FOURTH Q U A R T E R
2 012
CHICAGO MARKET OVERVIEW
FOURTH QUARTER
2 012 CHICAGO MARKET OVERVIEW
TABLE OF CONTENTS SE CT ION ONE
CHICAGO ECONOMY 01 Economic Analysis SE CT ION T WO
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 13
Lease Comparables Investment Sales Forecast Submarket Map Market Statistics
SE CT ION T H RE E
SUBURBAN CHICAGO 14 Suburban Chicago Executive Summary T h e C h ic a g o M a r ke t O v e r v i e w i s p ubl i s h e d q u a r t e r l y by M B R e a l E s ta te. To o b t a in ad d i ti o n a l co pi e s o r fo r fur the r in f or ma ti o n , p l e a s e c o nta c t:
SUPPLY
15 New Developments 16 Sublease Space 17 Large Blocks of Direct Availability DEMAND
JAC K GAV IN Senior Research Coordinator or
SC OT T M AS ON Research Coordinator 1 8 1 We st M a d i s o n S tre e t, S ui te 4 7 0 0 Ch ic a go, I l l i no i s 6 0 6 0 2
18 Vacancy Rates 19 Large Deals 20 Absorption FEATURES
21 22 23 24 25
Gross Asking Rents Investment Sales Forecast Submarket Map Market Statistics
(312) 726-1700 w w w. m b r e s . c o m
SE CT ION FOUR
ADDITIONAL INFORMATION 26 Glossary 27 About MB Real Estate
CHICAGO ECONOMY ECONOMIC ANALYSIS Despite several factors that continue to threaten a full recovery, Chicago’s economy showed marked signs of progress in 2012. The city of Chicago has displayed progress in its overall labor market as unemployment dropped from 11.5 percent a year ago to 10.0 percent. Much of this improvement can be attributed to significant job gains in office-using industries. Since January 2010 the Chicago-Naperville-Joliet MSA Professional and Business Services industry has added over 96,000 jobs, and is nearing its all-time peak employment level. Total employment within the Financial Activities industry has begun to grow since purging tens of thousands of jobs following the recession. However jobs are still being lost in the Government, Information, and Construction industries, indicating that the labor market has not fully turned around.
C H I C A G O E C O N O M I C A N A LY S I S
SECTION ONE
Perhaps the most intriguing factor related to the local economy is Mayor Emanuel’s continued pursuit of attracting and promoting expansion of companies to Chicago’s Central Business District (CBD). Since taking office in May 2011, Mayor Emanuel has announced the relocation or expansion of roughly 70 companies within Chicago. During the 4th quarter, Capital One announced that it would bring 350 workers to downtown Chicago from suburban and other Midwest locations. Nokia announced that it would relocate its Mobile Phones Express Internet Services group to Chicago, adding approximately 150 jobs to the city. While minor in scale, the additions create positive sentiment and increase other firms’ confidence. According to a recent survey conducted by Manpower, Chicago MSA employers plan to hire at a strong pace in the first quarter of 2013. Twenty percent of responding employers plan to increase staff levels, while only 9 percent plan to cut staff, with the rest maintaining similar headcounts. The survey concludes that a net 11 percent of employers will grow their workforce. This is up from a 7 percent net employment outlook last quarter, and up from 3 percent one year ago. This survey demonstrates that local companies have increased confidence, and corporate expansion is eminent. Despite improved hiring prospects and a significant decline in its unemployment rate, Chicago’s economy continues to be “at risk” according to Moody’s Economy.com. Chicago benefits from being the major business, distribution, and financial hub of the Midwest. It also has a large talent pool, strong educational institutions, and relatively high per capita income. However, Economy.com cites that the city suffers from high taxes, infrastructure in need of repair, below-average population growth and poor local fiscal health. These concerns have prompted companies to consider relocating their operations. In response, state and local governments have had to offer lucrative incentive packages to retain such companies. Considering the factors above, Chicago’s economic outlook continues to be mixed. Total employment in the Chicago MSA fell 7.4 percent peak-to-trough and has only rebounded 2.5 percent since its low point in December 2009. Compared to the 2001 recession, total employment fell further and has been markedly slower to recover. If jobs continue to be created at a tepid pace, the Chicago office market will experience a slow, drawn-out recovery. MBRE’s baseline forecast expects modest positive absorption over the next two years, resulting in a slowly declining vacancy rate. Sources: MBRE Research, BLS, Chicago Sun-Times, Crain’s Chicago Business, World Business Chicago, Moody’s Economy.com
Chicago MSA Total Non-farm Employment (millions, SA)
CHICAGO EMPLOYMENT WELL BELOW PEAK AND RECOVERING SLOWLY 4.7 4.6
4.59
4.57 -4.4%
4.5
+3.1%
4.53 -7.4%
4.39
4.4
+2.5% 4.3
4.33
4.23
4.2 4.1 01/01
10/03
08/06
01/08
12/09
10/12
4.0 2001 Recession Peak Employment
Trough Employment
2008-2009 Recession Employment 34 months post-trough
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
1
CENTRAL BUSINESS DISTRICT EXECUTIVE SUMMARY Following its strongest quarter in the past five years, the CBD experienced over 330,000 square feet of positive absorption during the fourth quarter. The increased demand shown in the market during the second half of the year led the CBD to outperform MBRE’s baseline forecast for 2012. Key Indicators: • Direct vacancy fell 30 basis points to 15.1 percent. For the second consecutive quarter, each building class saw a decline in vacancy. The River North, Central Loop, and West Loop submarkets continue to outperform the overall market. Only the South Loop experienced negative absorption.
CENTRAL BUSINESS DISTRICT
SECTION TWO
• No new developments were announced this quarter. Hines has delayed its ground breaking on a 45-story, 900,000 square foot tower at 444 West Lake until the first quarter of 2013. Completion is still slated for mid-2016. There are 11 sites in total that have been actively marketed to prospective anchor tenants. • The trend of suburban-based companies moving downtown continues. Maximus, Presence Health, and Zones are three newlyannounced companies that will relocate to at least 20,000 square feet each in the CBD. • Class A rental rates for new transactions have increased by 1.0 percent on a year-over-year basis. Additionally, concessions fell, indicating growth in net effective rental rates. Average tenant improvement allowances have fallen 8.5 percent while average rent abatement has declined by 7.1 percent. • Underutilized space remains the biggest concern to the outlook of the market. Other risks include: increased national tax rates; residual effects of the Eurozone crisis; shrinking space requirement per employee; reduced storage needs due to digital archiving; reduced server space needs due to cloud computing; and increased corporate tax rates in Illinois. • Potential upsides to the outlook include: the increased trend of businesses relocating to the CBD; rapidly expanding tech firms; no new supply expected until at least 2016; and increased corporate confidence. Solid demand seen in the second half of 2012 has brightened the market’s outlook. However, slow job growth and tenants eliminating underutilized space have muted the recovery. As such, MB Real Estate’s baseline forecast predicts modest positive absorption, resulting in a slight decline in vacancy over the next two years.
CBD VACANCY AND YEAR-END ABSORPTION SUMMARY Direct Vacancy 4Q2012 Central Loop East Loop N. Michigan Ave. River North South Loop West Loop CBD Chicago Total Net Absorption 4Q2012 Central Loop East Loop N. Michigan Ave. River North South Loop West Loop CBD Chicago Total
A 9.0% 17.8% 17.8% 11.2% 29.7% 14.5% 13.7%
Change from 3Q2012 -0.4% -0.7% -1.0% -0.3% 0.9% -0.4%
-0.4%
B
Change from 3Q2012
15.8% 24.7% 23.3% 5.8%
0.0% 0.3% -0.7% -0.6%
10.8% 16.8%
-0.1%
0.0%
C 15.7% 14.2% 19.8% 9.8% 25.2% 15.8% 15.2%
Change from 3Q2012 -0.7% -0.9% 0.5% 0.0% 1.2% -0.4%
-0.4%
Total
Change from 3Q2012
13.2% 19.7% 20.5% 9.1% 27.3% 13.9% 15.1%
-0.4% -0.3% -0.4% -0.3% 1.1% -0.3% -0.3%
A
B
C
Total
62,833 34,516 33,520 8,712 (9,721) 119,564 249,424
25,916 (21,572) 40,909 45,876
58,978 13,919 (39,025) (28,807) (28,787) 1,285 (22,437)
147,727 26,862 35,403 25,782 ( 38,508) 133,139 330,405
12,290 103,419
Numbers in parentheses are negative
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
2
Groundbreaking pushed back, but 444 West Lake still slated for 2016 completion
• No new developments were formally announced this quarter. Hines has delayed the groundbreaking of its 45story, 900,000 square foot building at 444 West Lake until the first quarter of 2013. The developer obtained $300 million to construct the building from Montrealbased Ivanhoe Cambridge and an additional $29.5 million from the City of Chicago for a surrounding park. Completion is still slated for mid-2016.
• Just west of the CBD’s official boundaries, Sterling Bay is redeveloping a 545,000 square foot former cold storage facility at 1000 West Fulton. The project, dubbed 1K Fulton, is scheduled to be completed in the first quarter of 2014. SRAM became the building’s first tenant by preleasing 77,000 square feet. • MB Real Estate has identified 11 proposed new development sites ranging from 350,000 to 1.3 million square feet. Many of these sites will require at least 60 percent preleasing, but Hines has demonstrated that construction can move forward without traditional financing.
