

2017 YTD

Class C


6

RAPIDLY EXPANDING COMPANY SIGNS LARGE DEAL • There were eight large new deals and 15 large renewal, expansion, and sublease deals signed in the first quarter of 2017. • The largest new deal signed in the first quarter was a 394,000-square foot lease signed by Outcome Health (formerly ContextMedia) at 515 N. State. The rapidly growing company will be relocating from 330 N. Wabash, where it currently occupies approximately 66,000 square feet. Outcome Health’s lease will bring 515 N. State’s occupancy up to 95.2 percent after being less than 50 percent for the past two years. • The largest renewal of the first quarter was for Sidley Austin’s 575,000 square feet at 1 S. Dearborn. The renewal is a big win for the building, as Sidley Austin occupies 70 percent of the property. However, it was likely a disappointment for multiple developers that had been hoping to launch their new office developments by signing a deal with the large law firm. • Nielsen jumped on the suburban migration bandwagon, announcing that they will be consolidating all of their suburban operations to their existing downtown office and expanding their current 71,000 square foot print at 200 W. Jackson to 215,000 square feet.


LARGE DEALS

LARGE LEASE TRANSACTIONS (OVER 15,000 SQUARE FEET) NEW Tenant

Type

Submarket

Building Address

Size (sf)

Outcome Heath (formerly ContextMedia Inc.) The National Restaurant Association Intersport HUB Insurance 1WorldSync Sikich The Climate Corporation Liquidus Marketing

New New New New New New New New

North Michigan Ave West Loop East Loop Central Loop West Loop West Loop River West West Loop

515 N. State 233 S. Wacker 303 E. Wacker 203 N. LaSalle 300 S. Riverside 200 W. Madison 1330 W. Fulton 200 W. Jackson

394,000 50,852 30,176 28,000 22,247 22,146 21,315 17,392

Total - 8 Deals

586,128

RENEWAL/EXPANSION/SUBLEASE Tenant

Type

Submarket

Building Address

Sidley Austin LLP Nielsen PPM America, Inc. The Warranty Group Grainger BDT Capital Partners iManage ABN AMRO Clearing Burns & McDonnell Enova International Nitel Home Chef PayPal/Braintree Signal BluePay Processing

Ren Ren/Exp Ren/Exp Ren/Cont Ren Ren/Exp Exp Exp Ren/Exp Exp Sublease Sublease Exp Sublease Sublease

Central Loop West Loop West Loop Central Loop West Loop North Michigan Ave West Loop Central Loop West Loop Central Loop River North North Michigan Ave River North Central Loop West Loop

1 S. Dearborn 200 W. Jackson 225 W. Wacker 175 W. Jackson 500 W. Madison 401 N. Michigan 540 W. Madison 175 W. Jackson 200 W. Adams 175 W. Jackson 350 N. Orleans 400-410 N. Michigan 222 W. Merchandise Mart 222 N. LaSalle 500 W. Madison

Total - 15 Deals

Size (sf) 574,812 215,000 100,671 67,000 60,000 58,000 48,307 42,775 36,409 34,926 32,115 29,095 27,698 26,282 18,377

1,371,467


7

TENANTS MOVE INTO NEW DEVELOPMENTS • There was a total of 733,832 square feet of positive absorption in the CBD in the first quarter of 2017, created primarily by tenants moving into the new developments at 444 W. Lake and 150 N. Riverside. Some of this positive absorption will be balanced out by negative absorption later in the year as these relocating tenants fully vacate their existing spaces. • There was 138,965 square feet of negative Class A absorption in the Central Loop due to DLA Piper’s move out of approximately 303,954 square feet at 203 N. LaSalle to relocate to the new office building at 444 W. Lake. This large amount of negative absorption was partially offset by 189,000 square feet of additional space occupied by J.P Morgan Chase at 10 S. Dearborn. • The largest contributors to the positive Class B absorption were Clark Hill’s occupation of 71,818 square feet at 130 E. Randolph and Conversant’s occupation of 15,979 square feet at 101 N. Wacker. The largest contributor to the positive Class C absorption was the 68,082 square feet that Ann & Robert Lurie Children’s Hospital moved into at 211 E. Chicago.


