SECTION TITLE SECTION SUBTITLE SECOND
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2014
R
CENTRAL BUSINESS DISTRICT
SECTION #
CHICAGO CBD
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FIRST QUARTER 2013 | CHICAGO MARKET OVERVIEW
1
S E C O N D Q UA RT E R
2014
TABLE OF CONTENTS SE CT ION ONE
CHICAGO MARKET OVERVIEW
CHICAGO ECONOMY 01 Economic Analysis
SE CT ION T WO
CHICAGO CENTRAL BUSINESS DISTRICT
MARKET OVERVIEW
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
2013
Lease Comparables Investment Sales Forecast Market Statistics
SE CT ION T H RE E
CENTRAL BUSINESS DISTRICT SNAPSHOTS CBD SUBMARKET SNAPSHOTS
The Chicago Market Overview is published quarterly by MB Real Estate. To obtain additional copies or for further information, please contact:
13 14 15 16 17 18 19
Central Business District Map Central Loop East Loop North Michigan Avenue River North South Loop West Loop
SE CT ION FOUR
Alex Jin, Research Coordinator 181 West Madison Street, Suite 4700 Chicago, Illinois 60602 (312) 726-1700 www.mbres.com
ADDITIONAL INFORMATION 20 Glossary 21 About MB Real Estate
CHICAGO ECONOMY ECONOMIC ANALYSIS As of the June 2014 release of the U.S. Bureau of Labor Statistics census, the national unemployment rate had fallen to 6.1%. A 60 basis point drop from last quarter, unemployment now sits at the lowest level since September of 2008. The U.S. economy is experiencing the largest consecutive job growth since the late ‘90s tech boom, adding more than 200,000 jobs in each of the past five months.
CHICAGO ECONOMIC ANALYSIS
SECTION ONE
Nationally, professional and business services added 67,000 jobs from May to June. This exceeds the average monthly gain of 56,000 office jobs over the past 12 months. Chicago experienced its own recent office job growth with the city’s professional and business services employment rising by 1.7% year-to-date. This is the largest growth for the period of any nonfarm industry. Chicago business activity continues to expand, albeit at a slower rate in June than earlier in the year. Market News International’s Chicago Business Barometer fell back to 62.6 by quarter-end after achieving a seven-month high of 65.5 in May. However, this mark is still well above the 50.0 index baseline, and well exceeds the 52.0 from one year ago. Meanwhile, Chicago continues to grow as a premier destination for tourism. Released in May, 2013’s tourism statistics surpassed the previous years’ record-setting performance. The city was host 46.96 million domestic and 1.42 million international travelers, a 4.3 percent increase from 2012. In the midst of this generally positive news on employment and cultural relevance, Chicago still faces a host of internal issues. Substanital pension problems and growing direct debt of around $19.5 billion are all being shouldered by a shrunken population. While the city grew by 5,862 people in the last year ending July 1st, this 0.2 percent growth is dead last amongst major cities tracked by The Economist. This marginal growth is a far cry from addressing the 200,000 residents the city lost in the first decade of the ‘00s. More concerning is the hot button issue of addressing the major unfunded pension liability which could come at direct cost to commercial real estate. Mayor Rahm Emanuel recently unveiled a proposal to increase property tax by another $200 million. Office building owners look to face $140 million of this tax, factoring directly into more expensive leases for tenants. Chicago already has the second highest commercial tax rate behind Detroit. This looming pension payment could drive the city to the highest commercial taxes in the U.S. The next quarter will be a significant one for the CBD. Chicagoans should be optimistic regarding the improving employment situation, growing business and continued relevance of the city, but our economic recovery still faces some substantial hurdles.
Sources: MBRE Research, BLS, Crain’s Chicago Business, Chicago Sun-Times, Market News International, Business Insider, Choose Chicago, The Economist
CHICAGO EMPLOYMENT WELL BELOW PEAK AND RECOVERING SLOWLY
Chicago MSA Employment (thousands, SA)
4,700 4.593 million
Peak: 4.569 million
4,600 4,500 4,400
4.390 million
Peak-toTrough -7.46%
4,300 4,200 Trough: 4.228 million
4,100 4,000 Jul-00
Current: 4.451 million Jan-02
Jul-03
Jan-05
Jul-06
Jan-08
Jul-09
Jan-11
Jul-12
Jan-14
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
1
CENTRAL BUSINESS DISTRICT EXECUTIVE SUMMARY The Chicago Business District (CBD), in total, experienced a positive absorption of 323,068 square feet in the second quarter. A strong quarter among Central Loop and West Loop properties contributed heavily to this overall change. Key Indicators: •
The total CBD direct vacancy rate decreased by 22 basis points and ended the quarter at 13.95 percent. Class A buildings in the North Michigan Avenue submarket experienced the largest negative absorption, totalling 99,828 square feet. The continued factoring in of large vacancy for the departures of DraftFCB & AMA reflect this change. This was offset by the strong performance of North Michigan Avenue Class B buildings which saw 153,296 square feet of positive absorption in the same period.
•
444 West Lake pre-leased another large tenant in Servcorp Ltd. The 25,500 square foot lease brings the building, scheduled for a January 2017 commencement, to 41.8% leased. William Blair also executed its anchor lease of 318,000 square feet at the O’Donnell development at 150 N Riverside in April.
•
The largest CBD sale in Chicago history occured this quarter. KBS Realty Advisors LLC sold 300 N. LaSalle, a 1.3 million square foot property, to California-based Irvine Co. for a record-breaking $850,000,000.
•
This was a strong quarter for the growing tech sector in the CBD as Google began an expansion in the Fulton Market area of River West, and companies such as Braintree, Apartments.com and Fieldglass signed new leases. Tech incubator 1871 also received an additional $2.5 million from the state to expand at the Merchandise Mart displaying a commitment from Mayor Emannuel and the state to nuturing start-up success. As the proposed development of the tech sector matures, we can anticipate an accelerated recovery and increased occupancy.
CHICAGO ECONOMIC ANALYSIS
SECTION TWO
The outlook of the overall CBD office market has continued to improve. Direct vacancy has decreased two full percent since 2010 and is trending downward. As strong pre-leasing activity shows a desire for new inventory the demand for development should grow. MB Real Estate forecasts positive absorption and steady supply over the next two years.
CBD VACANCY AND SECOND QUARTER ABSORPTION SUMMARY
Numbers in parentheses are negative
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
2
Major Plans Brewing As Strong Pre-leasing Continues •
Sterling Bay made headlines this quarter with their plans for the currently vacant Old Main Post Office building. The Chicago-based developer is working on a $500 million redevelopment of the 2.7-million-squarefoot property. The office portion of this property is yet unknown.
