Research & Forecast Report DOWNTOWN CHICAGO | OFFICE First Quarter 2017
A Strong Opening Robert Patterson Research Analyst | Downtown Chicago
Chicago’s downtown office market Market Indicators Q1 2016 Q4 2016 CURRENT opened 2017 with yet another strong VACANCY 11.8% 12.0% 12.4% quarter of tenant demand, posting QTR ABSORPTION 203,482 -41,968 386,271 386,271 square feet of positive net YTD ABSORPTION 203,482 900,878 386,271 absorption as the market continues to RENTAL RATE $36.78 $37.97 $38.73 exude healthy fundamentals.
Despite the strong demand, the 2.4 million square feet of supply delivered to the market over the past six months with the opening Although some of this shadow space has already transitioned of 150 N. Riverside and 444 W. Lake has pushed the overall vacancy to vacant space, the majority of the relocations causing shadow rate up from 11.3 percent during the third quarter of 2016 to its space to become vacant space will occur over the next six current rate of 12.4 percent. months, meaning the market will gradually transition away For the second consecutive quarter, Chicago’s Central Business from its two-year run as a landlords’ market, inching closer to District added a trophy tower to the market, as John O’Donnell’s historical equilibrium near 13 percent vacancy. While tenants will 1,284,404 square foot development at 150 N. Riverside opened its have more space options over the second half of the year, rental doors for occupancy, triggering a 40-basis point increase in the rate growth is likely to flatten over the same period, with strong overall vacancy rate to 12.4 percent. The building was delivered with leasing activity during the first quarter in addition to anticipated approximately 83 percent of the building’s rentable area preleased, strong demand in the coming months likely precluding rates from indicating the market’s strong appetite for new supply after a dearth dropping. of new construction ranging from 2010 through late 2016. Leasing activity was robust during the first quarter, with the six Trends largest leases of the quarter consisting of tenants expanding their footprints amidst an increasingly strong job market. Overall, the CBD remained a landlord’s market during the first While the trend of the city’s largest users reducing their overall quarter as rent exceeded historic highs and minimal concessions footprints remains intact, the continued growth of Chicago’s were granted across all building classes. While vacancy has risen technology sector, in addition to the local economy’s strong substantially over the past two quarters by space that has yet to be performance, has led a number of smaller users to increase occupied in the new towers, the effective softening in the market their space requirements. The largest lease transaction of the will begin in the coming months as the entire 1.5 million square feet quarter consisted of Outcome Health signing a lease to occupy of shadow space created by the movement of tenants into the new 394,000 square feet at 515 N. State, followed by Nielsen’s lease developments becomes newly vacant space. for 215,000 square feet at 200 W. Jackson.
DISCLAIMER: For this quarter’s report and those following, Colliers has reclassified its building inventory in order to keep up-to-date with Chicago’s modernizing assets. Notably, our Class A Inventory now includes marquee assets in the Merchandise Mart and 600 W. Chicago, as recent & ongoing renovations at the buildings have led us to now consider them Class A assets. In all, we reclassified a significant number of buildings within our inventory to classes we believe today’s market deems accurate. We plan on making no additional changes in the near future and will alert our readership upon future changes in order to ensure the statistics within our report maintain clarity and accuracy. Trends (continued)
Chicago’s office sector experienced another slow quarter of investment sales activity, with four properties totaling 1,698,445 square feet trading. The increasing interest rate environment, transitioning office market, and high-pricing achieved in recent sales offer potential buyers few opportunities to attain strong yields in the short term. Despite the limited number of investment sales transactions, Blackstone’s recently announced $500 million investment to revamp the Willis Tower and 601W Companies ongoing $500 million rehabilitation of the Old Post Office illustrate that investors strongly believe in Chicago’s long-term health.