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 Total - 20 Properties
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
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%
16,446,894 sf
UNDER CONSTRUCTION/ANNOUNCED 444 West Lake
900,000 sf
Total
900,000 sf
S U P P LY
• Prompting the construction at 444 West Lake, and potentially a smaller development, is the constraint on large, contiguous space. There are currently 12 tenants touring the market for requirements of at least 100,000 square feet. Such tenants have limited relocation options, as only 10 contiguous blocks of Class A space greater than 100,000 square feet are currently available.
% Leased (Avg)
2000 - 2012 INVENTORY ADDITIONS
CENTRAL BUSINESS DISTRICT
NEW DEVELOPMENT
% Leased 0.0%
2000-2012 INVENTORY ADDITIONS Delivered (2000-2011) Delivered (2012)
16,446,894 sf 0 sf
Total Under Construction/Announced Proposed Inventory
16,446,894 sf
Total
900,000 sf 4,922,564 sf
5,822,564 sf
• OUTLOOK: The amount of new construction will be fueled by the number of large tenants seeking space and the constraint of large blocks of Class A space. A smaller development has the potential to be delivered before 444 West Lake. By 2016, demand is expected to be great enough to warrant new office developments.
NO NEW DELIVERIES EXPECTED UNTIL 2016
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
3
Sublease availability increases as two new large blocks are placed on the market
• The amount of total available sublease space increased by 83,000 square feet, or 2.6 percent, since last quarter. • No large sublease blocks were removed during the quarter, and two new short-term subleases are available. Career Education Corporation is seeking a subtenant for 94,000 square feet through January 2016 at 222 Merchandise Mart. In the East Loop, Verizon is marketing 65,000 square feet on the fifth through seventh floors at 205 North Michigan. • Helping to offset the increase in large blocks was Capital One Financial Corp’s sublease of 65,000 square feet from United Airlines. The financial services firm announced plans to bring 350 additional employees downtown to occupy the eighth through tenth floors at 77 West Wacker through February 2022.
CENTRAL BUSINESS DISTRICT
SUBLEASE SPACE
• OUTLOOK: Historically, the amount of available sublease space is an indicator of corporate confidence. The current amount of available space is still well below the historical average of 3.6 million square feet. Companies will continue to reconsider employee headcount and space efficiency, causing sublease availability to fluctuate. S U P P LY
SUBLEASE AVAILABILTY UP FROM LAST YEAR, BUT BELOW LONG-TERM AVERAGE
LARGE BLOCKS (MORE THAN 50,000 SQUARE FEET) OF SUBLEASE SPACE CURRENTLY AVAILABLE CLASS A Building Address
Size (sf)
Occupancy
Expiration
Floor(s)
Sublandlord
77 W Wacker Dr 131 S Dearborn St 131 S Dearborn St 1 N Wacker Dr 111 S Wacker Dr 111 S Wacker Dr 100 N Riverside 225 W Wacker Dr
174,624 128,622 64,125 55,437 55,400 54,200 52,660 51,520
Negotiable Vacant Vacant Vacant 30 Days January 2013 Negotiable 30 Days
February 2022 October 2017 October 2017 March 2015 January 2021 May 2015 May 2023 March 2022
11-19 7-8 10 19-20 45-46 37-38 7-8 26-27
United Airlines Citadel Citadel Merrill Lynch Locke, Lord, Bissell & Liddell R.R. Donnelley Hostway Corporation Edwards Wildman Palmer
Total - 8 Spaces
636,588
Size (sf)
Occupancy
Expiration
Floor(s)
Sublandlord
225 W Randolph St 350 W Mart Ctr 600 W Chicago Ave 222 Merchandise Mart Plz 222 N LaSalle St 205 N Michigan Ave
238,778 138,225 117,101 93,799 78,974 65,463
Vacant Vacant Vacant Negotiable Vacant 30 Days
December 2022 January 2016 November 2015 January 2016 May 2014 April 2016
22-30 3-5 2 5 17-18 5-7
AT&T AT&T Level 3 Communications Career Education Corporation Merrill Lynch Verizon
Total - 6 Spaces
732,340
CLASS B Building Address
Italicized addresses indicate space is new on the market
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
4
Availability rises, driven by Class C buildings
• The number of directly available, contiguous blocks greater than 50,000 square feet increased by three to 68. Large block availability was reduced in Class A, but one new Class B and four new Class C blocks are now marketed. • The largest block removed during the quarter was Chicago Title and Trust’s former space at 161 North Clark. Grant Thornton leased a total of 137,000 square feet, removing the 117,000 square foot block from the Class A market.
• MB Real Estate has identified 39 tenants actively seeking 50,000 square feet or more in the CBD. However, with 68 blocks available, a glut of space exists in the market. Coupled with the ability to renew, large tenants continue to have a multitude of options.
CLASS B Building Address 130 E Randolph St * 410 N Michigan Ave * 222 N LaSalle St * 300 S Riverside Plz * 303 E Wacker Dr 200 N LaSalle St 130 E Randolph St * 130 E Randolph St 333 S Wabash Ave 401 N Michigan Ave ** 1 N Dearborn St 120 S LaSalle St 303 E Wacker Dr 222 Merchandise Mart Plz 175 W Jackson Blvd 175 W Jackson Blvd * 175 W Jackson Blvd 444 N Michigan Ave * 111 E Wacker Dr 233 N Michigan Ave 175 W Jackson Blvd * 303 E Wacker Dr ** 225 N Michigan Ave 303 E Wacker Dr * 24 Blocks
Size (sf)
Submarket
256,720 214,849 199,132 198,302 182,782 164,586 155,829 128,948 112,000 104,990 97,261 94,995 91,679 68,829 68,539 67,794 67,725 67,575 67,216 67,028 65,930 59,704 54,892 52,553 2,709,858
East Loop North Michigan Avenue Central Loop West Loop East Loop Central Loop East Loop East Loop East Loop North Michigan Avenue Central Loop Central Loop East Loop River North Central Loop Central Loop Central Loop North Michigan Avenue East Loop East Loop Central Loop East Loop East Loop East Loop
515 N State St * 500 W Monroe St 200 E Randolph St 233 S Wacker Dr 101 E Erie St * 540 W Madison St * 440 S LaSalle St * 10 S Dearborn St * 233 S Wacker Dr * 227 W Monroe St * 233 S Wacker Dr 455 N Cityfront Plaza Dr 30 S Wacker Dr 540 W Madison St 333 W Wacker Dr 1 S Wacker Dr * 1 S Wacker Dr 77 W Wacker Dr 980 N Michigan Ave 321 N Clark St 233 S Wacker Dr 222 W Adams St 440 S LaSalle St * 200 E Randolph St 440 S LaSalle St * 233 S Wacker Dr 233 S Wacker Dr 525 W Van Buren St 227 W Monroe St * 29 Blocks
Size (sf)
Submarket
350,906 338,131 306,091 285,910 217,569 166,522 162,517 139,165 125,553 117,053 91,807 89,854 85,831 84,031 80,736 76,114 74,363 67,342 62,384 61,431 60,817 59,436 55,475 54,708 53,143 52,268 51,980 51,538 51,423 3,474,098
North Michigan Avenue West Loop East Loop West Loop North Michigan Avenue West Loop South Loop Central Loop West Loop West Loop West Loop North Michigan Avenue West Loop West Loop West Loop West Loop West Loop Central Loop North Michigan Avenue River North West Loop West Loop South Loop East Loop South Loop West Loop West Loop West Loop West Loop
S U P P LY
• The owners of Tribune Tower (435-445 North Michigan) are now marketing a 318,000 square foot block that can be made available within 120 days of a lease being signed. There are now six blocks of at least 250,000 square feet available for lease, compared to just three at the end of last year.
CLASS A Building Address
CENTRAL BUSINESS DISTRICT
LARGE BLOCKS OF DIRECT AVAILABILITY
CLASS C Building Address 435-445 N Michigan Ave * 311 W Monroe St 401-465 E Illinois St 11 S LaSalle St 401 S State St 619 S LaSalle St 350 W Mart Ctr * 350 W Mart Ctr 360 N Michigan Ave 740 N Rush St 33 S State St 350 W Mart Ctr 111 N Canal St 104 S Michigan Ave 211 E Chicago Ave * 15 Blocks
Size (sf)
Submarket
317,706 214,490 210,000 146,313 110,898 89,000 87,404 87,393 76,855 71,501 70,107 64,661 57,800 56,808 53,052 1,713,988
North Michigan Avenue West Loop North Michigan Avenue Central Loop East Loop South Loop River North River North East Loop North Michigan Avenue East Loop River North West Loop East Loop North Michigan Avenue
Italicized addresses indicate space is new on the market * Block of space is for future occupancy **Block of space will be vacated in the upcoming quarter
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
5
Direct vacancy rate falls across all classes, leading to an overall yearly decrease
• The direct vacancy rate in the CBD dropped for the second consecutive quarter, falling to 15.1 percent. Vacancy is down 30 basis points from last quarter as well as on a year-over-year basis. • Class A buildings experienced the largest quarterly direct vacancy rate reduction of 40 basis points. Class B vacancy remained relatively flat, but has seen the largest yearly reduction. • With a 9.1 percent direct vacancy rate, River North is by far the tightest submarket in the CBD. The Central Loop and West Loop also have vacancy rates lower than the overall CBD.
CENTRAL BUSINESS DISTRICT
VACANCY RATES
• OUTLOOK: MB Real Estate expects some volatility in vacancy rates on a quarterly basis. However, economic trends suggest that vacancy will decline again next year.