ABSORPTION

HISTORIC ABSORPTION 3,000,000 2,566,896

2,500,000

2,144,094 1,888,648

2,000,000 1,500,000

1,305,274

1,275,048 913,519

1,000,000

733,832

720,110 472,780

500,000 0 (74,794)

(500,000) (1,000,000)

(136,763)

(298,110)

(509,999) (670,489)

(720,154)

(936,680)

(1,500,000) 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD

HISTORIC ABSORPTION BY SUBMARKET

4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) (2,000,000) 2002

Central Loop

2003

2004

East Loop

2005

2006

River North


South Loop

West Loop

River West


8

RENTAL RATES STABILIZE

• The average initial net rent for new deals in the past year, across all classes, was $22.01 per square foot. Average renewal net rent across all classes was $20.47 per square foot. • New and renewal rental rates all increased except for Class A renewals. Landlords may be offering better renewal rates to keep tenants from relocating to the shadow space created by new developments. • The highest net asking rents for space at existing Class A properties currently on the market is $46 per square foot. • The average estimated initial taxes and operating costs for leases signed over the past year was $17.17 for Class A properties, $14.35 for Class B properties, and $13.17 for Class C properties.

AVERAGE LEASE TERMS ON NEW AND RENEWAL DEALS AVERAGE NET INITIAL RATE

NEW DEALS

2Q2016 - 1Q2017 2Q2015 - 1Q2016 2Q2014 - 1Q2015 2Q2013 - 1Q2014 2Q2012 - 1Q2013 2Q2011 - 1Q2012 2Q2010 - 1Q2011 2Q2009 - 1Q2010 2Q2008 - 1Q2009 2Q2007 - 1Q2008 2Q2006 - 1Q2007 2Q2005 - 1Q2006 2Q2004 - 1Q2005 2Q2003 - 1Q2004

AVERAGE ABATEMENT (MONTHS)

AVERAGE TERM (YEARS)

A

B

C

A

B

C

A

B

C

A

B

C

$24.64

$20.06

$19.46

$58.09

$51.48

$48.95

6.8

6.4

6.8

7.7

7.1

7.2

$24.48

$19.89

$16.34

$57.14

$50.19

$41.48

8.3

5.4

5.0

8.7

6.5

6.6

$21.74

$19.86

$16.20

$54.52

$52.23

$50.59

8.9

6.0

5.5

8.4

6.8

6.0

$18.82

$16.99

$15.15

$41.53

$37.11

$35.20

6.2

5.5

4.8

7.8

6.5

5.6

$19.91

$16.08

$14.34

$34.27

$29.96

$21.93

6.4

6.0

4.7

7.2

6.4

5.5

$19.95

$15.08

$13.33

$41.65

$32.08

$22.97

6.8

6.9

5.4

7.7

7.0

5.8

$20.11

$15.10

$11.14

$44.58

$26.16

$22.48

8.7

6.8

7.5

8.1

6.7

6.8

$19.79

$15.29

$11.97

$39.52

$26.87

$17.74

8.2

6.2

4.4

7.9

6.4

5.6

$22.23

$17.04

$13.85

$43.91

$38.87

$32.74

5.2

4.5

4.4

8.6

7.2

7.6

$19.40

$15.73

$12.25

$40.56

$38.87

$24.66

4.8

4.4

4.1

7.3

6.7

6.5

$18.12

$13.93

$15.39

$49.24

$38.58

$15.19

6.2

5.1

1.9

9.0

7.4

4.8

$18.09

$12.67

$10.25

$49.16

$38.58

$26.99

7.2

5.7

4.9

8.9

7.6

7.1

$16.67

$12.92

$10.05

$43.12

$42.82

$23.24

7.0

7.2

3.8

10.1

8.7

6.2

$17.22

$12.63

$9.43

$40.92

$36.90

$15.89

4.4

5.6

3.1

8.6

8.2

6.2

AVERAGE NET INITIAL RATE

RENEWAL DEALS

2Q2016 - 1Q2017 2Q2015 - 1Q2016 2Q2014 - 1Q2015 2Q2013 - 1Q2014 2Q2012 - 1Q2013 2Q2011 - 1Q2012 2Q2010 - 1Q2011 2Q2009 - 1Q2010 2Q2008 - 1Q2009 2Q2007 - 1Q2008 2Q2006 - 1Q2007 2Q2005 - 1Q2006 2Q2004 - 1Q2005 2Q2003 - 1Q2004

AVERAGE TENANT IMPROVEMENT

AVERAGE TENANT IMPROVEMENT

AVERAGE ABATEMENT (MONTHS)

CENTRAL BUSINESS DISTRICT : FEATURES

LEASE COMPARABLES

AVERAGE TERM (YEARS)