At 1K Fulton, Sterling Bay’s other recent development, Google expanded its space once again by nearly 105,000 square feet. The building, which will house Google’s Chicago headquarters, is the centerpiece to a fledgling Fulton Market office submarket.
•
Servcorp Ltd., a Sydney-based high-end shared-office leasing company, has preleased at 444 W. Lake for 25,500 square feet. They join law firms McDermott Will & Emory, and DLA Piper in occupying 41.8% of the future Class A Building.
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
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
Total - 20 Properties
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%
16,446,894 sf
UNDER CONSTRUCTION/ANNOUNCED 150 N. Riverside 444 West Lake
% Leased
1,300,000 sf 1,073,100 sf 2,373,100 sf
Total
SUPPLY
•
% Leased (Avg)
2000 - 2014 INVENTORY ADDITIONS
CENTRAL BUSINESS DISTRICT
NEW DEVELOPMENT
34.2% 41.8%
2000-2013 INVENTORY ADDITIONS
•
There are currently 12 tenants in the market seeking spaces greater than 100,000 square feet. Expect to see a few more anchor tenants pre-lease space in these proposed buildings.
Delivered (2000-2013) Delivered (2014)
16,446,894 sf 0 sf
Total
16,446,894 sf
Under Construction/Announced
2,373,100 sf
NO NEW DELIVERIES EXPECTED UNTIL 2015 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
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) 2003
2004
2005
2006
New Construction Delivery (square feet)
2007
2008
2009
2010
2011
Absorption (square feet)
2012
2013
2014 YTD
Direct Vacancy Rate %
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
3
Sublease availability falls •
Available sublease space in the CBD decreased this quarter to 2,668,015 square feet. This is a signficant decrease of 359,145 square feet from the first quarter and seems to indicate a positive absorption trend in the sublet market.
•
There are currently 9 large sublease blocks in excess of 50,000 square feet available in the CBD. Notably, Merrill Lynch’s sublease of 85,496 square feet went direct at 1 N. Wacker.
•
Class A buildings in the West Loop have the most sublease space available with 765,062 square feet. The largest block of available sublease space is AT&T’s 185,697 square feet at 225 W. Randolph. The largest block in Class A buildings belongs to 131 S. Dearborn at 128,622 square feet in the former Citadel space. AT&T’s 126,402 square feet in the Merchandise Mart is the largest available Class C sublease space.
CENTRAL BUSINESS DISTRICT
SUBLEASE SPACE
2014 SUBLEASE AVAILABILITY SEES SLIGHT DECREASE SUPPLY
6,000,000 5,000,000 4,000,000 3,000,000
5,458,623
4,467,890
4,644,911
3,714,187
2,376,184
2,404,109
3,158,562
4,201,801
3,576,846
2,897,711
3,214,365
3,060,757
2,668,015
2,000,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 YTD
1,000,000 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
131 S Dearborn St 550 W Jackson Blvd 35 W Wacker Dr 353 N Clark St
128,622 128,019 75,000 56,086
Vacant Negotiable 90 Days Negotiable
October 2017 June 2017 December 2024 October 2024
7-8 2-6 35-37 35-36
Citadel Newedge USA Winston & Strawn Jenner & Block
Total - 3 Spaces
387,727
CLASS B Building Address
Size (sf)
Occupancy
Expiration
Floor(s)
Sublandlord
225 W Randolph St 600 W Chicago Ave 10 S Riverside Plz
185,697 117,101 71,972
Negotiable Vacant Vacant
December 2022 November 2015 April 2017
22-30 2nd 5-6
AT&T Level 3 Communications Zurich North America
Total - 3 Spaces
374,770
Floor(s)
CLASS C Building Address
Size (sf)
Available
Expiration
350 W Mart Ctr 111 N Canal St
126,402 57,110
Vacant Vacant
January 2016 April 2017
Total - 3 Spaces
183,512
3-5 4th
Tenant AT&T Braintree
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
4
Large Blocks Remain Available For Tenants
•
The first quarter saw a decrease in the total amount of large block space available from the first quarter, from 69 blocks to 59 blocks. Most of the availabilities are returning from last quarter. 101 East Erie and 515 North State are still both trying to fill the space DraftFCB and the American Medical Association vacated respectively last quarter. Spaces at 225 W. Randolph & 205 N. Michigan were taken off the Class B list, and 200 W. Monroe added a 56,238 contiguous square foot space.
MB Real Estate has identified 39 tenants actively seeking 50,000 square feet or more in the CBD. With 57 blocks of large space available in the CBD, the market continues to offer opportunities for companies looking to relocate.
•
Walgreens made headlines this quarter with speculation that they would relocate from their 1.1 million square foot headquarters in the North suburban submarket. A potential redevelopment of the Old Main Post Office building in the West Loop was entertained as a possible downtown host for the pharmacy giant.
515 N State St 200 E Randolph St 131 S Dearborn St 500 W Monroe St 227 W Monroe St 101 E Erie St 10 S Dearborn St 540 W Madison St 233 S Wacker Dr 550 W Jackson Blvd 440 S LaSalle St 111 S Wacker Dr 20 W Kinzie St 222 W Adams St 30 S Wacker Dr 333 W Wacker Dr 455 N Cityfront Plaza Dr 191 N Wacker Dr 311 S Wacker Dr 181 W Madison St 1 S Wacker Dr 77 W Wacker Dr 22 Blocks
Size (sf)
Submarket
350,906 339,761 202,972 284,298 272,101 217,569 193,319 180,995 178,438 139,763 114,912 114,686 95,945 88,362 86,573 80,736 68,730 68,029 67,983 59,689 57,315 55,032 3,318,114
North Michigan Avenue East Loop Central Loop West Loop West Loop North Michigan Avenue Central Loop West Loop West Loop West Loop Central Loop West Loop River North West Loop West Loop West Loop North Michigan Avenue West Loop West Loop Central Loop West Loop West Loop
Size (sf)
Submarket
354,017 198,291 145,114 144,000 116,739 110,898 77,079 70,107 68,158 58,725 57,405 55,000
West Loop Central Loop River North South Loop South Loop East Loop West Loop East Loop North Michigan Avenue West Loop River North South Loop
SUPPLY
•
CLASS A Building Address
CENTRAL BUSINESS DISTRICT
LARGE BLOCKS OF DIRECT AVAILABILITY
CLASS C Building Address
CLASS B Building Address 130 E Randolph St 600 W Chicago Ave 222 N LaSalle St 303 E Wacker Dr 233 N Michigan Ave 231 S LaSalle St 410 N Michigan Ave 401 N Michigan Ave 2 N LaSalle St 333 S Wabash Ave 100 S Wacker Dr 10 S Riverside Plz 120 S LaSalle St 55 E Monroe St 111 E Wacker Dr 180 N LaSalle St 230 W Monroe St 175 W Jackson Blvd 1 N Dearborn St 33 N LaSalle St 200 W Monroe St 222 Merchandise Mart Plz 222 S Riverside Plz 23 Blocks
Size (sf)
Submarket
256,362 231,294 200,711 145,014 133,639 132,336 124,156 104,990 94,452 92,473 79,485 73,624 69,519 68,933 66,136 61,017 60,182 59,824 59,239 58,935 56,238 53,288 53,162 2,335,009
East Loop River North Central Loop East Loop East Loop Central Loop North Michigan Avenue North Michigan Avenue Central Loop East Loop West Loop West Loop Central Loop East Loop East Loop Central Loop Central Loop Central Loop Central Loop Central Loop West Loop River North West Loop
311 W Monroe St 141 W Jackson Blvd 350 W Mart Ctr 840 S Canal St 717 S Desplaines St 401 S State St 2 N Riverside Plz 1-33 S State St 435-445 N Michigan Ave 111 N Canal St 363 W Erie St 800 S Wells St 14 Blocks
1,455,533
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
5
CBD vacancy rates continue descent •
Vacancy rates fell again this quarter across the CBD. Total CBD vacancy rate has now dropped more than 2 full percentage points from the most recent peak in 2010. This is the first time that total vacancy rate has dipped below the 14 percent mark since 2008.