DEMAND
HISTORIC DIRECT VACANCY: SLIGHT DECLINE FOR THE SECOND CONSECUTIVE YEAR
HISTORIC YEAR-END DIRECT VACANCY MARKET BY CLASS: CLASS A AND B VACANCY REDUCED IN 2012
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
6
AON renews at namesake tower
• After 14 years as a subtenant of Amoco, AON signed a 15-year direct lease at its namesake tower (200 East Randolph). The risk management and HR solutions firm will continue to occupy 396,000 square feet on floors three through 15 in the 83-story building. Standard Parking also signed a new lease at the building, and will occupy 41,000 square feet on the 76th and 77th floors. • The CBD continues to attract suburban tenants. Maximus leased 52,000 square feet at 303 East Wacker and will relocate from 900 Skokie Boulevard in Northbrook. Presence Health is consolidating offices on Chicago’s northwest side and in Mokena by leasing 44,000 square feet at 200 South Wacker. • Two tenants signed renewal transactions for more than 100,000 square feet. Greenberg Traurig renewed its lease of 112,000 square feet at 77 West Wacker, while Huron Consulting will stay in 110,000 square feet at 550 West Van Buren.
CENTRAL BUSINESS DISTRICT
LARGE DEALS
• OUTLOOK: Tenants have shown increased confidence in real estate decision-making as economic fears slowly ease. Large deal activity should continue to be robust, but several companies evaluating the market are expected to shed space from their current footprint. DEMAND
LARGE LEASE TRANSACTIONS NEW Tenant
Type
Submarket
Building Address
Size (sf)
AON Grant Thornton Maximus Presence Health Standard Parking XPO Logistics Zones United Way IES Abroad Total - 9 Deals
New Relo New New New New New/Sub New Relo
East Loop Central Loop East Loop West Loop East Loop East Loop West Loop East Loop Central Loop
200 E Randolph 161 N Clark 303 E Wacker 200 S Wacker 200 E Randolph 303 E Wacker 233 S Wacker 333 S Wabash 33 W Monroe
396,406 136,948 70,000 44,000 40,793 30,000 29,000 28,000 27,816 802,963
RENEWAL/EXPANSION/SUBLEASE Tenant
Type
Submarket
Building Address
Size (sf)
Greenberg Traurig Huron Consulting Capital One Financial Corp. Heitman Oracle Fiserv Advantage Futures Heartland Alliance Globetrotters Engineering Corporation Starr Cos. Sears Online Call One AEP Energy Hub International TechNexus Total - 15 Deals
Ren Ren Sub Ren/Exp Ren Ren/Cont Sub Ren/Relo Ren Ren/Exp Exp Sub Sub Sub Ren
Central Loop West Loop Central Loop West Loop West Loop River North Central Loop Central Loop West Loop West Loop East Loop West Loop West Loop River North West Loop
77 W Wacker 550 W Van Buren 77 W Wacker 191 N Wacker 233 S Wacker 350 N Orleans 231 S LaSalle 208 S LaSalle 300 S Wacker 500 W Monroe 1 N State 225 W Wacker 225 W Wacker 300 N LaSalle 200 S Wacker
112,362 110,000 65,484 65,000 60,000 50,000 41,472 36,896 27,656 26,966 26,662 25,505 25,505 24,544 22,183 720,235
Abbreviations: Cont - Contraction
Exp - Expansion
Relo - Relocation
Ren - Renewal
Sub - Sublease
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
7
Occupancy increases once again in Class A and B buildings
• Net quarterly absorption totaled 330,000 square feet. The CBD experienced 805,000 square feet of positive absorption in the second half of 2012, leading to 473,000 square feet of net absorption for the year after losing space in the first half. • Class A buildings saw the greatest increase in occupancy, with 249,000 square feet being absorbed in the fourth quarter. Occupancy increased by 103,000 square feet in Class B buildings and added to a total of 562,000 square feet for the year. • For the second consecutive quarter, absorption was positive in each submarket besides the South Loop. The Central Loop led all submarkets, experiencing 148,000 square feet of positive absorption.
CENTRAL BUSINESS DISTRICT
ABSORPTION
• OUTLOOK: The past two quarters suggest that space is being absorbed at a more robust pace. Tepid hiring and shrinking workspaces will continue to combat new demand brought to the CBD. However, MBRE projects yearly positive absorption in 2013.
HISTORIC ABSORPTION: TWO CONSECUTIVE YEARS OF POSITIVE ABSORPTION DEMAND
HISTORIC ABSORPTION BY SUBMARKET: RIVER NORTH AND CENTRAL LOOP LEAD THE MARKET
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
8
Rental rates appear to have bottomed-out
• Lease metrics are compared on a four-quarter basis instead of calendar year, allowing full years of data comparison. • Class A net rental rates grew slightly in 2012. The average initial rate increased by 1.0 percent for new deals and by 1.6 percent for renewals. More notably, concessions decreased to correspond with rental rate growth. Average tenant improvement allowances fell by 8.5 percent for new transactions and by 2.8 percent for renewal transactions. Average rent abatement also fell, which signals that net effective rents are on the rise. • Class B initial rates for new transactions are up 7.9 percent and down 1.6 percent for renewals. Concessions are mixed as tenant improvement allowances have increased but free rent has decreased for new transactions.
CENTRAL BUSINESS DISTRICT
LEASE COMPARABLES
• Initial rates for Class C increased by 0.7 percent for new and 4.1 percent for renewal transactions. However, there remains a disconnect with respect to demand, as 427,000 square feet of occupancy has been lost in 2012. F E AT U R E S
• OUTLOOK: The Class A and B segments experienced significant positive absorption 2012. In turn, landlords have begun to push asking rates and net effective rental rates are starting to tick up. Class C net effective rents have also increased, but such buildings have lost over one million square feet of occupancy over the eight quarters. As a result, we expect Class C net effective rates to decline in upcoming quarters to compensate. .
AVERAGE LEASE TERMS ON NEW AND RENEWAL DEALS NEW DEALS
AVERAGE NET INITIAL RATE
AVERAGE TENANT IMPROVEMENT
AVERAGE ABATEMENT (MONTHS)
AVERAGE TERM (YEARS)
A
B
C
A
B
C
A
B
C
A
B
C
1Q2012 - 4Q2012
$20.09
$15.88
$13.47
$33.22
$31.15
$25.24
5.8
6.5
5.5
6.6
6.6
6.3
1Q2011 - 4Q2011
$19.88
$14.71
$13.38
$46.06
$28.00
$21.49
7.9
6.8
5.2
8.4
6.9
5.7
1Q2010 - 4Q2010
$19.68
$15.16
$11.23
$42.77
$24.57
$22.47
8.8
6.5
6.8
8.1
6.3
6.4
1Q2009 - 4Q2009
$20.39
$15.99
$12.63
$40.71
$32.61
$24.67
7.5
5.5
4.1
8.5
7.0
6.6
1Q2008 - 4Q2008
$21.95
$16.86
$14.26
$44.42
$39.54
$29.61
4.7
4.6
4.1
8.2
7.2
7.3
1Q2007 - 4Q2007
$18.72
$14.85
$10.96
$44.55
$38.13
$25.16
4.9
5.2
3.7
7.9
7.0
6.3
1Q2006 - 4Q2006
$17.88
$13.59
$15.75
$45.75
$37.76
$13.49
6.9
4.9
2.1
8.2
7.1
4.6
1Q2005 - 4Q2005
$17.48
$12.41
$10.42
$49.63
$41.20
$29.25
7.2
6.6
4.2
9.5
8.1
7.2
1Q2004 - 4Q2004
$16.70
$12.96
$9.61
$41.21
$41.22
$15.81
6.0
6.6
3.6
10.0
8.6
5.6
1Q2003 - 4Q2003
$18.14
$13.57
$10.12
$38.76
$36.37
$23.34
3.8
4.8
2.7
7.9
8.7
6.6
1Q2002 - 4Q2002
$22.86
$15.60
$11.95
$34.74
$29.98
$26.29
1.4
1.9
1.7
8.3
8.6
6.0
1Q2001 - 4Q2001
$22.59
$16.57
$16.87
$28.71
$26.30
$26.79
1.0
0.2
0.7
7.7
8.0
7.7
1Q2000 - 4Q2000
$21.15
$15.94
$15.73
$25.22
$25.12
$30.75
0.1
0.1
0.3
7.9
6.6
6.0
RENEWAL DEALS
AVERAGE NET INITIAL RATE
AVERAGE TENANT IMPROVEMENT
AVERAGE ABATEMENT (MONTHS)
AVERAGE TERM (YEARS)
A
B
C
A
B
C
A
B
C
A
B
C
1Q2012 - 4Q2012
$19.10
$14.44
$12.84
$12.74
$10.63
$7.81
4.3
2.9
2.5
5.3
4.1
4.0
1Q2011 - 4Q2011
$18.79
$14.22
$12.33
$14.20
$9.15
$10.36
4.7
4.1
3.0
5.7
4.2
4.3
1Q2010 - 4Q2010
$20.25
$15.57
$10.87
$19.29
$10.44
$6.49
5.7
4.2
5.4
5.9
4.7
5.0
1Q2009 - 4Q2009
$17.74
$16.31
$11.54
$17.21
$12.79
$10.50
4.3
3.4
2.9
5.7
5.4
6.5
1Q2008 - 4Q2008
$22.27
$16.13
$17.31
$20.62
$15.98
$15.33
2.6
2.9
2.3
6.6
5.7
6.2
1Q2007 - 4Q2007
$17.42
$14.43
$11.49
$15.94
$17.04
$18.20
4.2
2.4
2.2
6.6
5.4
8.0
1Q2006 - 4Q2006
$16.32
$13.54
$17.71
$23.76
$17.14
$9.63
4.5
2.9
0.6
6.8
7.0
4.9
1Q2005 - 4Q2005
$16.50
$12.16
$12.86
$23.72
$20.86
$4.66
5.8
2.7
0.6
8.7
8.0
5.0
1Q2004 - 4Q2004
$17.33
$13.17
$9.70
$21.76
$20.28
$9.51
2.5
3.6
0.9
7.6
7.2
6.5
1Q2003 - 4Q2003
$19.15
$14.08
$10.19
$19.75
$16.42
$9.17
1.5
2.8
0.8
8.0
7.2
6.2
1Q2002 - 4Q2002
$22.68
$15.52
$13.55
$17.60
$14.07
$8.99
0.7
0.8
0.2
7.4
6.6
4.8
1Q2001 - 4Q2001
$22.44
$17.52
$11.52
$8.48
$6.04
$2.94
0.0
0.1
0.0
5.2
7.4
3.7
1Q2000 - 4Q2000
$21.92
$15.52
$15.82
$12.34
$12.92
$6.33
0.0
0.0
0.0
5.4
7.8
4.1
All rates are shown as net and do not include tax and operating costs for building. Numbers will be revised as new data are reported in subsequent quarters
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
9
Investment activity greatest since 2007
• The fourth quarter capped an active year for investment sales. Six buildings transacted while another seven remain under contract. • The largest transaction during the quarter was Harbor Group International’s purchase of 1 South Wacker for $221 million, or $185 per square foot. TIAA-CREF, the seller, previously purchased the asset in 2002 for $209 million. The average term remaining for the buildings’ tenants at the time of purchase was 5.5 years. The building was estimated to have an in-place net operating income of $14.3 million, which would equate to an in-place capitalization rate of 6.5 percent. • Berkley Properties, one of the most active buyers in recent years, purchased the 88 percent leased building at 231 South LaSalle for $97 million, or $104 per square foot. Michael Silberberg, principal of Berkley Properties, is also under contract with Mark Karasick to recapitalize Prudential Plaza (130 East Randolph & 180 North Stetson).