A

B

C

A

B

C

A

B

C

A

B

C

$23.04

$18.60

$18.30

$30.39

$20.28

$16.69

4.4

4.1

2.3

5.9

5.1

5.0

$24.32

$18.40

$15.67

$25.31

$18.71

$17.34

4.7

3.8

2.6

6.6

5.2

3.9

$24.66

$18.49

$16.47

$38.14

$22.79

$48.83

5.2

6.1

7.5

6.6

6.2

4.8

$19.80

$16.35

$12.49

$24.84

$15.34

$9.36

4.4

5.1

3.0

6.0

5.8

3.8

$18.80

$15.41

$12.64

$16.00

$10.47

$9.74

5.1

3.1

2.6

6.5

4.5

4.0

$19.10

$14.02

$14.09

$14.16

$9.26

$10.70

4.3

4.1

4.1

5.2

4.2

4.6

$19.79

$15.24

$10.28

$18.89

$10.56

$7.37

5.8

4.3

5.7

6.1

4.6

4.5

$17.80

$15.71

$11.56

$20.47

$10.92

$7.04

6.5

3.4

3.3

6.3

5.1

4.5

$21.72

$16.64

$15.36

$22.32

$16.11

$16.49

2.7

3.3

3.0

6.3

5.5

6.7

$20.16

$15.58

$13.57

$22.23

$17.28

$21.06

6.1

2.6

2.0

7.4

5.3

7.6

$16.07

$13.07

$16.68

$22.14

$17.67

$7.28

4.9

2.9

1.3

6.7

8.4

4.5

$16.12

$12.60

$14.39

$24.67

$16.20

$7.45

5.7

1.8

0.0

8.2

6.5

5.4

$16.44

$13.07

$10.12

$22.75

$22.50

$8.23

3.5

3.9

0.9

8.1

7.7

5.1

$18.54

$13.59

$10.27

$23.36

$16.99

$8.93

2.0

3.1

1.5

8.7

7.0

6.3


9

INVESTMENT SALES MARKET REMAINS SLUGGISH

• Chicago’s investment sales market started the year with another slow quarter. There were only four sales transactions completed, with a total of 1.7 million square feet and $549 million in total sales volume. Two additional sales are currently pending. • The largest sale completed in the first quarter was 181 W. Madison, which sold to HNA Group for $360 million, or $378 per square foot. • Five new properties came on to the market in the first quarter, bringing the total number of investment opportunities up to seven, with a combined total of approximately 4.9 million square feet. • Rising interest rates may negatively impact capitalization rates and valuations, which is expected to suppress the investment market in 2017.


INVESTMENT SALES

FIRST QUARTER INVESTMENT MARKET ACTIVITY Building Address

Sale Date

Size (sf)

Price

Price per SF

Class

Seller

Status/Buyer

225 W. Wacker

On Market (1st Qtr 2017)

650,812

$270,000,000

$415

A

Mirae/Hines

Marketing

1-33 S State


753,686

$200,000,000

$265

B

Madison Capital/KKR

Marketing

311 W. Monroe


386,000

$77,000,000

$199

C

PGIM Real Estate/ GlenStar Properties

Marketing

33 N. LaSalle


404,769

$73,000,000

$180

C

John Buck

Marketing

300 S. Wacker


512,354

$155,000,000

$303

B

Beacon Capital Partners

Marketing

401 N. Michigan

On Market (3rd Qtr 2016)

761,164

$325,000,000

$427

B

Zeller Realty

Marketing

540 W. Madison


1,111,925

$650,000,000

$585

A

Third Millenium

Marketing

125 S. Wacker

Under Contract (1st Qtr 2017)

510,426

$141,000,000

$276

B

MetLife

Callahan Capital/Ivanhoe Cambridge

150 N. Wacker

Under Contract (1st Qtr 2017)

246,613

$75,000,000

$304

B

American Realty Advisors

Randy Rissman

181 W. Madison

1st Qtr 2017

952,560

$360,000,000

$378

A

CBRE Global Investors

HNA Group

1333 N. Kingsbury

1st Qtr 2017

100,000

$27,800,000

$278

B

Everbury Partners

Credit Suisse AG

303 W. Erie

1st Qtr 2017

62,000

$15,000,000

$242

C

Cedar Street Companies

Alvarez & Marsal

123 N. Wacker

1st Qtr 2017

540,676

$146,500,000

$271

A

LNR Properties

LaSalle Investment Management

1,655,236

$549,300,000

$332

2017 YTD Sales


10

ADDED INVENTORY TO INCREASE VACANCY RATE The Chicago office market has experienced steady growth over the past couple years and is well positioned to absorb new inventory that is being added to the market. However, the overall vacancy rate can be expected to increase by at least one full percentage point over the next year. Also, rental rates in the CBD are not likely to increase significantly until the additional inventory and shadow space created by tenants relocating to new developments is leased. There were a significant number of large new deals and expansions signed in the first quarter of 2017, which is an indicator of positive momentum in the future. If this pace of deal execution continues, the market should be able to rapidly regain equilibrium. Investment sales activity is expected to remain subdued in 2017 due to rising interest rates, which can have a negative impact on capitalization rates and property valuations. In the meantime, many Class A buildings, particularly those in the West Loop, will be undergoing major renovations over the next few years to compete with the high level of standards set by the newly constructed trophy towers. Blackstone Group, for example, announced that it will be investing $500 million into Willis Tower renovations.