Outlook
Looking ahead, fundamentals suggest that both tenants and landlords feel confident in the future despite the risks increased property taxes, anticipated interest rate increases, local political strife and crime rates pose to Chicago’s market. Continued corporate migration into the CBD will continue to be a key factor for the market moving forward as approximately 2.65 million square feet of Class A product is set to hit the market by the end of 2018 and many traditional tenants are actively working to downsize their spaces to reduce costs. As this additional supply hits the market and several large tenants are scheduled to downsize their real estate footprints, such as CNA Financial cutting its space by approximately 450,000 square feet via its 2018 relocation, it is likely that the market will shift further in favor of tenants by the end of 2018. Despite momentum moving in tenants favor, the health of Chicago’s downtown market appears to have a bright future. The announced headquarter relocations into the CBD by Hickory Farms from Ohio and EXP from the Toronto area, coupled with Nielsen’s decision to relocate its suburban operations into the CBD highlighted Chicago’s ongoing trend of attracting corporations of all varieties to its urban core, as Chicago’s highly-skilled workforce, diverse local economy and world class infrastructure continue to make the city extremely attractive to employers.
2 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Statistical Highlights Net Absorption & Vacancy | Chicago CBD Office Market The CBD opened 2017 with 386,271 square feet of positive net absorption during the first quarter, bringing the total amount 1,600,000 14.5% 1,451,216 14.3% of positive net absorption posted over the past 12 months to 1,400,000 1,363,241 1,319,790 14.0% 13.9% 1,287,149 square feet of positive demand. Tenant flight to quality 1,200,000 1,600,000 14.5% Vacanc 13.5% 1,451,216 13.5% remained extremely visible over the same period, as the CBD’s 1,000,000 14.3% 1,400,000 1,363,241 900,878 1,319,790 822,083 Class A inventory reported 1,611,865 square feet of positive net y 14.0% 800,000 13.9% 12.9% 13.0% 1,200,000 Square Footage
absorption, Class B inventory posted 285,124 square feet of Vacanc 600,000 13.5% 499,598 12.5% 13.5% negative net absorption, and Class C inventory experienced 1,000,000 900,878 12.4% 400,000 822,083 386,271 35 y 800,000 13.0% 39,592 square feet of negative net absorption. 12.9% 12.0% 12.0% 12.0% 200,000 31 Square Footage 600,000 30 0 499,598 11.5% 12.5% The average direct asking rental rate in the CBD currently 2011 2012 2013 26 2014 2015 26 2016 27 2017 12.4% 400,000 386,271 resides at $38.73 per square foot gross, an increase from 25 Absorption Vacancy 12.0% 12.0% 12.0% $37.97 per square foot in the fourth quarter. The average overall 200,000 20 19 Source:0 CoStar, Colliers International Research 11.5% asking rental rate increased by $1.40 since the third quarter of 2011 2012 2013 2014 2015 2016 172017 15
2016, driven by the delivery of the two A-plus towers and their Number of Sales Absorption Vacancy corresponding market-high asking rates. 10 9
The CBD’s overall vacancy increased by 40 basis points during $50.00 5 4 the first quarter, ending the year at 12.4%. The increase in $45.00 vacancy was caused by 150 N. Riverside’s delivery of 1,284,404 $40.00 0 Asking$35.00 Gross Rental2010 Rates2011 | 20Chicago12 20 13CBD 20Office14 2015 Market 2016 2017 YTD square feet to the market. Over the next two quarters, the $30.00 $50.00 Class A Class B Class C vacancy rate is likely to increase slightly, as existing shadow $25.00 $45.00 space becomes newly vacant space when tenants relocate to $20.00 $40.00 $15.00 the recently completed office towers. $35.00 $10.00 $30.00 $5.00 $25.00 $0.00 4,000,000 2011 2012 2013 2014 2015 2016 2017 $20.00 3,652,913 3,500,000 $15.00 Class A Class B Class C Average 3,000,000 $10.00