CENTRAL BUSINESS DISTRICT
INVESTMENT SALES
• Yearly sales volume was up 56.4 percent on a per square foot basis and 34.5 percent on a dollar amount basis, making 2012 the most active sales year since the financial downturn.
Sale Date
Size (sf)
225 W Randolph 225 W Wacker 208 S LaSalle (Office/Retail)
New On Market New On Market
853,250 650,812
$275,000,000 $322 $175,000,000 $269
B A
Kushner Companies Marketing (HFF) J.P. Morgan Chase & Co. Marketing (Jones Lang LaSalle)
New On Market
355,411
$70,000,000 $197
C
Michael Reschke
625 N Michigan Ave
New On Market
349,409
$83,500,000 $239
B
Lone Star Funds / Anglo Marketing (HFF) Irish Bank
C
Morgan Reed Group
55 E Washington New On Market (Floors 1-12) 73 W Monroe St New On Market 300 N LaSalle (Up to On Market 49% Stake) 875 N Michigan On Market (office, parking 122 S Michigan On Market 555 W Monroe On Market 20 S Clark On Market 332 S Michigan On Market On Market 123 W Madison 540 N LaSalle On Market 130 E Randolph Under Contract 180 N Stetson (Partial Stake)
Price
Price per sf * Class Seller
Building Address
192,000 52,021
$6,500,000 $125
C
1,302,901
$600
A
856,000
$214,000,000 $250
A
512,369 419,000 363,657 319,401 79,039 65,100 1,192,357 976,137
$150,000,000 $358 $60,000,000 $165 $5,400,000 $68 $8,500,000 $131 $100,000,000
-
C A B C C C B A
540 W Madison
Under Contract
1,111,925
$345,000,000 $310
A
111 W Washington 550 W Washington 205 W Wacker 32 W Randolph 1 S Wacker 231 S LaSalle 111 N Canal
Under Contract Under Contract Under Contract Under Contract 4th Qtr 2012 4th Qtr 2012 4th Qtr 2012
580,000 372,000 263,650 226,666 1,195,170 936,800 924,800
$79,500,000 $112,000,000 $29,000,000 $13,250,000 $221,000,000 $97,000,000 $100,000,000
$137 $301 $110 $58 $185 $104 $108
C A C C A B C
525 W Van Buren
4th Qtr 2012
524,800
$95,000,000 $181
A
125 S Wacker 303 W Erie
4th Qtr 2012 4th Qtr 2012
517,293 62,000
$109,000,000 $211 $7,000,000 $113
B C
All Sales
4th Qtr 2012
4,160,863
$629,000,000 $151
Status (Buyer or Listing Agent)
F E AT U R E S
INVESTMENT SALES: SQUARE FOOTAGE AND TRANSACTION VALUE EXCEED 2011 TOTALS
Marketing (HFF)
Marketing / CBRE Marketing (Terra Nova Group)
KBS REIT 2 JV Deutsche Bank & NorthStar Realty Ivor Braka Principal Global M & J Wilkow Ivor Braka Canadian Imperial Bank Joseph Lagoa BentleyForbes
Marketing (HFF) Marketing (CBRE) Marketing (Jones Lang LaSalle) Marketing (CBRE) Marketing (Jones Lang LaSalle) Marketing (Jones Lang LaSalle) Marketing (CBRE) Marketing (CBRE) Michael Silberberg & Mark Karasick / CBRE
David Werner & Joseph Mizrachi / JLL Harbor Group Shidler Group Beacon Capital Partners MetLife / Eastdil Secured 205 Chicago Partners Undisclosed / HFF David & Barbara Kalish Undisclosed / CBRE TIAA-CREF Harbor Group International / Eastdil Gramercy Capital Corp. Berkley Properties Albert Frank & Co. Sterling Bay Cos. American Recovery Property Trust Daymark Realty Advisors JV Northwood Investors Tishman Speyer MetLife / Eastdil Secured 303 Erie Partners ABC Realty JV Cedar Street Capital Bank of America
*Price per square foot - based off estimated selling price for new to market buildings
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
10
Recovery will continue at a modest pace
The CBD outperformed MBRE’s 2012 baseline forecast. It was predicted that the CBD would experience intermittent quarters of positive and negative absorption, resulting in slightly higher vacancy. This trend held true through the first two quarters, but strong demand seen in the second half of the year led vacancy to decline 30 basis points from last year.
Total Historic and Forecasted Inventory (sf)
Total Historic & Forecasted Occupancy (sf)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
120,434,748 119,972,770 118,691,577 121,440,276 122,776,164 124,713,268 125,037,423 126,452,643 128,385,650 126,478,575 125,626,639 125,269,078 130,038,076 130,539,796 130,649,210 131,044,641 131,044,641 131,044,641
104,939,294 106,058,995 106,744,585 109,533,759 108,743,284 107,598,500 106,754,119 106,568,104 105,737,728 108,402,912 110,969,808 110,833,045 110,112,891 109,602,891 110,516,410 111,238,394 111,846,988 112,635,414
1996-2012 Absorption Avg:
Direct Vacancy % 12.9% 11.6% 10.1% 9.8% 11.4% 13.7% 14.6% 15.7% 17.6% 14.3% 11.7% 11.5% 15.3% 16.0% 15.4% 15.1% 14.6% 14.0%
F E AT U R E S
The performance of the office market is directly affected by the labor market. During past recessions, there was a strong correlation between occupancy and total employment. However, the market has reacted differently than past years as occupancy is currently less than 0.1 percent below its 2007 peak, while employment is 5.2 percent below peak. Many firms still have more space than their headcounts warrant, but new firms are entering the market and existing firms are consolidating offices downtown from other locations. The CBD has strong demand drivers, which prompted several companies to expand or relocate operations downtown to take advantage of public transportation and the growing pool of young talent. Tech companies will continue to expand their presence. Most notably, Google last quarter signed a 15year, 572,000 square foot lease at the Merchandise Mart.
Year
CENTRAL BUSINESS DISTRICT
FORECAST
606,481
2012 Absorption:
472,780 In spite of the new demand generated in the CBD, multiple Total projected inventory based on addition of projects currently under construction obstacles are working to mute the recovery. Many tenants based on proprietary assumptions regarding the Chicago MSA’s total employment are reducing their square footage upon lease expirations. Occupancy is forecast change and the office industry’s historical performance which trails the overall economy. Such firms seek to be more efficient with workspaces and have adopted alternative workplace strategies such as hotelling. Tenants have also been able to reduce space with the digitalization of archives and the replacement of server rooms by cloud technology. Chicago’s unemployment rate is currently 10.0 percent, and remains elevated compared to the 8.1 percent national average. Considering these factors, MBRE forecasts modest positive absorption over the next two years, causing direct vacancy to fall to 110 basis points by the end of 2014.