•
Class A continues to boast the lowest vacancy rates and highest occupancy in the CBD. It was Class C, however, that experienced the greatest positive change in the last quarter going from 14.0 percent to 13.5 percent. This can be contributed largely to solid absorption amongst West Loop and Central Loop Class C properties.
•
The South Loop, by far the smallest market, saw the greatest shift in direct vacancy percentage based on growth at two buildings, 440 S. LaSalle and 725 S. Wells. However, the direct vacancy rate of the South Loop submarket continues to lage behind the rest CBD at 22.1 percent.
•
Direct vacancy in the West Loop fell below 13 percent for the first time since 2008, down 3.4 percent from the most recent peak in 2009.
CENTRAL BUSINESS DISTRICT
VACANCY RATES
DEMAND
HISTORIC DIRECT VACANCY : FALLING RATES CONTINUE INTO THIRD QUARTER 18% 16% 14%
13.7%
14.6%
15.7%
17.6%
14.3%
11.7%
11.5%
15.3%
16.0%
15.4%
15.1%
14.5%
13.9%
10%
11.4%
12%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 YTD
8%
HISTORIC YEAR-END DIRECT VACANCY MARKET BY CLASS : CLASS HIERARCHY REMAINS 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2001
2002
2003 Class A
2004
2005
2006
2007 Class B
2008
2009
2010
2011
2012
2013
2014 YTD
Class C
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
6
Second Quarter Sees Strong Activity Law firm Seyfarth Shaw finalized the largest new deal in the CBD and will relocate into 200,000 square feet at Willis Tower in 2017.
•
444 West Lake pre-leased another large tenant in Servcorp Ltd. The 25,500 square foot lease brings the building, scheduled for a January 2017 commencement, to 41.8% leased.
•
Google expanded again at 1K Fulton, this time by 105,000 square feet. This brings their new lease total at the building to 357,000 square feet.
•
Charles Schwab renewed its lease at 150 N. Wacker while also expanding by 65,000 square feet.
•
Financial software company Braintree will relocate from 111 N. Canal to the Merchandise Mart, taking 57,871 square feet.
•
Fieldglass, Vivid Seats & Assurance Technologies will help fill the void at 111 N. Canal having signed for a combined 116,287 square feet.
LARGE LEASE TRANSACTIONS
DEMAND
•
CENTRAL BUSINESS DISTRICT
LARGE DEALS
NEW Tenant
Type
Submarket
Building Address
Seyfarth Shaw Braintree Fieldglass BMO Harris Yelp Vivid Seats North Community Bank Assurance Technologies Segall Bryant & Hamill FGMK Servcorp Ltd. Ion Trading Punchkick Interactive MSDS Online Ignite USA Channel IQ Total - 16 Deals
New New New New New New New New New New New New New New New New
Central Loop River North West Loop West Loop River North West Loop Central Loop West Loop West Loop West Loop West Loop Central Loop East Loop Central Loop Central Loop Central Loop
233 S. Wacker 222 Merch Mart Plz 111 N. Canal 200 W. Adams 222 Merch Mart Plz 111 N. Canal 180 N. LaSalle 111 N. Canal 540 W. Madison 333 W. Wacker 444 W. Lake 200 N. LaSalle 55 E. Monroe 180 N. LaSalle 180 N. LaSalle 55 W. Monroe
Tenant
Type
Submarket
Building Address
Google Charles Schwab Havas Worldwide Trading Technologies kCura Career Builder Lincoln International Ifbyphone Knight Infrastructures 1871 Munich Reinsurance Meredith Corp.
Exp Ren/Exp Ren Ren Exp Exp Ren/Exp Ren/Exp Ren/Exp Exp Ren Ren
River West West Loop North Michigan Ave West Loop Central Loop Central Loop West Loop West Loop Central Loop River North Central Loop East Loop
1000 W. Fulton 150 S. Wacker 36 E. Grand 222 S. Riverside 231 S. LaSalle 200 N. LaSalle 500 W. Madison 300 W. Adams 221 N. LaSalle 222 W. Merch Mart 30 S. Wacker 333 N. Michigan
Size (sf) 200,000 58,871 58,000 48,000 43,000 30,951 28,000 27,336 26,800 26,000 25,500 25,000 23,401 20,339 20,339 20,000 681,537
RENEWAL/EXPANSION/SUBLEASE
Total - 12 Deals
Size (sf) 105,000 105,000 85,000 75,000 48,000 47,000 47,000 40,000 26,214 25,000 23,079 22,853 649,146
Abbreviations: Cons - Consolidation Cont - Contraction Exp - Expansion Relo - Relocation Ren - Renewal Sub - Sublease
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
7
YTD Postive Absorption Already Approaching 2013 The CBD experienced 323,068 square feet of positive absorption this quarter with Central Loop and West Loop submarkets combining for 243,600 square feet.
•
The Chicago Sun-Times parent company, Wrapports LLC, negotiated a lease which reduced their presence at River North Point to about 45,000 square feet, affecting the River North Class B submarket.