$5.00 2,500,000
$0.00 2,000,000 1,892,460 1,897,981 2011 2012 2013 2014 2015 2016 2017 1,504,364 1,500,000 1,284,404 Square Footage Class A Class B Class C Average 1,081,702 1,000,000 933,710 Source: CoStar, Colliers International Research665,000 479,000 531,190 500,000 0 0000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
Submarket Vacancy Rates | Chicago CBD Office Market 20.0%
15.0% 14.3%
) 13.6% 13.5% 12.6%12.5% 12.6% (%
12.0% 12.0% 11.2% 11.7% 10.0% 10.0% 9.6% 9.8% 8.5% 9.0% Vacancy
5.0%
0.0% Central Loop East Loop North Michigan Ave. River NorthWest Loop
2015 2016 2017
Source: CoStar, Colliers International Research
4,000,000 30
3,500,000 3,698,756 25 Research & Forecast Report | First Quarter 2017 | Downtown3,000,00 0Chicago / Office | Colliers International 3 20 2,500,000 2,525,051 2,000,000 15
1,500,000 1,698,445 9 10 1,000,000 445 500,000
0 0 As of 1Q - 2015 As of 1Q - 2016 As of 1Q - 2017
SF of Transactions # of Transactions Large Blocks of Availability
Contiguous blocks of space available on a direct basis Large Block Availabilities | Chicago CBD Office Market decreased by one during the first quarter of 2017, bringing the total available to 31 such blocks. Large block composition 100,000+ square feet currently resides at 15 Class A blocks and 16 Class B blocks. BUILDING CLASS SIZE (SF) FLOOR TYPE The largest block of contiguous space available on a direct basis CENTRAL LOOP exists at 625 W. Adams Street as the building is currently being 125 S. Clark B 289,141 2-14 Direct developed on speculation, meaning that it has broken ground 203 N. LaSalle B 277,349 14-20 Direct on construction despite having yet to attain any preleasing. 2 N. LaSalle A 216,187 2-11 Direct Therefore, the entire 434,931 square foot development is 175 W. Jackson B 172,235 17-20 Direct currently the largest block of contiguous space available in the 222 N. LaSalle B 165,866 3-6 Direct city, followed by a 383,868 square foot block of space at 311 W. Monroe and a 366,506 square foot space available at 333 1 N. Dearborn B 156,612 5-7 Direct S. Wabash. 175 W. Jackson B 135,369 8-9 Direct EAST LOOP The number of high-rise view spaces that are available in 333 S. Wabash B 366,506 31-36 Direct top-tier assets has diminished significantly over the past few 200 E. Randolph A 354,127 32-42 Direct years; however, the new development at 151 N. Franklin has a 257,000 square foot block of contiguous space available 333 S. Wabash B 183,253 18-24 Direct between the 26th and 35th floors, and 333 S. Wabash in the 233 N. Michigan B 154,082 22-26 Direct resurgent East Loop market has a 366,506 square foot block 200 E. Randolph A 131,268 68-71 Direct of space available for mid-2018 occupancy between floors 31 333 S. Wabash B 130,895 4-8 Direct and 44. Additionally, 233 S. Wacker has 165,153 square feet of 401 S. State B 102,651 4-6 Direct space available on floors 50-53, which is unique in that it is the NORTH MICHIGAN AVENUE only large block of contiguous high rise space available in the ------coveted West Loop submarket that doesn’t have the extremely RIVER NORTH high rental rates seen in new developments. 350 N. Orleans B 217,822 3-6 Direct 222 Merchandise Mart B 154,295 4-5 Direct Class A Large Blocks | Chicago CBD Office Market WEST LOOP 625 W. Adams A 432,169 7-20 Direct 311 W. Monroe B 383,868 2-14 Direct 15 large direct blocks of 300 S. Riverside B 265,093 2-6 Direct CBD 151 N. Franklin A 257,016 26-35 Direct Class A space 71 S. Wacker A 246,872 9-17 Direct consisting of 2,789,519 550 W. Jackson A 170,606 2-8 Direct square feet 233 S. Wacker A 165,153 50-53 Direct 200 W. Monroe B 158,698 7-12 Direct 12 500 W. Madison A 155,807 4-7 Direct large blocks of 30 S. Wacker A 129,216 31-35 Direct West Loop 111 S. Wacker A 112,052 12-16 Direct Class A space consisting of 1 S. Dearborn A 106,624 14-17 Direct 2,087,937 444 W. Lake A 106,292 44-49 Direct square feet 222 W. Adams A 104,058 30-34 Direct 120 S. Riverside A 102,072 11-14 Direct 4 large blocks of West Loop High Rise Class A space consisting of 504,719 square feet