HISTORIC & PROJECTED VACANCY: OCCUPANCY TO INCREASE MODESTLY OVER THE NEXT TWO YEARS
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
11
CENTRAL BUSINESS DISTRICT
SUBMARKET MAP
F E AT U R E S FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
12
CENTRAL LOOP
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) % 13.0%
Class A
13,573,287
94,785
62,833
1,219,741
9.0%
12,353,546
542,554
Class B
14,242,003
(36,526)
25,916
2,250,137
15.8%
11,991,866
333,714
18.1%
Class C
8,628,797
105,661
58,978
1,356,452
15.7%
7,272,345
42,875
16.2%
Total
36,444,087
325,211
147,727
4,826,330
13.2%
31,617,757
919,143
15.8%
EAST LOOP
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) % 21.4%
4,044,233
119,587
34,516
718,696
17.8%
3,325,537
145,837
10,537,769
55,356
(21,572)
2,607,274
24.7%
7,930,496
144,384
26.1%
Class C
8,370,899
(124,914)
13,919
1,191,542
14.2%
7,179,357
50,383
14.8%
Total
22,952,901
50,029
26,862
4,517,511
19.7%
18,435,390
340,604
21.2%
N. MICHIGAN AVE.
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
3,949,554
128,641
33,520
704,753
17.8%
3,244,801
113,027
20.7%
Class B
4,704,471
71,533
40,909
1,096,891
23.3%
3,607,580
37,462
24.1%
Class C
4,316,814
(348,556)
(39,025)
852,742
19.8%
3,464,072
52,780
21.0%
Total
12,970,840
(148,382)
35,403
2,654,386
20.5%
10,316,453
203,269
22.0%
RIVER NORTH
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
3,995,586
171,194
8,712
448,428
11.2%
3,547,158
48,892
12.4%
Class B
3,708,444
169,672
45,876
215,593
5.8%
3,492,851
425,206
17.3%
Class C
5,568,184
(22,129)
(28,807)
547,086
9.8%
5,021,097
208,350
13.6%
Total
13,272,214
318,737
25,782
1,211,108
9.1%
12,061,107
682,448
14.3%
SOUTH LOOP
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
1,019,325
(92,006)
(9,721)
302,918
29.7%
716,407
10,830
30.8%
Class C
1,166,135
(67,287)
(28,787)
293,856
25.2%
872,279
2,005
25.4%
Total
2,185,460
(159,293)
(38,508)
596,774
27.3%
1,588,686
12,835
27.9%
WEST LOOP
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
27,129,650
(26,220)
119,564
3,941,556
14.5%
23,188,094
820,449
17.6%
Class B
9,739,144
302,265
12,290
1,056,265
10.8%
8,682,879
146,405
12.3%
Class C
6,350,345
(28,277)
1,285
1,002,318
15.8%
5,348,027
89,212
17.2%
Total
43,219,139
247,768
133,139
6,000,139
13.9%
37,219,000
1,056,066
16.3%
TOTALS
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) % 16.8%
Class A
53,711,635
395,981
249,424
7,336,092
13.7%
46,375,543
1,681,589
Class B
42,931,832
562,300
103,419
7,226,160
16.8%
35,705,672
1,087,171
19.4%
Class C
34,401,175
(485,501)
(22,437)
5,243,996
15.2%
29,157,179
445,605
16.5%
Total CBD
131,044,641
472,780
330,405
19,806,248
15.1%
111,238,394
3,214,365
17.6%
F E AT U R E S
Class A Class B
CENTRAL BUSINESS DISTRICT
MARKET STATISTICS
Numbers in parentheses are negative
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
13
SUBURBAN CHICAGO EXECUTIVE SUMMARY Market conditions have been historically soft following the economic downturn. From 2008 to 2011, Suburban Chicago lost more than six million square feet of occupancy, and its direct vacancy rate peaked at a record 23.6 percent. The contraction stopped although demand was essentially flat in 2012. In turn, vacancy is still extremely high and numerous factors weigh against a sustainable recovery.
SUBURBAN CHICAGO
SECTION THREE
Key Indicators: • Quarterly net absorption totaled a positive 115,000 square feet, but the overall market experienced slight negative absorption year-todate. O’Hare was the best performing submarket, experiencing 117,000 square feet of positive absorption. • Occupancy changes across building classes were counterintuitive in respect to a typical market recovery. Class A experienced 258,000 square feet of negative absorption, but Class B and Class C combined to account for 373,000 square feet of positive absorption. • AT&T continues to bog down the sublease market with its 1.2 million square foot corporate campus and a separate 239,000 square foot building listed as available. The potential for formerly single-tenant corporate campuses to enter the multi-tenant market weighs on Suburban Chicago. Kraft and Motorola are among the other firms who are seeking tenants or buyers for suburban campuses. • Large deal activity was quiet compared to last quarter. Additionally, the suburbs have struggled to attract new users from outside the market with many large tenants relocating within the same submarket. This “musical chairs” trend, where companies lease a large block of space and leave behind another large block in the same submarket, has hindered the recovery. • Class A asking rental rates are down 4.1 percent year-over-year as vacancy continued to rise. This suggests that rents may still have room to fall before demand for this segment accelerates. • Outdated product plagues the suburbs and fuels the glut of vacant space. Allstate is considering tearing down its former headquarters building in South Barrington. However, other obsolete buildings are still listing space and driving down market economics. • Speculative construction is at a standstill. Construction has been limited to build-to-suit projects, such as the recently completed headquarters for Astellas Pharma US in Glenview. The Hub Group and the Big Ten recently broke ground on build-to-suit headquarters. Occupancy is 6.9 percent below peak in Suburban Chicago compared to a 5.1 percent peak-to-current total employment loss. While the labor market is a key determinant of office space demand, occupancy statistics suggest that other factors are working against the Suburban market. Corporate relocations, as well as underutilized space, remain the biggest risks to the market; companies have leased more space than they need and will reduce square footage upon lease expirations.
SUBURBAN VACANCY AND YEAR-TO-DATE ABSORPTION SUMMARY Direct Vacancy 4Q2012 East-West North Northwest O'Hare Suburban Chicago Total Net Absorption 4Q2012 East-West North Northwest O'Hare Suburban Chicago Total
A
Change from 3Q2012
B
Change from 3Q2012
C
Change from 3Q2012
Total
Change from 3Q2012
21.1% 21.6% 21.1% 18.2% 20.9%
1.4% 0.7% -0.4% -0.9% 0.4%
23.0% 17.9% 33.6% 30.2% 25.7%
-1.4% -1.7% 0.8% -0.8% -0.8%
25.7% 22.9% 30.0% 36.9% 28.2%
3.1% -1.0% -1.1% -0.2% 0.7%
22.4% 20.7% 25.8% 24.9% 23.2%
0.7% -0.1% 0.0% -0.8% 0.0%
A
B
C
Total
(300,083) (105,550) 72,328 75,411 (257,893)
198,792 122,702 (90,807) 36,825 267,511
50,620 18,046 31,825 5,134 105,626
( 50,671) 35,198 13,347 117,370 115,244 Numbers in parentheses are negative
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
14
Speculative construction remains at a standstill
• As has been the case for the past several quarters, no new speculative office developments were announced. New construction has been limited to a select number of build-to-suit projects. With Class A direct vacancy at nearly 21 percent, there is simply not enough demand to justify new, multitenant product. • Earlier this year, Astellas Pharma US occupied its new build-to-suit 440,000 square foot headquarters in Glenview. A large portion of their former space in Deerfield will be backfilled by Mondelez International during the first quarter of 2013.
SUBURBAN CHICAGO
NEW DEVELOPMENT
• The Hub Group broke ground on its build-to-suit headquarters in August. The 130,000 square foot building located at 200 Clearwater Drive in Oak Brook is expected to be completed in November 2013. • The only other build-to-suit underway is the Big Ten Conference’s 50,000 square foot headquarters at 5440 Park Place in Rosemont. Construction commenced in August and the building is expected to be delivered in September 2013.
• OUTLOOK: Suburban Chicago has an overabundance of vacant space. Numerous proposed developments are ready to break ground once demand is strong enough. Between historically high market vacancy and constrained financing, speculative development is not likely for the next several years.
S U P P LY
• The Suburban market currently has over 26 million square feet of vacant space. This figure only accounts for competitive, multi-tenant properties. There are several corporate headquarter facilities that are vacant, including properties formerly occupied by United Airlines, Kraft, and Allstate. Thus the oversupply of available space in the market has made speculative construction unfeasible.
NEW DEVELOPMENT PIPELINE 2012 Deliveries Building Address 1 Astellas Pky, Glenview
Size (sf)
% Leased
Submarket
Comments
440,000
100.0%
North
Broke ground April 2010 with construction completed June 2012. Build-to-suit North American Headquarters for Astellas Pharma US. Construction managed by MB Real Estate.
Due Date
Comments Broke ground August 2012 and expected to be completed in November 2013. Build-to-suit headquarters for the Hub Group. Broke ground August 2012 and expected to be completed in September 2013. Build-to-suit headquarters for the Big Ten Conference.
Total - 1 Property
Under Construction Building Address 2000 Clearwater Dr, Oak Brook
5440 Park Pl, Rosemont
Size (sf) % Pre-leased 130,000
100.0%
East-West
50,000
100.0%
O'Hare
Total - 2 Properties
Proposed Building Address
Size (sf) % Pre-leased
Due Date
Comments
Numerous multi-tenant properties, but none set to break ground
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
15
Sublease availability rising, especially in Class A buildings
• The amount of available sublease space rose 3.9 percent compared to last quarter. Sublease availability continues to weigh heavily on the direct market for Class A space. Over 4.0 percent of total Class A inventory is available for sublease. More notably, the amount of available sublease space in Class A buildings has risen by 14.3 percent since the end of 2011. • The merger of two healthcare companies resulted in two new large sublease blocks being placed on the market. Catalyst Rx is marketing 106,000 square feet for sublease at 1200 Lakeside Drive in Bannockburn while SXC Health Solutions is seeking a subtenant for 91,000 square feet at 2441 Warrenville Road in Lisle. The two groups combined to form Catamaran, who will occupy 301,000 square feet at 1600 McConnor Parkway in Schaumburg in early 2013.
SUBURBAN CHICAGO
SUBLEASE SPACE
• OUTLOOK: The amount of available sublease space continued to rise above its historical average of 3.4 million square feet. With weak demand and no large blocks rolling over until June 2013, sublease availability is expected to remain elevated.