•
North Michigan Avenue Class B saw 153,296 square feet of postive absorption driven largely by the growth at 330 N. Wabash. Context Media commenced their 32,650 square foot lease and Latham & Watkins expanded to 154,308 square feet in the building this quarter.
•
West Loop Class A contributed heavily to the CBD’s overall positive absorption this quarter experiencing 154,474 square feet of absorption. At 227 W. Monroe, ATK Foods commenced for 58,000 square feet while Guggenheim Partners expanded by 37,000 square feet. FGMK and Surgery Center Holdings moved in to 333 W. Wacker and Apartments.com began its lease at 540 W. Madison this quarter as well.
•
OUTLOOK: 2014 year-to-date absorption exceeds 2012’s full year total after just two quarters. If this trend holds, absorption could also far surpass 2013’s full year total by the end of third quarter.
HISTORIC ABSORPTION: ON TREND FOR 2014 YTD 3,000,000
2,665,184
DEMAND
•
CENTRAL BUSINESS DISTRICT
ABSORPTION
2,566,896
2,500,000 2,000,000 1,500,000 913,519
1,000,000
720,110 692,700 472,780
500,000 0
(1,000,000) (1,500,000)
(136,763)
(186,015)
(500,000)
(509,999) (830,377)
(844,381) (1,144,784)
2002
2003
(720,154)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 YTD
HISTORIC ABSORPTION BY SUBMARKET: POSITIVE YEAR-TO-DATE ABSORPTION 2,000,000 1,500,000 1,000,000 500,000 0 (500,000) (1,000,000) 2007 Central Loop
2008 East Loop
2009
2010
North Michigan Avenue
2011
2012
River North
2013 South Loop
2014 YTD West Loop
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
8
High rates and longer terms Class A initial net rental rates fell from $19.72 to $19.01 for new leases, but increased for both Class B & C. Tenant improvements increased in all classes for new deals and for classes A & B for renewal as landlords need to attract tenants by offering more money for improvements at older buildings in the CBD.
•
Class C new deals saw the largest increase in average initial rate over the past quarter, a change of 3.9 percent. Class B renewals saw the largest decrease in initial rate of 6.5 percent below 1Q14.
•
Term length of new leases has increased across all classes. Class A leases in particular have become longer going from 7.2 years to 8.2 years on average.
•
OUTLOOK: Building sales in the CBD continue to boom as landlords take advantage of the favorable market environment. High initial rates and longer average lease terms build value for owners.
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
3Q2013 - 2Q2014 *
$19.01
$18.16
$15.36
$44.20
$42.63
$35.49
6.4
5.7
5.1
8.2
6.6
5.8
3Q2012 - 2Q2013
$19.72
$16.13
$14.77
$35.03
$29.87
$23.93
6.2
5.8
4.4
7.2
6.3
5.2
3Q2011 - 2Q2012
$19.34
$15.34
$13.81
$38.29
$31.88
$25.07
6.4
6.3
5.6
7.3
6.8
6.1
3Q2010 - 2Q2011
$20.73
$14.57
$11.43
$47.17
$28.00
$20.98
8.8
7.5
6.0
8.5
7.1
6.0
3Q2009 - 2Q2010
$19.57
$15.31
$11.74
$38.42
$28.25
$18.90
8.3
6.8
5.3
7.9
6.6
5.8
3Q2008 - 2Q2009
$21.73
$16.45
$13.38
$43.09
$35.15
$33.84
6.1
4.4
4.4
8.7
7.0
7.9
3Q2007 - 2Q2008
$20.66
$16.71
$14.40
$42.65
$36.95
$25.37
4.7
3.7
3.7
7.9
6.6
6.9
3Q2006 - 2Q2007
$18.63
$14.22
$14.10
$50.16
$41.59
$17.83
5.8
5.6
2.8
8.7
7.3
5.1
3Q2005 - 2Q2006
$17.85
$13.18
$12.72
$46.60
$36.29
$20.77
6.7
5.0
2.5
8.4
7.1
5.8
3Q2004 - 2Q2005
$16.86
$12.76
$9.68
$42.68
$44.48
$25.75
7.1
7.3
4.4
10.0
8.8
6.4
3Q2003 - 2Q2004
$17.16
$12.45
$8.88
$42.32
$37.40
$17.71
5.2
5.8
3.9
8.9
8.3
6.7
3Q2002 - 2Q2003
$20.75
$15.12
$11.92
$36.88
$36.22
$22.46
1.3
4.3
1.7
8.0
9.2
6.0
3Q2001 - 2Q2002
$22.92
$16.19
$15.16
$26.31
$26.50
$28.49
1.1
0.7
1.4
7.0
8.4
7.6
RENEWAL DEALS
AVERAGE NET INITIAL RATE
AVERAGE TENANT IMPROVEMENT C
FEATURES
•
CENTRAL BUSINESS DISTRICT
LEASE COMPARABLES
AVERAGE ABATEMENT (MONTHS)
AVERAGE TERM (YEARS)
A
B
C
A
B
A
B
C
A
B
C
3Q2013 - 2Q2014
$21.21
$17.45
$13.09
$30.58
$15.37
$4.18**
4.5
4.8
1.5
6.2
5.6
3.1
3Q2012 - 2Q2013
$18.88
$15.74
$12.52
$16.67
$9.39
$12.21
4.7
3.4
3.1
6.3
4.8
4.7
3Q2011 - 2Q2012
$18.89
$14.24
$13.13
$12.25
$10.12
$11.24
4.8
3.6
3.6
5.0
4.4
4.0
3Q2010 - 2Q2011
$19.70
$14.62
$11.46
$21.36
$10.91
$7.55
5.2
4.5
5.9
6.5
4.6
4.9
3Q2009 - 2Q2010
$18.33
$15.56
$11.01
$20.24
$9.61
$5.74
7.0
3.7
3.5
6.1
4.7
5.0
3Q2008 - 2Q2009
$20.23
$17.15
$15.33
$18.09
$17.02
$15.12
2.7
3.6
2.7
6.0
5.6
5.9
3Q2007 - 2Q2008
$22.72
$15.73
$14.77
$26.92
$16.52
$20.42
5.9
2.3
1.2
7.6
5.2
7.2
3Q2006 - 2Q2007
$16.26
$14.02
$15.42
$18.40
$17.28
$9.08
4.8
1.6
2.7
6.4
7.6
5.3
3Q2005 - 2Q2006
$16.64
$13.33
$15.76
$26.68
$16.84
$7.65
5.5
3.4
0.2
8.6
7.0
5.0
3Q2004 - 2Q2005
$15.97
$12.47
$11.57
$23.25
$22.90
$6.16
3.7
3.1
1.0
7.3
7.8
4.9
3Q2003 - 2Q2004
$18.28
$13.43
$9.71
$24.08
$17.03
$9.81
2.5
3.8
1.5
9.3
6.9
6.1
3Q2002 - 2Q2003
$20.76
$14.26
$10.68
$14.90
$12.27
$5.81
0.5
1.6
0.0
7.3
7.1
5.2
3Q2001 - 2Q2002
$22.68
$16.32
$13.10
$16.58
$10.03
$6.78
0.5
0.7
0.1
7.2
7.3
4.3
*Lease metrics are compared on a four-quarter basis instead of calendar year, allowing full years of data comparison. **MBRE utilizes actual lease data in the calculation of these averages. As such, we are at some times limited by our sample size.