Year

Total Historic and Forecasted Inventory (SF)

Total Historic & Forecasted Occupancy (SF)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

122,776,164 124,713,268 125,037,423 126,452,643 128,385,650 126,478,575 125,626,639 125,269,078 130,038,076 130,539,796 130,649,210 131,044,641 131,021,405 131,035,247 132,712,489 132,712,489

108,743,284 107,598,500 106,754,119 106,568,104 105,737,728 108,402,912 110,969,808 110,833,045 110,112,891 109,602,891 110,516,410 111,238,394 111,964,734 113,231,032 116,743,521 118,112,204

134,162,702 136,322,275

119,215,028 119,992,563

YTD 2017 2018

2007-2016 Absorption Avg:

777,536

2017 YTD Absorption:

733,832

Direct Vacancy % 11.4% 13.7% 14.6% 15.7% 17.6% 14.3% 11.7% 11.5% 15.3% 16.0% 15.4% 15.1% 14.5% 13.4% 12.0% 11.3%


FORECAST

11.1% 12.0%

tForecasted occupancy based on 10-year trailing absorption average *Inventory & occupancy reflect year end numbers

HISTORIC & PROJECTED VACANCY

140,000,000

20%

135,000,000

18% 16%

130,000,000

14%

125,000,000

12%

120,000,000

10%

115,000,000

8% 6%

110,000,000

4%

105,000,000 100,000,000

2% 2002

2003

2004

2005

2006

Total Historic and Forecasted Inventory (SF)

2007

2008

2009

2010

2011

2012

2013

2014

Total Historic & Forecasted Occupancy (SF)

2015

2016

YTD 2017

2018

0%

Direct Vacancy %


11

2017 1st Quarter Market Preview*

Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)

Sublease Vacancy (sf)

Total Vacancy Rate (Direct + Sublease) %

RBA (sf)

YTD Absorption (sf)

1st Quarter Absorption (sf)

Class A

14,680,555

(138,965)

(138,965)

1,524,580

10.4%

13,155,975

374,479

12.9%

Class B

15,204,607

24,364

24,364

1,877,099

12.3%

13,327,508

422,726

15.1%

CENTRAL LOOP

Class C

7,762,955

24,111

24,111

764,389

9.8%

6,998,565

121,571

11.4%

Total

37,648,116

(90,490)

(90,490)

4,166,068

11.1%

33,482,048

918,776

13.5%

EAST LOOP

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)



Class A

4,108,119

(5,034)

(5,034)

358,909

8.7%

3,749,210

66,065

10.3%

Class B

10,940,478

109,954

109,954

1,536,499

14.0%

9,403,979

278,637

16.6%

Class C

7,805,392

9,233

9,233

973,595

12.5%

6,831,797

103,164

13.8%

Total

22,853,989

114,153

114,153

2,869,003

12.6%

19,984,986

447,866

14.5%

N. MICHIGAN AVE.

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)


Total Vacancy Rate (Direct + Sublease) % 21.5%

Class A

3,825,688

42,323

42,323

739,126

19.3%

3,086,562

83,123

Class B

4,694,377

(2,642)

(2,642)

403,734

8.6%

4,290,643

44,999

9.6%

Class C

3,774,762

70,049

70,049

385,212

10.2%

3,389,550

200,640

15.5%

Total

12,294,827

109,730

109,730

1,528,072

12.4%

10,766,755

328,762

15.1%

RIVER NORTH

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)



Class A

3,912,549

9,201

9,201

201,074

5.1%

3,711,475

80,238

7.2%

Class B

4,150,200

(21,101)

(21,101)

447,168

10.8%

3,703,032

214,899

16.0%

Class C

5,429,026

27,336

27,336

671,545

12.4%

4,757,481

164,574

15.4%

Total

13,491,775

15,436

15,436

1,319,787

9.8%

12,171,988

459,711

13.2%

WEST LOOP

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)