HISTORIC YEAR-END SUBLEASE AVAILABILITY: CLASS A SPACE SPIKES AGAIN S U P P LY
LARGE BLOCKS (MORE THAN 50,000 SQUARE FEET) OF SUBLEASE SPACE CURRENTLY AVAILABLE Class A Size (sf)
Occupancy
Expiration
Submarket
Sublandlord
2000 W AT&T Dr, Hoffman Estates 3 Overlook Pt, Lincolnshire 4201 Winfield Rd, Warrenville 3500 Lacey Rd, Downers Grove 1000 Milwaukee Ave, Glenview 1200 Lakeside Dr, Bannockburn 2441 Warrenville Rd, Lisle 425 N Martingale Rd, Schaumburg 3 Parkway Blvd N, Deerfield 701 E 22nd St, Lombard 5202 Old Orchard Rd, Skokie
1,207,245 290,143 249,996 156,855 121,502 106,016 91,268 58,091 53,970 52,079 50,766
Negotiable Vacant Vacant March 2013 30 Days Vacant June 2013 30 Days Vacant 120 Days Negotiable
August 2016 February 2017 Negotiable May 2014 April 2017 May 2023 January 2016 December 2015 December 2014 June 2013 June 2021
Northwest North East-West East-West North North East-West Northwest North East-West North
AT&T Hewitt Associates Navistar Hillshire Brands AON Warranty Group Catalyst Rx SXC Health Solutions Corp Navistar Astellas Pharma US The Marketing Store National Lewis University
Total - 11 Spaces
2,437,931
Size (sf)
Occupancy
Expiration
Submarket
Sublandlord
2001 Lakewood Blvd, Hoffman Estates 750 N Commons Dr, Aurora 850-950 Warrenville Rd, Lisle 3333 Finley Rd, Downers Grove
239,250 112,605 85,530 46,969
Negotiable 30 Days Negotiable September 2013
Negotiable September 2017 January 2019 Negotiable
Northwest East-West East-West East-West
AT&T Westell Technologies National Lewis University Acxiom Corporation
Total - 4 Spaces
484,354
Building Address
Class B Building Address
Italicized addresses indicate space is new on the market
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
16
A glut of space remains as 81 contiguous blocks greater than 50,000 square feet are available
• The total number of direct, available large blocks rose to 81, but total square footage within large blocks was reduced by 3.5 percent, or 273,000 square feet. Several large blocks were reduced in size but still remain above the 50,000 square foot threshold. • The largest block removed during the quarter was a 101,000 square foot space at 1 Corporate Drive in Long Grove. Fresenius Kabi signed a 15-year lease and will occupy its new location early next year.
CLASS B Building Address
City
3890 Salem Lake Dr 5450 N Cumberland Ave 2350-2360 E Devon Ave 700 N Wood Dale Rd 2850 W Golf Rd 2250 W Pinehurst Blvd 1000 E Woodfield Rd 703-709 W Algonquin Rd 4242 N Harlem Ave 544 Lakeview Pky 500 Joliet Rd 2000 S Finley Rd 1350 E Touhy Ave 9801 W Higgins Rd 333 E Butterfield Rd 3800 Golf Rd 8550 W Bryn Mawr Ave 814 Commerce Dr 1245 Corporate Blvd 27545 Diehl Rd 999 E Touhy Ave 2211 Butterfield Rd 2400 E Devon Ave 23 Blocks of Space
Long Grove Chicago Des Plaines Wood Dale Rolling Meadows Addison Schaumburg Arlington Heights Norridge Vernon Hills Willowbrook Lombard Des Plaines Rosemont Lombard Rolling Meadows Chicago Oak Brook Aurora Warrenville Des Plaines Downers Grove Des Plaines
Size (sf)
Submarket
150,000 143,525 142,596 125,328 110,941 100,904 98,555 96,213 93,155 84,237 78,400 78,300 71,367 70,926 70,897 67,599 66,895 66,882 64,960 62,440 59,710 52,891 51,053 2,007,774
Northwest O'Hare O'Hare Northwest Northwest Northwest Northwest Northwest O'Hare North East-West East-West O'Hare O'Hare East-West Northwest O'Hare East-West East-West East-West O'Hare East-West O'Hare
Size (sf)
Submarket
195,393 186,432 75,996 51,845 509,666
Northwest Northwest North East-West
CLASS C Building Address
City
1299 Algonquin Rd 3501 Algonquin Rd 2-4-6 Genesee St 1950 S Batavia Ave 4 Blocks of Space
Schaumburg Rolling Meadows Waukegan Geneva
City
21440 Lake Cook Rd 700 Oakmont Ln 3075 Highland Pky * 2400 Cabot Dr 5550 Prairie Stone Pky ** 1701 Golf Rd 3333 Beverly Rd 2895 Greenspoint Pky 1 Overlook Pt 1707 N Randall Rd 1 Pierce Pl 2355 Waukegan Rd 8420 W Bryn Mawr Ave 1707 N Randall Rd 425 N Martingale Rd 2550 W Golf Rd 28100 Torch Pky 75 Tri State International ** 200 N Martingale Rd 2655 Warrenville Rd 2245 Sequoia Dr * 200 N Martingale Rd 5100 River Rd * 4343 Commerce Ct * 333 Knightsbridge Pky 2135 CityGate Ln 1333 Butterfield Rd 1000 Royce Blvd 9500 W Bryn Mawr Ave 10255 W Higgins Rd 535 E Diehl Rd 2100 Sanders Rd 701 Warrenville Rd 4201 Lake Cook Rd 300 Park Blvd 1200 Lakeside Dr 540 Lake Cook Rd ** 2 Pierce Pl 1000 Milwaukee Ave 410 Warrenville Rd 18W140 Butterfield Rd 1701 Golf Rd * 1 Parkview Plz * 3000 Lakeside Dr 2100 Enterprise Ave 25 Tri State International ** 3800 N Wilke Rd 1222 Hamilton Pky 7400 N Caldwell Ave 3 Parkway Blvd N 701 E 22nd St * 1520 Kensington Rd 3500 Lacey Rd 1701 Golf Rd 54 Blocks of Space
Deer Park Westmont Downers Grove Lisle Hoffman Estates Rolling Meadows Hoffman Estates Hoffman Estates Lincolnshire Elgin Itasca Bannockburn Chicago Elgin Schaumburg Rolling Meadows Warrenville Lincolnshire Schaumburg Downers Grove Aurora Schaumburg Schiller Park Lisle Lincolnshire Naperville Downers Grove Oakbrook Terrace Rosemont Rosemont Naperville Northbrook Lisle Northbrook Itasca Bannockburn Deerfield Itasca Glenview Lisle Oakbrook Terrace Rolling Meadows Oakbrook Terrace Bannockburn Geneva Lincolnshire Arlington Heights Itasca Niles Deerfield Lombard Oak Brook Downers Grove Rolling Meadows
Size (sf)
Submarket
351,425 256,767 241,519 217,718 193,601 183,506 129,000 127,941 117,798 109,076 106,766 106,495 104,164 87,076 81,862 81,222 79,830 79,449 77,024 76,691 76,126 75,713 74,988 74,855 74,728 70,537 70,251 70,000 69,701 69,695 67,731 67,681 67,233 66,000 64,123 63,738 63,298 60,904 60,843 60,434 60,401 60,122 59,892 56,416 55,584 54,974 54,867 54,150 54,000 53,578 52,079 52,054 51,601 51,538 4,948,765
Northwest East-West East-West East-West Northwest Northwest Northwest Northwest North Northwest Northwest North O'Hare Northwest Northwest Northwest East-West North Northwest East-West East-West Northwest O'Hare East-West North East-West East-West East-West O'Hare O'Hare East-West North East-West North Northwest North North Northwest North East-West East-West Northwest East-West North East-West North Northwest Northwest North North East-West East-West East-West Northwest
S U P P LY
• The largest new block is a 144,000 square foot building at 5450 North Cumberland Avenue in Chicago. Oce-USA Holding had previously attempted to sublease the space but the direct lease has now expired. The 101,000 square foot building at 2250 West Pinehurst Boulevard in Addison is also newly available as Ricoh and Kraft have vacated the two-story structure.
CLASS A Building Address
SUBURBAN CHICAGO
LARGE BLOCKS OF DIRECT AVAILABILITY
Italicized addresses indicate space is new on the market * Block of space is for future occupancy ** Block of space will be vacated during the upcoming quarter
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
17
Market vacancy holds steady, but rises in Class A buildings
• While varying within the submarkets, the direct vacancy rate of the overall market remained at 23.2 percent. The total vacancy rate, which includes sublease space, also remained unchanged at 26.2 percent. • For the second consecutive quarter, the direct vacancy rate in the East-West submarket increased by 70 basis points. The East-West outperformed the other Suburban submarkets in 2011, but has seen demand falter throughout 2012. Occupancy has improved significantly in the Northwest and O’Hare submarkets, but direct vacancy remains near 25 percent in each.
SUBURBAN CHICAGO
VACANCY RATES
• Vacancy rose in Class A and C buildings, but fell in Class B buildings. The net result was essentially no change to overall market vacancy, but the recent performance in Class A is indicative of weakness in the market. • OUTLOOK: Major corporate relocations and downsizing will continue to hamper a recovery, with vacancy rates continuing to be above 20 percent. DEMAND
HISTORIC YEAR-END VACANCY RATES BY SUBMARKET: NORTHWEST AND O’HARE LAG, BUT IMPROVE
HISTORIC YEAR-END VACANCY RATES BY CLASS: B AND C PROPERTIES MORE THAN 1/4 VACANT
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
18
Activity muted as no new 20,000 SF+ tenants enter the Suburban market
• After four lease transactions over 100,000 square feet were signed in the third quarter, only one lease of that size transacted in the fourth quarter. Frensius Kabi signed a 15-year lease for 150,000 square feet at 1 Corporate Drive in Long Grove. The pharmaceutical company will vacate its current building at 1501 East Woodfield Road in Schaumburg in mid-2013.