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
9
Record Sale Signals Healthy Investment Market •
The largest CBD sale in Chicago history occured this quarter. KBS Realty Advisors LLC sold 300 N. LaSalle, a 1.3 million square foot building, to California-based Irvine Co. for a record-breaking $850,000,000.
•
Four other sales occured for a combined $461,250,000. All together, 3.8 million square feet of Class A & B office space changed hands in the last quarter.
•
OUTLOOK: Sales revenue this quarter was more than double that of last quarter and new buildings continue to come to market. This is a clear indication that investors have increased confidence in the health of the downtown Chicago market in whole.
CENTRAL BUSINESS DISTRICT
INVESTMENT SALES
“We believe that Chicago is an exceptional value play in this country. It’s got all the dynamics of a great city for the next 50 years.”
- Doug Holte, President of Irvine Co. FEATURES
INVESTMENT SALES: MAJOR SALES CONTINUE Building Address
Sale Date
Size (sf)
Price
Price per sf * Class
221 N. LaSalle
New On Market
360,000
$48,000,000.00
$133.33
B
205 W. Randolph St
New On Market
199,000
$25,000,000.00
$125.63
C
213 W. Institute Pl
New On Market
149,000
$30,000,000.00
$201.34
300 S. Riverside Plz
On Market
1,100,000
$335,000,000.00
55 W. Monroe
On Market
803,046
$225,000,000.00
125 S Clark 55 E Washignton (Floors 1-12) 309 W Washington
On Market
494,967
$35,000,000.00
$70.71
Status (Buyer or Listing Agent) Marketing (CBRE)
C
Cape Horn Group LLC Farbman Group/ LuburtAdler Partners Goldman Sachs
$304.55
B
Joseph Mizrachi, Partners
Marketing (Eastdil)
$280.18
B
Hearn Co.
Marketing (JLL)
B
Chicago Public Schools
Marketing (Undecided)
Marketing (JLL) Marketing (HFF)
On Market
192,000
C
Morgan Reed Group
Marketing (CBRE)
On Market
93,610
$14,700,000.00
$157.03
C
Ibrahim Shihadeh
Marketing (Kiser Group)
Gaw/Korean Teachers Lincoln Property Co./PIMCO Hines Interests Ares Management Lexington Corporate Properties Trust
70 W. Madison
Under Contract
1,420,021
$375,000,000.00
$264.08
A
230 W. Monroe
Under Contract
623,542
$125,000,000.00
$200.47
B
101 N. Wacker 200 W. Jackson
Under Contract Under Contract
599,503 488,000
$210,000,000.00 $85,000,000.00
$350.29 $174.18
A B
101 E. Erie
Under Contract
228,000
$37,000,000.00
$162.28
A
300 N. LaSalle
2nd Qtr 2014
1,302,901
$850,000,000.00
$652.39
A
30 N. LaSalle
2nd Qtr 2014
983,000
$237,500,000.00
$241.61
B
203 N LaSalle 541 Fairbanks 33 N. LaSalle
2nd Qtr 2014 2nd Qtr 2014 2nd Qtr 2014
581,100 541,637 402,010
$111,500,000.00 $79,500,000.00 $32,750,000.00
$191.88 $146.78 $81.47
B B B
311 S. Wacker
1st Qtr 2014
1,300,000
$302,400,000.00
$232.62
A
180 N. LaSalle
1st Qtr 2014
770,191
$126,000,000.00
$163.60
B
200 W. Monroe
1st Qtr 2014
535,911
$100,000,000.00
$186.60
B
200 S. Michigan
1st Qtr 2014
359,560
$69,000,000.00
$191.90
B
$1,908,650,000.00
$232.09
YTD Sales
Seller
6,776,310
KBS Realty Advisors LLC Tishman Speyer Properties L.P. M&J Wilkow/HCI Golub & Co. Golub & Co. Shorenstein Properties & Fremont Realty Berkley Properties LLC Farbman Group/ LuburtAdler Partners Equus Capital Partners
Hearn Co. Beacon Investment Properties LLC LaSalle Investment Management White Oak Geller Irvine Co. AmTrust Sumitomo Northwestern Hospital John Buck Company Zeller Realty Group/Cindat Capital Management Beacon Capital Partners Beacon Investment Properties LLC The Shidler Group
*Price per square foot - based off estimated selling price for new to market buildings
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
10
Healthy Recovery Through First Half Of Year The CBD direct vacancy rate fell below 14 percent for the first time since 2008 in the second quarter. Through just the first half of the year, total absorption is nearly equal to 2013’s year end figure. Leasing velocity doesn’t look to let up through the rest of 2014 with a healthy number of large tenants, both from within the CBD and from out in the suburbs, in the market for new space. The trend of suburban companies acquiring satelliete offices or moving wholesale downtown seems to be a firm reality that can only aid the CBD market.
The technology sector continues to be a focus of local government, and with the expansion of Google and 1871 this quarter, it’s evident that positive momentum is gaining for the industry.
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014 2015
Total Historic and Forecasted Inventory (sf)
Total Historic & Forecasted Occupancy (sf)
120,434,748 119,972,770 118,691,577 121,440,276 122,776,164 124,713,268 125,037,423 126,452,643 128,385,650 126,478,575 125,626,639 125,269,078 130,038,076 130,539,796 130,649,210 131,044,641 131,021,405 130,910,192 130,910,192
104,939,294 106,058,995 106,744,585 109,533,759 108,743,284 107,598,500 106,754,119 106,568,104 105,737,728 108,402,912 110,969,808 110,833,045 110,112,891 109,602,891 110,516,410 111,238,394 111,964,734 112,648,683 113,144,201
2004-2013 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% 14.5% 13.9% 13.6%
FEATURES
The recent MBRE Index report reflects this growing demand for downtown headquarters particularly in newer Class A trophy properties. The low vacancy spread, in the face of falling overall vacancy rate, indicates a stable Class A and improving Class B & C.