Class A

27,200,832

533,669

533,669

2,598,700

9.6%

24,602,132

1,206,707

14.0%

Class B

11,854,673

70,713

70,713

1,621,832

13.7%

10,232,841

367,572

16.8%

Class C

5,411,917

6,020

6,020

602,976

11.1%

4,808,942

163,877

14.2%

Total

44,467,422

610,402

610,402

4,823,508

10.8%

39,643,914

1,738,156

14.8%

RIVER WEST

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)



Class A

1,051,383

0

0

10,420

1.0%

1,040,963

8,197

1.8%

Class C

2,355,190

(25,399)

(25,399)

230,816

9.8%

2,124,374

42,609

11.6%

Total

3,406,573

(25,399)

(25,399)

241,236

7.1%

3,165,337

50,806

8.6%

TOTALS

RBA (sf)

YTD Absorption (sf)


Direct Vacancy (sf)

Direct Vacancy %

Occupancy (sf)



Class A

54,779,126

441,194

441,194

5,432,809

9.9%

49,346,317

1,818,809

13.2%

Class B

46,844,334

181,288

181,288

5,886,332

12.6%

40,958,002

1,328,833

15.4%

Class C

32,539,242

111,350

111,350

3,628,533

11.2%

28,910,709

796,435

13.6%

Total CBD

134,162,702

733,832

733,832

14,947,674

11.1%

119,215,028

3,944,077

14.1%


MARKET STATISTICS

Numbers in parentheses are negative

*Initial numbers - subject to change


12


SECTION THREE

SUBMARKET MAP


13

LARGE TENANT RECOMMITS There was 90,490 square feet of total negative absorption in the Central Loop this quarter. There was 48,475 square feet of positive absorption in Central Loop Class B and C properties, but it was outweighed by 138,965 square feet of negative absorption in Class A properties. The negative absorption was caused by DLA Piper vacating 303,954 square feet at 203 N. LaSalle when they moved into the new tower at 444 W. Lake.

LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address

The Central Loop’s overall direct vacancy rate increased by 66 basis points to 11.07 percent. However, some of this increase was due to a number of buildings being added to the Central Loop inventory from the South Loop submarket, which we are no longer tracking as a separate submarket.

Size (sf)

Availability

Building Class

125 S. Clark

289,141

Vacant

B

203 N. LaSalle

277,349

Vacant

A

2 N. LaSalle

241,265

Vacant

B

175 W. Jackson

228,226

Vacant

B

222 N. LaSalle

165,866

June 2018

B

1 N. Dearborn

156,612

Negotiable

B

141 W. Jackson

144,404

Vacant

B

175 W. Jackson

135,369

July 2017

B

1 S. Dearborn

106,624

January 2020

A

200 W. Madison

96,395

September 2018

A

131 S. Dearborn

91,392

July 2017

A

440 S. LaSalle

89,045

Vacant

A

2 N. LaSalle

84,135

Vacant

B

141 W. Jackson

82,268

Vacant

B

35 W. Wacker

75,000

Vacant

A

175 W. Jackson

69,395

January 2018

B

33 W. Monroe

64,476

Vacant

B

131 S. Dearborn

64,311

Vacant

A

131 S. Dearborn

64,311

November 2017

A

120 S. LaSalle

62,557

Vacant

B

161 N. Clark

61,326

November 2019

A

77 W. Wacker

55,032

Vacant

A

1 N. Dearborn

52,373

Vacant

B

A

B

C

Total

14,680,555

15,204,607

7,762,955

37,648,116

(138,965)

24,364

24,111

(90,490)

Direct Vacancy Rate

10.4%

12.3%

9.8%

11.1%

Total Vacancy Rate (Direct + Sublease)

12.9%

15.1%

11.4%

13.5%

The largest deal signed in the first quarter was Sidley Austin’s renewed lease for 574,812 square feet at 1 S. Dearborn. The lease renewal is good news for the Central Loop, as many developers had been trying to woo the company to new developments in the West Loop. The Central Loop’s boundaries are the Chicago River (North), Wells Street (West), State Street (East), and Van Buren Street (South). The Central Loop includes the Financial District, as well as many government offices, law firms, and professional services. It is also beginning to attract growing start-up companies as well. CENTRAL LOOP SUMMARY Inventory (square feet) Year to Date Absorption (square feet)

CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS

CENTRAL LOOP

Numbers in parantheses are negative

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

17.5%

15.2%

11.8%

11.4%

12.7%

13.6%

13.8%

13.2%

13.7%

12.7%

11.1%

10.4%

11.1%

0%

15.2%

5%

14.7%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


14

ANOTHER STRONG QUARTER FOR THE EAST LOOP The East Loop had a strong quarter with 114,153 square feet of total absorption. The overall direct vacancy rate decreased by 54 basis points from 2016 year end to 12.55 percent in the first quarter of 2017. Class B saw the most activity, with 109,954 square feet of positive absorption. The largest tenant move-in was Clark Hill’s relocation into 71,818 square feet at 130 E. Randolph. The only large new deal executed in the East Loop during the first quarter was Intersport’s lease of 30,176 square feet at 303 E. Wacker. 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 by a variety of corporate tenants with a heavy lean toward advertising and media firms.

EAST LOOP SUMMARY


Size (sf)

Availability

Building Class

333 S. Wabash

366,506

June 2018

B

200 E. Randolph

354,127

August 2018

A

333 S. Wabash

209,432

June 2018

B

233 N. Michigan

154,082

Negotiable

B

200 E. Randolph

131,268

Vacant

A

333 S. Wabash

130,895

June 2018

B

401 S. State

110,898

Vacant

C

130 E. Randolph

99,064

Vacant

B

1 N. State

98,212

Vacant

C

122 S. Michigan

91,636

November 2017

C

122 S. Michigan

79,045

November 2017

C

303 E. Wacker

73,798

Vacant

B

55 E. Monroe

73,145

Vacant

B

1 N. State

52,569

October 2017

C

1 N. State

50,023

Vacant

C

A

B

C

Total

4,108,119

10,940,478

7,805,392

22,853,989

(5,034)

109,954

9,233

114,153

Direct Vacancy Rate

8.7%

14.0%

12.5%

12.6%


10.3%

16.6%

13.8%

14.5%

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


EAST LOOP


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%

18.6%

17.7%

16.5%

13.1%

12.6%

0%

18.4%

5%

17.2%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


15

LARGEST NEW DEAL OF THE QUARTER

The North Michigan Avenue submarket saw a total of 109,730 square feet of positive absorption in the first quarter. The overall direct vacancy rate decreased by 88 basis points to 12.43 percent.


Size (sf)

Building Class

166,082

Vacant

A

69,943

Negotiable

C

330 N. Wabash

68,564

July 2017

B

455 N. Cityfront Plaza

52,045

Vacant

A

515 N. State

The majority of the positive absorption was created by Ann & Robert H. Lurie Children’s Hospital moving in to 68,082 square feet at 211 E. Chicago.

Availability

435-445 N. Michigan

The largest new deal of the quarter in the CBD was in the North Michigan Avenue submarket: Outcome Health’s (formerly Context Media) lease of 394,000 square feet at 515 N. State. The lease will bring the building’s occupancy rate, which has been less than 50 percent since the American Medical Association moved out of the building in 2013, up to 95 percent. The North Michigan Avenue submarket borders include Division Street (North), State Street (West), Lake Michigan (East), and the Chicago River (South). It is home to retailers, hotels, restaurants, entertainment venues, advertising and marketing agencies, and the Northwestern Memorial Hospital campus.

NORTH MICHIGAN AVENUE SUMMARY Inventory (square feet)

A

B

C

Total

3,825,688

4,694,377

3,774,762

12,294,827

Year to Date Absorption (square feet)

42,323

(2,642)

70,049

109,730

Direct Vacancy Rate

19.3%

8.6%

10.2%

12.4%


21.5%

9.6%

15.5%

15.1%


NORTH MICHIGAN AVENUE


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%

19.2%

17.2%

14.9%

13.3%

12.4%

0%

12.7%

5%

10.8%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


16

RIVER NORTH VACANCY RATE REMAINS LOW The River North submarket had 15,436 square feet of positive absorption in the first quarter of 2017 and an overall direct vacancy rate of 9.78 percent, down 18 basis points from last quarter.


The Merchandise Mart continues to attract premium tenants to the River North submarket. Kellogg announced that they have opened a new office for about 50 employees in its global growth and IT departments at The Merchandise Mart. Braintree, which is now owned by Paypal, expanded its space at The Mart by 27,698 square feet.

Size (sf)

Availability

Building Class

350 N. Orleans

217,822

Vacant


154,295

September 2018

B

540 N. LaSalle

61,820

Vacant

C

20 W. Kinzie

58,805

Vacant

A


55,708

Vacant

B

B

The borders of the River North submarket are defined as Division Street (North), Racine Avenue (West), State Street (East), and the Chicago River (South). Historically, it has been home to small, older buildings that cater to furniture galleries and small businesses, but has more recently become a hub for technology, startups, and trading firms.