SUBURBAN CHICAGO
LARGE DEALS
• Brunswick Corp. will relocate offices within the O’Hare submarket in 2014. The company leased 70,000 square feet at Columbia Centre III (9525 West Bryn Mawr) in Rosemont and will vacate space at 5100 River Road in Schiller Park. • Brightstar is expanding their footprint in the North submarket by signing a 5-year, 49,000 square foot lease at 850-60 Technology Way in Libertyville. Brightstar currently leases 45,000 square feet in a neighboring building.
• OUTLOOK: Most new large deals involve companies who are already based in the suburbs, resulting in a “musical chairs” effect where large blocks are filled at the expense of creating new ones. For sustained occupancy increases, tenants must expand or new tenants must enter the Suburban market in order to offset companies like Sara Lee who are exiting the market. Unfortunately, the market has not displayed the new demand necessary for this to happen quickly.
DEMAND
• With an abundance of vacant space in the marketplace, many tenants have been able to consolidate multiple offices into one location. Waste Management is expanding its office at 700 East Butterfield Road in Oak Brook by absorbing its current 40,000 square foot requirement at 1431 Opus Place in Downers Grove.
LARGE LEASE TRANSACTIONS NEW Tenant
Type
Submarket
Building Address
Fresenius Kabi Brunswick Corp. Brightstar Mercer Lewis University Lemko Styrolution Total - 7 Deals
New Relo New New New Relo Relo
North O'Hare North North East-West Northwest East-West
1 Corporate Dr, Long Grove 9525 W Bryn Mawr, Rosemont 850-60 Technology Way, Libertyville 544 Lakeview Pky, Vernon Hills 1111 W 22nd St, Oak Brook 1 Pierce Pl, Itasca 4245 Meridian Pky, Aurora
Size (sf) 101,000 70,000 48,700 48,333 28,360 22,347 22,000 340,740
RENEWAL/EXPANSION/SUBLEASE Tenant
Type
Submarket
Building Address
US Foodservice Waste Management Society of Actuaries Codilis & Associates Colliers International Big Machines APICS Total - 7 Deals
Exp Exp/Relo Ren/Exp Sub Ren Ren/Exp Ren
O'Hare East-West Northwest East-West O'Hare North O'Hare
9500 W Bryn Mawr, Rosemont 700 E Butterfield Rd, Oakbrook 475 N Martingale Rd, Schaumburg 150 Harvester Dr, Burr Ridge 6250 N River Rd, Rosemont 570 Lake Cook Rd, Deerfield 8430 W Bryn Mawr, Chicago
Abbreviations: Cont - Contraction
Exp - Expansion
Relo - Relocation
Size (sf) 56,554 40,030 39,000 38,341 34,012 33,000 32,295 273,232
Ren - Renewal
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
19
Demand flat overall, but varying by class
• After experiencing 185,000 square feet of negative absorption last quarter, occupancy increased by 115,000 square feet in the fourth quarter. This suggests that overall demand was essentially flat, but Class A properties had 258,000 square feet of negative net absorption compared to 268,000 square feet of positive absorption in Class B. This disconnect was exemplified by the East-West and North submarkets.
SUBURBAN CHICAGO
ABSORPTION
• OUTLOOK: Flat demand in a market with high vacancy suggests that there are few significant demand drivers in Suburban Chicago. Companies have mulled relocation to other states to avoid increased corporate income taxes; others, like Sara Lee, are relocating to the CBD. Without significant job creation, absorption will continue to be weak.
SUBURBAN CHICAGO ABSORPTION BY CLASS: CLASS A CONTINUES TO BE NEGATIVE
DEMAND
EAST-WEST
2004
2005
2006
2007
2008
2009
2010
2011
2012
Class A
1,080,332
102,299
366,688
542,281
(259,973)
(595,372)
(219,164)
299,247
(457,450)
Class B
(25,541)
389,014
484,869
(203,072)
(2,062)
(259,196)
67,827
(152,069)
92,876
Class C
76,936
85,269
(125,850)
(108,813)
(87,441)
(179,177)
7,017
55,114
(5,912)
1,131,727
576,582
725,707
230,396
(349,476)
(1,033,744)
(144,319)
202,292
(370,486)
NORTH
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total
Class A
(10,452)
196,403
(100,049)
615,115
(240,617)
(207,914)
(312,238)
(261,008)
(365,450)
Class B
62,026
164,357
316,207
355,510
(60,982)
(38,575)
(319,078)
33,814
131,363
Class C
(39,173)
12,697
(39,440)
26,935
(2,048)
(104,195)
(40,044)
(90,151)
8,074
Total
12,401
373,457
176,718
997,560
(303,647)
(350,684)
(671,360)
(317,345)
(226,013)
NORTHWEST
2004
2005
2006
2007
2008
2009
2010
2011
2012
Class A
902,901
225,865
(488,651)
10,333
(302,930)
(388,945)
(21,262)
(632,282)
379,728
Class B
233,613
(234,681)
12,266
(164,112)
(261,498)
(310,263)
(295,928)
(383,730)
(19,395)
Class C
(13,282)
(216,898)
(15,371)
(51,429)
(28,362)
(35,167)
(192,091)
(48,617)
41,909
1,123,232
(225,714)
(491,756)
(205,208)
(592,790)
(734,375)
(509,280)
(1,064,629)
402,242
2004
2005
2006
2007
2008
2009
2010
2011
2012
Class A
402,561
(55,786)
189,235
11,636
(256,325)
(134,526)
209,180
40,666
81,456
Class B
(306,424)
53,945
7,915
(81,167)
(51,601)
(80,925)
70,376
14,041
26,266
Class C
(15,002)
(204,597)
90,170
(50,022)
(35,696)
62,815
(10,855)
(14,567)
17,442
Total
81,135
(206,438)
287,320
(119,553)
(343,622)
(152,637)
268,701
40,140
125,164
TOTALS
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total
O'HARE
Class A
2,375,342
468,781
(32,777)
1,179,365
(1,059,845)
(1,326,757)
(343,484)
(553,378)
(361,716)
Class B
(36,326)
372,635
821,257
(92,841)
(376,143)
(688,960)
(476,802)
(487,944)
231,110
Class C
9,479
(323,529)
(90,491)
(183,329)
(153,547)
(255,724)
(235,972)
(98,221)
61,512
2,348,495
517,887
697,989
903,195
(1,589,535)
(2,271,441)
(1,056,259)
(1,139,542)
(69,094)
Total
Numbers in parentheses are negative
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
20
Asking rental rates down across all submarkets, building classes
• Over the last four quarters, gross asking rents have fallen across all building classes. Class A rents are down 4.1 percent, Class B rents are down 1.8 percent, and Class C rents are down 0.9 percent on a year-over-year basis. • Class C buildings in the O’Hare submarket have posted 8.3 percent growth in asking rents over the past 12 months. However this segment is composed of just 2.5 million square feet and is 37.6 percent vacant, so the rent increase may be a result of the low sample size.
SUBURBAN CHICAGO
GROSS ASKING RENTS
• Asking rental rates in the O’Hare Class A segment have fallen 5.8 percent on a year-over-year basis. Accordingly, its direct vacancy rate has continued to fall and is currently at 18.2 percent. • Class C gross asking rental rates once again reached new historical lows in the East-West and Northwest submarkets. • Compared to peak levels, overall gross asking rents have fallen 17.8 percent and are at their lowest levels in MBRE’s tracked history. F E AT U R E S
• OUTLOOK: In general, segments with larger rent decreases have experienced positive absorption this year. With an overall market direct vacancy rate of 23.2 percent, rents will have to continue to decline to reach pre-recession occupancy.
AVERAGE GROSS ASKING RATES BY CLASS AND SUBMARKET Average Direct Gross Asking Rent East-West North Northwest O'Hare Suburban Chicago Total
A $22.16 $20.10 $21.53 $22.63 $21.50
Change over last year -2.3% -4.6% -5.0% -5.8%
-4.1%
B $17.84 $19.58 $16.41 $19.99 $18.07
Change over last year -3.9% 1.9% -2.7% 0.9%
-1.8%
C $15.34 $15.67 $12.87 $15.86 $15.03
Change over last year -2.6% -2.7% -6.2% 8.3%
-0.9%
Total
Change over last year
$19.81 $19.54 $19.22 $20.68 $19.70
-2.7% -2.7% -4.6% -2.2% -3.1%
ASKING RATES AT LOWEST LEVEL IN 12 YEARS
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
21
Large headquarters sale overshadows otherwise quiet quarter
• The 819,000 square foot building at 4 Overlook Point in Lincolnshire marked the largest single-building sale in the Suburban market since the economic downturn. American Realty Capital Trust purchased the Aon Hewitt Headquarters from Retail Properties of America for $148 million, or $181 per square foot. Last quarter Aon extended its lease through 2024, establishing a steady cash flow for its new owner.