Year
CENTRAL BUSINESS DISTRICT
FORECAST
495,518
MBRE expects demand to warrant new inventory as large blocks of 2014 YTD Absorption: 692,700 availability are absorbed by corporate relocations and technology sector growth. The escalating demand for commercial real Total projected inventory based on addition of projects currently under construction estate in Chicago has never been more evident following the Occupancy is forecast based on proprietary assumptions regarding the Chicago MSA’s total employment change and the office industry’s historical performance which trails recordbreaking $850 million sale of 300 N. LaSalle this quarter. the overall economy. This investment market has been driven by forecasts of decreasing direct vacancy rates leading to higher asking rents over the next two years. As discussed previously, however, large tax changes are looming on the horizon that will ultimately affect the Chicago commercial real estate industry. Fortunately, even in the face of a potential tax hike, Chicago remains an economically feasible option for major corporations when compared to the exorbitant costs of properties in gateway cities like New York, San Fransisco, Los Angeles, and Washington D.C. Overall, the outlook remains positive as recovery continues. While CRE should be wary of potential changes to the economy, we can be confident
HISTORIC & PROJECTED VACANCY: STRONG GROWTH IN OCCUPANCY OVER THE NEXT TWO YEARS 135,000,000
20% 18%
130,000,000
16% 125,000,000
14% 12%
120,000,000
10% 115,000,000
8% 6%
110,000,000
4% 105,000,000
2% 0%
100,000,000 2000
2001
2002
2003
2004
2005
Total Historic and Forecasted Inventory (sf)
2006
2007
2008
2009
2010
2011
2012
Total Historic & Forecasted Occupancy (sf)
2013
YTD 2014
2015
Direct Vacancy %
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
11
CENTRAL LOOP
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
13,587,111
10,328
54,536
1,448,550
10.7%
12,138,562
318,493
13.0%
Class B
14,350,772
195,778
(38,990)
1,976,897
13.8%
12,373,876
308,540
15.9%
Class C
8,613,641
137,799
88,014
1,191,732
13.8%
7,421,909
70,538
14.7%
Total
36,551,525
343,905
103,560
4,617,179
12.6%
31,934,346
697,571
14.5%
EAST LOOP
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
4,067,016
34,398
8,106
606,837
14.9%
3,460,179
27,315
15.6%
10,641,699
65,627
(10,916)
2,513,331
23.6%
8,128,368
194,181
25.4%
Class C
8,233,080
(19,032)
(6,326)
1,053,038
12.8%
7,180,042
45,705
13.3%
Total
22,941,795
80,993
(9,136)
4,173,206
18.2%
18,768,588
267,201
19.4%
N. MICHIGAN AVE.
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
3,996,324
(140,664)
(99,828)
839,462
21.0%
3,156,863
65,708
22.7%
Class B
4,700,348
277,552
153,296
602,785
12.8%
4,097,563
32,539
13.5%
Class C
3,983,522
14,330
(18,895)
664,756
16.7%
3,318,766
25,625
17.3%
Total
12,680,194
151,218
34,573
2,107,003
16.6%
10,573,192
123,872
17.6%
RIVER NORTH
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
3,978,665
93,728
46,513
315,516
7.9%
3,663,149
79,906
9.9%
Class B
3,954,334
(135,154)
(11,083)
504,793
12.8%
3,449,541
176,827
17.2%
Class C
5,395,253
15,526
(44,765)
473,390
8.8%
4,921,863
174,236
12.0%
Total
13,328,252
(25,899)
(9,334)
1,293,699
9.7%
12,034,553
430,968
12.9%
SOUTH LOOP
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
1,019,325
45,645
45,645
233,385
22.9%
785,940
0
22.9%
Class C
1,094,986
(5,831)
18,260
234,351
21.4%
860,635
9,786
22.3%
Total
2,114,311
39,814
63,905
467,736
22.1%
1,646,575
9,786
22.6%
WEST LOOP
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
27,246,311
192,995
154,474
3,451,868
12.7%
23,794,444
765,062
15.5%
Class B
9,776,930
(148,593)
(39,502)
1,225,733
12.5%
8,551,197
256,444
15.2%
Class C
6,270,874
58,266
24,528
925,086
14.8%
5,345,788
117,111
16.6%
Total
43,294,115
102,668
139,500
5,602,686
12.9%
37,691,429
1,138,617
15.6%
TOTALS
RBA (sf)
YTD Absorption (sf)
2nd Quarter Absorption (sf)
Direct Vacancy (sf)
Direct Vacancy %
Occupancy (sf)
Sublease Vacancy (sf)
Total Vacancy Rate (Direct + Sublease) %
Class A
53,894,753
236,431
209,446
6,895,617
12.8%
46,999,136
1,256,484
15.1%
Class B
43,424,083
255,210
52,806
6,823,539
15.7%
36,600,544
968,531
17.9%
Class C
33,591,356
201,059
60,815
4,542,353
13.5%
29,049,003
443,001
14.8%
Total CBD
130,910,192
692,700
323,068
18,261,509
13.9%
112,648,683
2,668,015
16.0%
FEATURES
Class A Class B
CENTRAL BUSINESS DISTRICT
MARKET STATISTICS
Numbers in parentheses are negative
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
12
CENTRAL BUSINESS DISTRICT
SUBMARKET MAP
FEATURES SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
13
Continued Growth in Second Quarter The Central Loop had another quarter of positive absorption bringing the direct vacancy rate in the submarket down to 12.63 percent. After experiencing the most positive absorption last quarter Class B buildings were the only to have a negative overall absorption in the last three months totaling 38,990 square feet. Most of this negative absorption can be attributed to the Merill Lynch space in 222 N LaSalle going from sublease to direct vacancy for 200,711 square feet. All told, the submarket had a postive overall absorption of 103,560 square feet across all classes this quarter, and has 343,905 square feet of positive absorption through the first half of the year.
Some notable events for the submarket include the move-ins of Archer Daniels Midland and Greenberg Traurig for a combined 58,137 square feet at 77 W Wacker, the consolidation of Career Builder at 200 N. LaSalle, and the expansion of Knight Engineering at 221 N LaSalle and kCura at 231 S LaSalle.