RIVER NORTH SUMMARY Inventory (square feet)

A

B

C

Total

3,912,549

4,150,200

5,429,026

13,491,775


9,201

(21,101)

27,336

15,436

Direct Vacancy Rate

5.1%

10.8%

12.4%

9.8%


7.2%

16.0%

15.4%

13.2%


RIVER NORTH


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%

9.1%

8.9%

8.0%

10.0%

9.8%

0%

19.3%

5%

11.9%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


17

NEW DEVELOPMENTS DELIVERED Tenants are moving into two of the first new office towers to be developed since 2009, 444 W. Lake and 150 N. Riverside. These developments will add a combined 2.3 million square feet to Chicago’s office market.


Size (sf)

Availability

625 W. Adams

432,709

April 2018

A

311 W. Monroe

363,204

Vacant

C

There are two additional developments currently under construction in the West Loop: John Buck’s new development at 151 N. Franklin and White Oak Realty’s new development at 625 W. Adams, both of which are expected to be completed in 2018.

300 S. Riverside

316,563

Vacant

B

151 N. Franklin

257,016

June 2018

A

550 W. Jackson

130,413

July 2017

A

Howard Hughes Corporation and Riverside Investment & Development released plans for a new 1.35 million square foot office tower at 110 N. Wacker, the site of GGP’s current headquarters. The Chicago Plan Commission approved the plans in March and construction is expected to begin in October of this year.

30 S. Wacker

129,216

June 2017

A

111 S. Wacker

112,052

January 2018

A

444 W. Lake

106,292

Vacant

A

222 W. Adams

104,057

September 2017

A

120 S. Riverside

102,072

April 2018

B

The largest new deal executed in the West Loop in the first quarter was The National Restaurant Association’s lease of 50,852 square feet at Willis Tower. The owner of Willis Tower, Blackstone Group, announced that the iconic building will be undergoing a $500 million renovation. Nielsen announced that it will be consolidating its multiple suburban offices to its West Loop office at 200 W. Jackson, which will be expanded from 71,000 square feet to 215,000 square feet.

Building Class

71 S. Wacker

246,872

March 2020

A

227 W. Monroe

188,346

June 2017

A

233 S. Wacker

165,153

Vacant

200 W. Monroe

158,698

January 2018

B

500 W. Madison

155,807

January 2018

A

A

233 S. Wacker

91,807

Vacant

A

71 S. Wacker

91,414

July 2017

A

123 N. Wacker

84,694

February 2018

A

550 W. Washington

73,121

Vacant

A B

100 S. Wacker

72,782

Vacant

200 W. Jackson

71,781

Vacant

B

191 N. Wacker

70,794

Vacant

A

151 N. Franklin

70,450

June 2018

A

200 W. Jackson

70,193

Vacant

B

1 N. Wacker

68,922

Vacant

A

20 N. Wacker

68,137

March 2018

C

71 S. Wacker

63,317

October 2017

A

233 S. Wacker

60,992

Vacant

A

111 N. Canal

58,073

Negotiable

B

150 N. Riverside

57,056

Vacant

A

1 S. Wacker

57,054

Vacant

B

111 S. Wacker

55,644

January 2018

A


WEST LOOP

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). The West Loop is the largest submarket and is home to law firms, financial services firms, insurance companies, and multiple corporate headquarters. WEST LOOP SUMMARY Inventory (square feet) Year to Date Absorption (square feet)

A

B

C

Total

27,200,832

11,854,673

5,411,917

44,467,422 610,402

533,669

70,713

6,020

Direct Vacancy Rate

9.6%

13.7%

11.1%

10.8%


14.0%

16.8%

14.2%

14.8%

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

17.3%

11.5%

10.2%

11.8%

16.6%

15.8%

14.2%

13.9%

13.1%

12.2%

10.9%

11.1%

10.8%

0%

14.4%

5%

14.6%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


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FULTON MARKET CONTINUES TO REDEVELOP MBRE began officially tracking the River West submarket in 2015. River West continues to have the least availability in the CBD. Overall direct vacancy is at 7.08 percent. Direct vacancy for Class A properties remains at an exceptionally low 1 percent. The only real leasing opportunities are at developments that are currently proposed or under construction.