SUBURBAN CHICAGO
INVESTMENT SALES
• A joint venture of Investcorp International and Golub & Company acquired the eleven building Oak Creek Center in Lombard for $92 per square foot. The Class B portfolio, previously owned by KBS Realty Advisors, was 87.5 percent leased. • The Multi Employer Property Trust is marketing two sizable portfolios: the three building Greenspoint Office Park in Hoffman Estates and two buildings located at 2349 West Lake Street and 2250 West Pinehurst Boulevard in Addison. Great Lakes REIT has listed 3030 Warrenville Road in Lisle for sale and hopes to receive bids near $126 per square foot. • OUTLOOK: Suburban Chicago has not generated the premier investor interest that characterizes the CBD. However, well leased and well located Class A properties as well as stabilized Class B properties continue to be in demand. F E AT U R E S
INVESTMENT SALES: INVESTORS CAPITALIZE ON SOFT MARKET CONDITIONS
On the Market: 4th Quarter 2012 Building Address
Submarket
Size (sf)
Price
PSF *
Greenspoint Office Park, Hoffman Estates (3 properties)
Northwest
498,000
$28,000,000
2707, 2803, 2805, & 2809 Butterfield Rd, Oak Brook
East-West
312,262
2349 W Lake St, 2250 W Pinehurst Blvd, Addison Northwest 800-810 Jorie Blvd, Oak Brook (2 properties)
Class Seller
Status (Buyer or Listing Agent)
$56
A
Multi Employer Property Trust On Market (HFF)
-
-
B
Inland Oak Brook International On Market (HFF) Office Ctr
216,858
-
-
B
Multi Employer Property Trust
On Market (Jones Lang LaSalle)
East-West
193,689
$15,000,000
$77
B
LNR Partners
New on Market (NAI Hiffman)
1717-1755 Park St, Naperville (2 properties)
East-West
151,708
-
3030 Warrenville Rd, Lisle
East-West
150,036
$18,960,000
$126
A/B Tetrad Holdings Corporation B
Great Lakes REIT
On Market (NAI Hiffman) New on Market (Marcus & Millichap)
Investment Sales: 4th Quarter 2012 Building Address
Submarket
Size (sf)
Price
PSF *
4 Overlook Pt, Lincolnshire
North
818,686
2050-2080 Finley Rd (11 Properties), Lombard
East-West
427,290
$39,500,000
40 Shuman Blvd, Naperville
East-West
162,560
2600 S River Rd, Des Plaines
O'Hare
899 Skokie Blvd, Northbrook
North
3030 W Salt Creek Ln, Arlington Heights
Northwest
Class Seller
Buyer
A
Retail Properties of America
American Realty Capital Trust
$92
B
KBS Realty Advisors
Investcorp International JV Golub & Company
$12,975,000
$80
B
KBS Real Estate Investment Trust
Arthur Goldner & Associates
65,000
$3,800,000
$58
C
Property Casualty Insurers Association of America
Americaneagle.com
37,938
$3,015,000
$79
B
899 Skokie Blvd
899 Building
100,952
$2,300,000
$23
B
Equity Office
3030 Salt Creek Atrium
$148,000,000 $181
* Price per square foot - based off estimated selling price for new to market buildings
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
22
Vacancy expected to decline but remain well above 20 percent
Suburban Chicago has experienced severe occupancy losses surpassing the jobs lost since the economic downturn. Since occupancy reached its peak in 2007, net absorption from 2008 through 2012 has totaled a negative 6.1 million square feet. Total employment declined 7.4 percent peak-to-trough, but has rebounded to now stand at 5.1 percent below its peak.
For the factors mentioned above, the Suburban market will face several headwinds on its way to recovery. No speculative construction and, therefore, no new inventory will help aid the market, but the demand to sustain a robust recovery simply does not exist at this time. MB Real Estate expects a slight vacancy decrease in 2013. The large losses from 2009 are not expected again, but neither is a rapid recovery. Positive absorption will occur in 2013, but will likely be due to incremental growth within existing companies.
Total Historic and Forecasted Inventory (sf)
Total Historic & Forecasted Occupancy (sf)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
90,601,193 91,989,948 95,078,215 98,744,696 103,270,399 108,254,000 109,769,838 110,090,266 110,423,452 111,030,084 110,806,221 111,175,875 112,080,944 112,218,212 112,374,614 112,250,112 112,311,826 112,311,826 112,311,826
82,039,636 85,388,879 88,016,285 90,321,332 93,033,912 92,247,968 91,258,173 88,104,389 90,452,884 90,970,771 91,668,760 92,571,955 90,982,420 87,973,132 86,916,873 85,761,730 86,203,123 86,374,011 86,986,292
1997-2012 Absorption Avg:
304,268
2012 Absorption:
(69,094)
Direct Vacancy % 9.4% 7.2% 7.4% 8.5% 9.9% 14.8% 16.9% 20.0% 18.1% 18.1% 17.3% 16.7% 18.8% 21.6% 22.7% 23.6% 23.2% 23.1% 22.5%
F E AT U R E S
Occupancy is still more reduced from its peak than total employment, which highlights the trend of companies relocating to the CBD. Suburban Chicago lacks the dynamic demand drivers that have recently characterized the CBD. With a waning ability to attract top workers to the suburbs, the market is seeing longtime tenants seek relocation options. Also, large sublease blocks continue to weigh heavily on the direct market.
Year
SUBURBAN CHICAGO
FORECAST
Total projected inventory based on addition of projects currently under construction Occupancy is forecast based on proprietary assumptions regarding the Chicago MSA’s total employment change and the office industry’s historical performance which trails the overall economy.
HISTORIC & PROJECTED VACANCY: OVERALL VACANCY RATE WILL HOVER NEAR 23 PERCENT
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
23
SUBURBAN CHICAGO
SUBMARKET MAP
F E AT U R E S FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
24
Direct Direct Vacancy Vacancy (sf) %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Vacancy + Sublease) %
21.1%
16,265,290
1,202,762
23.7%
23.0%
11,167,931
538,017
27.8%
1,333,065
25.7%
3,847,554
7,210
21.8%
9,037,326
22.4%
31,280,775
1,747,989
24.9%
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Vacancy + Sublease) %
21.6%
13,218,333
1,019,011
26.1%
17.9%
6,053,191
114,616
21.1%
EAST-WEST
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Class A
20,627,288
(457,450)
(300,083)
4,361,998
Class B
14,510,194
92,876
198,792
3,342,263
Class C
5,180,619
(5,912)
50,620
Total
40,318,101
(370,486)
(50,671)
NORTH
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Class A
16,858,000
(365,450)
(105,550)
3,639,667
Class B
7,374,024
131,363
122,702
1,320,833
Direct Direct Vacancy Vacancy (sf) %
2,518,166
8,074
18,046
576,805
22.9%
1,941,361
24,018
24.6%
Total
26,750,189
(226,013)
35,198
5,537,305
20.7%
21,212,884
1,157,645
24.6%
NORTHWEST
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Vacancy + Sublease) %
Class A
18,500,654
379,728
72,328
3,905,239
21.1%
14,595,415
375,198
25.3%
Class B
9,669,129
(19,395)
(90,807)
3,252,387
33.6%
6,416,742
147,921
35.5%
Class C
2,348,148
41,909
31,825
703,780
30.0%
1,644,367
21,771
32.2%
Total
30,517,931
402,242
13,347
7,861,406
25.8%
22,656,525
544,890
29.0%
O'HARE
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Vacancy + Sublease) %
Class A
7,863,219
81,456
75,411
1,431,431
18.2%
6,431,788
129,901
21.1%
Class B
4,328,987
26,266
36,825
1,307,585
30.2%
3,021,402
35,225
31.5%
Direct Direct Vacancy Vacancy (sf) %
Direct Direct Vacancy Vacancy (sf) %
Class C
2,533,399
17,442
5,134
933,650
36.9%
1,599,749
500
37.6%
Total
14,725,605
125,164
117,370
3,672,666
24.9%
11,052,939
165,626
27.0%
TOTALS
RBA (sf)
YTD Absorption (sf)
4th Quarter Absorption (sf)
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Vacancy + Sublease) %
Class A
63,849,161
(361,716)
(257,893)
13,338,335
20.9%
50,510,826
2,726,872
24.5%
Class B
35,882,334
231,110
267,511
9,223,068
25.7%
26,659,266
835,779
28.9%
Class C
12,580,331
61,512
105,626
3,547,300
28.2%
9,033,031
53,499
27.6%
Total Suburban
112,311,826
(69,094)
115,244
26,108,703
23.2%
86,203,123
3,616,150
26.2%
Direct Direct Vacancy Vacancy (sf) %
F E AT U R E S
Class C
SUBURBAN CHICAGO
MARKET STATISTICS
Numbers in parentheses are negative
FOURTH QUARTER 2012 | CHICAGO MARKET OVERVIEW
25
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 quality.
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.
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.
Initial Rate: The contracted starting rental rate for the first 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 nonoverlapping 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.
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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M B R E A L E S TAT E
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, resultsdriven 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.
MB REAL ESTATE HEADQUARTERS
DEPARTMENT LEADERSHIP
181 West Madison, Suite 4700 Chicago, Illinois 60602 phone: 312.726.1700 fax: 312.807.3853
PATRICIA ALUISI
EAST COAST REGIONAL HEADQUARTERS
ANDREW J. DAVIDSON
335 Madison Avenue, 14th Floor New York, New York 10017 phone: 212.350.2300 fax: 212.350.2301
Executive Vice President & Chief Administrative Officer/General Counsel
MARK A. BUTH Executive Vice President & Managing Director of Leasing Services
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
MAUREEN G. GROVE Vice President & Managing Director of Accounting Services
DANIEL J. NIKITAS Executive Vice President of Corporate Services & Tenant Advisory Services
President
KEVIN M. PURCELL Executive Vice President & Chief Operating Officer
PETER J. WESTMEYER Senior Vice President & Managing Director of Investment Services
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