Size (sf)
Building Class
131 S Dearborn St
202,972
A
222 N LaSalle St
200,711
B
141 W Jackson Blvd
198,291
C
10 S Dearborn St
193,319
A
231 S LaSalle St
132,336
B
131 S Dearborn St
128,622
A
440 S LaSalle St
114,912
A
2 N LaSalle St
94,452
B
120 S LaSalle St
69,519
B
180 N LaSalle St
61,017
B
230 W Monroe St
60,182
B
175 W Jackson Blvd
59,824
B
181 W Madison St
59,689
A
1 N Dearborn St
59,239
B
33 N LaSalle St
58,935
B
The Central Loop’s boundaries are the Chicago River (North), Wells Street (West), State Street (East), and Van Buren Street (South).
CENTRAL LOOP SUMMARY Inventory (square feet)
A
B
C
Total
13,587,111
14,350,772
8,613,641
36,551,525
Year to Date Absorption (square feet)
10,328
195,778
137,799
343,905
Direct Vacancy Rate
10.7%
13.8%
13.8%
12.6%
Total Vacancy Rate (Direct + Sublease)
13.0%
15.9%
14.7%
14.5%
SUBMARKET SUPPLY SNAPSHOTS
Vacancy rates are the lowest they have been since 2008, having gone down 107 basis points since the end of fourth quarter 2013.
LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address
CENTRAL BUSINESS DISTRICT
CENTRAL LOOP
Numbers in parantheses are negative
CENTRAL LOOP SUBMARKET HISTORICAL DIRECT VACANCY 20% 18% 16% 14% 12% 10% 8%
11.8%
11.4%
12.7%
13.6%
13.8%
13.2%
2004
2005
2006
2007
2008
2009
2010
2011
2012
12.6%
15.2%
2003
13.7%
17.5%
2%
15.2%
4%
14.7%
6%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
14 2
Direct Vacancy Rate Holds This Quarter The East Loop saw negative 9,136 square feet of absorption in the second quarter. The vacancy rate held steady at 18.2 percent. Class A buildings were the only class that experienced positive absorption this quarter with just 8,106 square feet while Class B & C combined for negative 17,242 square feet. The lease for Punchkick Interactive was one of the largest deals completed in the East Loop in the second quarter. They will be leaving 22 W Ontario to take 23,401 square feet at 55 E Monroe.
EAST LOOP SUMMARY Inventory (square feet)
Size (sf)
Building Class
200 E Randolph St
339,761
A
130 E Randolph St
256,362
B
303 E Wacker Dr
145,014
B
233 N Michigan Ave
133,639
B
401 S State St
110,898
C
333 S Wabash Ave
92,473
B
1-33 S State St
70,107
C
55 E Monroe St
68,933
B
111 E Wacker Dr
65,804
B
A
B
C
Total
4,067,016
10,641,699
8,233,080
22,941,795
Year to Date Absorption (square feet)
34,398
65,627
(19,032)
80,993
Direct Vacancy Rate
14.9%
23.6%
12.8%
18.2%
Total Vacancy Rate (Direct + Sublease)
15.6%
25.4%
13.3%
19.4%
SUBMARKET SUPPLY SNAPSHOTS
The East Loop is bordered by the Chicago River (North), State Street (West), Lake Shore Drive (East), and Van Buren Street (South). It is inhabited mostly by advertising and media firms and corporate tenants.
LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address
CENTRAL BUSINESS DISTRICT
EAST LOOP
Numbers in parantheses are negative
EAST LOOP SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%
19.1%
14.2%
12.1%
16.3%
20.2%
19.3%
19.7%
2004
2005
2006
2007
2008
2009
2010
2011
2012
18.2%
22.4%
2003
18.6%
18.4%
5%
17.2%
10%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
15 3
Large Vacancies Still Affect The Market The North Michigan Avenue submarket recorded a total positive absorption of 34,573 square feet this quarter. All of this absorption came from Class B properties. The positive absorption seen in Class B buildings of 153,296 square feet offset the combined 118,723 square feet of negative absorption coming from Class A & B buildings in the submarket. The negative absorption can be attributed in part to the continued factoring of DraftFCB and American Medical Association vacancies at 101 East Erie and 515 North State respectively.
LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address
Size (sf)
Building Class
515 N State St
350,906
A
101 E Erie St
217,569
A
410 N Michigan Ave
125,584
B
401 N Michigan Ave
104,990
B
455 N Cityfront Plaza Dr
68,730
A
435-445 N Michigan Ave
68,158
C
CENTRAL BUSINESS DISTRICT
NORTH MICHIGAN AVENUE
The 350,906 square foot large block of vacancy at 515 North State is the second largest in the downtown Chicago Market.
Through the first half of the year, North Michigan Avenue has had 151,218 square feet of positive absorption, the highest of any submarket besides the Central Loop. The North Michigan Avenue submarket is home to retailers, hotels, restaurants, entertainment venues, advertising and marketing agencies, and the largest Northwestern Memorial Hospital campus. Its borders include Division Street (North), State Street (West), Lake Michigan (East), and the Chicago River (South).
NORTH MICHIGAN AVENUE SUMMARY
A
B
C
Inventory (square feet)
3,996,324
4,700,348
3,983,522
Year to Date Absorption (square feet)
(140,664)
277,552
14,330
Direct Vacancy Rate
21.0%
12.8%
16.7%
16.6%
Total Vacancy Rate (Direct + Sublease)
22.7%
13.5%
17.3%
17.6%
SUBMARKET SUPPLY SNAPSHOTS
The commencement of Context Media for 32,560 square feet, and the expansion of Latham & Watkins to a total of 154,308 square feet at 330 N Wabash largely comprised the positive absorption in the submarket.
Total Numbers in parantheses are negative
12,680,194 151,218
Numbers in parantheses are negative
NORTH MICHIGAN AVENUE SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%
14.0%
11.8%
11.4%
16.7%
18.2%
19.5%
20.5%
2004
2005
2006
2007
2008
2009
2010
2011
2012
16.6%
14.0%
2003
19.2%
12.7%
5%
10.8%
10%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
16 4
Continues To Boast Lowest Vacancy The River North submarket continues to have the lowest direct vacancy rates in the city. However, the first half of 2014 saw 25,899 square feet of negative absorption overall.
LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address
Class A absorption of positive 46,513 square feet was outweighed by the negative quarters experienced in Class B & C. All together direct vacancy rates rose 61 basis points to 9.71 percent.
Size (sf)
Building Class
600 W Chicago Ave
231,294
B
350 W Mart Ctr
145,114
C
20 W Kinzie St
95,945
A
222 Merchandise Mart Plz
53,288
B
363 W Erie St
57,405
C
CENTRAL BUSINESS DISTRICT
RIVER NORTH
This submarket continues to see technology based companies sign large leases throughout 2014. Braintree Payment Solutions, a financial software company, will move from 111 N Canal to the Merchandise Mart after signing a 60,000 square foot lease this quarter.