LARGEST BLOCK OF DIRECT AVAILABILITY Building Address

Size (sf)

Availability

Building Class

330 N. Green

76,432

Vacant

B

120 N. Racine

65,716

Vacant

B

The Fulton Market area in River West has attracted many investors eager to capitalize on the rapidly redeveloping area that includes Google’s Chicago headquarters and McDonald’s future headquarters. There are a wide variety of developments planned and under construction in the Fulton Market area, including: hotels, multi-family buildings, retail space, recreational facilities, and office space. One large deal was executed in River West in the first quarter by The Climate Corporation, who signed a new lease for 21,315 square feet at 1330 W. Fulton. The development is currently under construction and expected to be completed in July of 2017.


RIVER WEST

River West’s borders are defined as Erie Street (North), Ashland Ave (West), I-90/94 Kennedy Expressway (East), and I-290 Eisenhower Expressway (South). River West is an up-and-coming submarket that is attracting prominent tech companies.

RIVER WEST SUMMARY

A

Inventory (square feet)

C

Total

1,051,383

2,355,190

3,406,573 (25,399)


B

0

(25,399)

Direct Vacancy Rate

1.0%

9.8%

7.1%


1.8%

11.6%

8.6% Numbers in parantheses are negative

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

5.9%

8.5%

9.9%

15.8%

22.2%

22.1%

18.3%

14.6%

11.4%

6.9%

7.4%

6.8%

7.0%

0%

9.8%

5%

11.6%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 YTD


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ADDITIONAL INFORMATION GLOSSARY Absorption: The net change in occupied space over a given period of time. Unless otherwise noted, Net Absorption includes direct and sublease space.

Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis.

Asking Rent: The published rental rate for a space in a building, which may vary from the rent which is negotiated upon by the tenant and landlord.

Sales Price: The total dollar amount paid for a particular property at a particular point in time.

Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA.

SF: Abbreviation for Square Feet.

Class: A classification used to describe buildings, with Class A reflecting the highest quality and Class C reflecting the lowest.

Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within.

Direct Vacant Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased. Initial Rate: The contracted starting rental rate for the third term of a lease. Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. Calculated by adding the Rentable Building Area (RBA) of all properties in a market or submarket. Large Block: The amount of contiguous space available in a building in terms of square footage. Contiguous spaces over 50,000 square feet are considered large by MB Real Estate. Lease Comparable: Comparables are properties with characteristics that are similar in nature. Their signing lease rates and other contracted elements are aggregated to analyze contracted market conditions as opposed to asking market conditions. Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building type specific and are non-overlapping contiguous geographic designations. Markets can be further subdivided into Submarkets. Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs. Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date. Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA). Rentable Building Area (RBA): The total building square footage that can be occupied by or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally, RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.

CHICAGO MARKET OVERVIEW

SECTION FOUR

Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space.

Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD. Tenant Improvement: Those changes to property to accommodate specific needs of a tenant. TIs include installation or relocation of interior walls or partitions, carpeting or other floor covering, shelves, windows, toilets, etc. The cost of these is negotiated in the lease. Total Vacant Space: Direct plus sublease vacant space. Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is considered to be under construction after it has begun construction and until it receives a certificate of occupancy. Vacancy Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. Vacancy rate can be based on direct, sublease, or total vacant space. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space. YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied.


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OUR MISSION IS TO PROVIDE CLIENTS AND INVESTORS WITH EXTRAORDINARY REAL ESTATE VALUE AND UNLIMITED SUPPORT

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.

DEPARTMENT LEADERSHIP MB REAL ESTATE HEADQUARTERS 181 West Madison, Suite 4700 Chicago, Illinois 60602 phone: 312.726.1700 www.mbres.com

EAST COAST REGIONAL HEADQUARTERS 335 Madison Avenue, 14th Floor New York, New York 10017 phone: 212.350.2300 fax: 212.350.2301

COMPANY LEADERSHIP PETER E. RICKER Chairman & CEO

JOHN T. MURPHY Vice Chairman

PATRICIA ALUISI

Executive Vice President & Chief Administrative Officer/General Counsel

KRYSTA BAVLSIK

Executive Vice President & MBRE Healthcare

MARK A. BUTH

Executive Vice President & Managing Director of Leasing Services

ANDREW J. DAVIDSON

Executive Vice President & Managing Director of Corporate Services & Tenant Advisory

DAVID R. GRAFF

Executive Vice President of Project Services

SUZANNE HENDRICK

Senior Vice President & Director of Asset Management

KAROLINE EIGEL

Senior Vice President & Chief Marketing Officer

EILEEN FLYNN

Senior Vice President & Chief Financial Officer

KEVIN M. PURCELL

President, Leasing & Management Services

PETER J. WESTMEYER

Executive Vice President & Managing Director of Investment Services/ President & Managing Principal, MBRE Healthcare Group


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