RIVER NORTH SUMMARY
A
B
C
Total
3,978,665
3,954,334
5,395,253
13,328,252
93,728
(135,154)
15,526
(25,899)
Direct Vacancy Rate
7.9%
12.8%
8.8%
9.7%
Total Vacancy Rate (Direct + Sublease)
9.9%
17.2%
12.0%
12.9%
Inventory (square feet) Year to Date Absorption (square feet)
SUBMARKET SUPPLY SNAPSHOTS
The borders of the River North submarket are defined as Division Street (North), Racine Avenue (West), State Street (East), Fulton Street, and the Chicago River (South). Historically it has been home to small, older buildings that cater to furniture galleries and small businesses but it has recently become a hub for technology and trading firms.
Numbers in parantheses are negative
RIVER NORTH SUBMARKET HISTORICAL DIRECT VACANCY 25% 20% 15%
12.6%
10.6%
9.2%
15.8%
13.6%
11.7%
9.1%
2004
2005
2006
2007
2008
2009
2010
2011
2012
9.7%
14.5%
2003
9.1%
19.3%
5%
11.9%
10%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
17 5
Few Deals Make Big Difference in the CBD’s Smallest Submarket The South Loop is by far the smallest submarket in the CBD with only 2 million square feet of Class A and C office space. This quarter the South Loop experienced 63,905 square feet of positive absorption based largely on deals at 440 S LaSalle and 725 S Wells. The Chicago Board Of Options Exchange and Fay Financial moved into 440 S LaSalle for a total of 45,645 square feet in positive absorption.
LARGEST BLOCK OF DIRECT AVAILABILITY Building Address
Size (sf)
Building Class
840 S Canal St
144,000
C
717 S Desplaines St
116,739
C
55,000
C
800 S Wells St
CENTRAL BUSINESS DISTRICT
SOUTH LOOP
As a result, vacancy rate saw a significant decrease of 3.47 percentage points to 22.12 percent.
However, Mayor Rahm Emanuel hopes for a 62-acre parcel of land called Riverside Park to be developed. General Mediterranean Holding SA has owned the land since 2011 and have done nothing with it. He hopes a new ordinance will allow city officials to negotiate a purchase from Mediterranean Holding and eventually get it into the hands of a developer. The boundaries of the South Loop include Van Buren Street (North), I-90/I-94 (West), Lake Shore Drive (East), and 16th Street (South). The South Loop is populated primarily with education, small businesses, and converted residential properties.
SOUTH LOOP SUMMARY Inventory (square feet)
A
C
Total
1,019,325
1,094,986
2,114,311
Year to Date Absorption (square feet)
45,645
(5,831)
39,814
Direct Vacancy Rate
22.9%
21.4%
22.1%
Total Vacancy Rate (Direct + Sublease)
22.9%
22.3%
22.6%
SUBMARKET SUPPLY SNAPSHOTS
The majority of the South Loop is comprised of condominiums and student housing. Currently there are no office buildings under construction in the submarket.
Numbers in parantheses are negative
SOUTH LOOP SUBMARKET HISTORICAL DIRECT VACANCY 30% 25% 20% 15%
12.3%
14.5%
14.5%
12.9%
18.6%
23.0%
27.3%
2004
2005
2006
2007
2008
2009
2010
2011
2012
22.1%
16.3%
2003
24.9%
19.1%
5%
20.5%
10%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
18 6
Most Positive Absorption This Quarter The West Loop experienced 139,500 square feet of positive absorption that was largely attributable to Class A buildings. The vacancy rate decreased by 29 basis points from the first quarter to 12.94 percent The commencement of ATK Foods for 57,518 at 227 W Monroe and Knowledge Advisors for 34,500 square feet at 222 S Riverside, FGMK taking a full floor at 333 W Wacker, and Apartments.com moving in to 540 W Madison all contributed significantly to this positive quarter for West Loop Class A properties.
Charles Schwab had the largest renewal/expansion in the Chicago market signing for 105,000 square feet at 150 S Wacker. New signings such as Fieldglass at 111 N Canal for 58,000 square feet and BMO Harris at 200 W Adams for 48,000 square show continued growth in the submarket in the coming half of the year.
Size (sf)
Building Class
311 W Monroe St
354,017
C
500 W Monroe St
284,298
A
227 W Monroe St
272,101
A
540 W Madison St
180,995
A
233 S Wacker Dr
178,438
A
550 W Jackson Blvd
139,763
A
111 S Wacker Dr
114,686
A
222 W Adams St
88,362
A
30 S Wacker Dr
86,573
A
333 W Wacker Dr
80,736
A
100 S Wacker Dr
79,485
B
2 N Riverside Plz
77,079
C
10 S Riverside Plz
73,624
B
191 N Wacker
68,029
A
311 S Wacker
67,983
A
111 N Canal St
58,725
C
1 S Wacker Dr
57,315
A
200 W Monroe St
56,238
B
77 W Wacker Dr
55,032
A
222 S Riverside Plz
53,162
B
The West Loop’s borders are defined as the Chicago River (North), I-94/I-90 (West), Wells Street (East), and Van Buren Street (South).
WEST LOOP SUMMARY
A
B
C
Total
27,246,311
9,776,930
6,270,874
43,294,115
192,995
(148,593)
58,266
102,668
Direct Vacancy Rate
12.7%
12.5%
14.8%
12.9%
Total Vacancy Rate (Direct + Sublease)
15.5%
15.2%
16.6%
15.6%
Inventory (square feet) Year to Date Absorption (square feet)
SUBMARKET SUPPLY SNAPSHOTS
Law firm Seyfarth Shaw finalized the largest deal in the CBD this quarter. They will leave Citadel Center at 131 S Dearborn for Willis Tower in the West Loop downsizing to about 200,000 square feet.
LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address
CENTRAL BUSINESS DISTRICT
WEST LOOP
Numbers in parantheses are negative
WEST LOOP SUBMARKET HISTORICAL DIRECT VACANCY 20% 18% 16% 14% 12% 10% 8%
10.2%
11.8%
16.6%
15.8%
14.2%
13.9%
2004
2005
2006
2007
2008
2009
2010
2011
2012
12.9%
11.5%
2003
13.1%
17.3%
2%
14.4%
4%
14.6%
6%
0% 2013 2014 YTD
SECOND QUARTER 2014 | CHICAGO SUBMARKET SNAPSHOTS
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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 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 arelocated 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 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 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 THREE
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.
SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
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MB REAL ESTATE
ABOUT MB REAL ESTATE
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SECOND QUARTER 2014 | CHICAGO MARKET OVERVIEW
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