4 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International 35 31 30 26 26 27 25
20 19 17 15 Number of Sales
10 9
5 4
0 2010 2011 2012 2013 2014 2015 2016 2017 YTD Class A Class B Class C
4,000,000 3,652,913 3,500,000
3,000,000
2,500,000
2,000,000 1,892,460 1,897,981 1,504,364 1,500,000 1,284,404 Square Footage 1,081,702 1,000,000 933,710 665,000 479,000 531,190 500,000 0 0000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
20.0%
15.0% 14.3%
) 13.6% 13.5% 12.6%12.5% 12.6% (%
12.0% 12.0% 11.2% 11.7% 10.0% 10.0% 9.6% 9.8% 8.5% 9.0% Vacancy
5.0%
0.0% Central Loop East Loop North Michigan Ave. River NorthWest Loop
2015 2016 2017 Lease and Sale Highlights
Leasing activity during the first quarter remained strong, as the CBD Investment Sales Activity | Chicago CBD Office Market posted 11 lease transactions of 40,000 square feet or greater, making (Transactions 50,000 SF+) it the most active quarter on a transaction volume basis since the first quarter of 2016. Additionally, the first quarter included one of 4,000,000 30 the largest relocations in several years as Outcome Health, formerly 3,500,000 3,698,756 25 ContextMedia, signed a lease to relocate from its existing 66,000 3,000,000 20 square feet in 330 N. Wabash to 394,000 square feet at 515 N. State. 2,500,000 2,525,051 This transaction will prove particularly influential to the market, as 2,000,000 15 1,500,000 1,698,445 it will generate approximately 328,000 square feet of positive net 9 10 absorption when the company moves into its new space during the 1,000,000 445 fourth quarter of this year. Additionally, Nielsen signed a lease to 500,000 0 0 expand its current footprint of 71,000 square feet at 200 W. Jackson As of 1Q - 2015 As of 1Q - 2016 As of 1Q - 2017 by 144,000 square feet, as it jumped on the trend of companies SF of Transactions # of Transactions relocating operations from the suburbs into the Central Business District. In all, Nielsen will vacate approximately 190,000 square feet Source: CoStar, Colliers International Research of space in the suburbs in a consolidation that will result in a 215,000 square foot presence at 200 W. Jackson. Sales Activity | Chicago CBD Office Market Investment sales activity within Chicago remained sluggish in the first quarter, with the sale of 181 W. Madison to China-based HNA Group 35 for approximately $360,000,000 ($384.33/SF) being the sole Class 31 30 A transaction of the quarter. While investors will continue to remain 26 26 27 attracted to the significant discount in pricing Chicago’s assets offer 25 relative to their counterparts on the coasts, the rising interest rate 20 19 environment will ensure that the most active period of investment 35 17 15 31 sales activity of this cycle is in Chicago’s past. Number of Sales 30 26 26 27 10 9 Construction 25 5 20 19 4 After the recent deliveries of 444 W. Lake and 150 N. Riverside, 17 0 15 Chicago’s construction landscape has been substantially altered, as Number of Sales 2010 2011 2012 2013 2014 2015 2016 2017 9 YTD there are now only two traditional office buildings under construction 10 Class A Class B Class C within the Loop that will combine to deliver approximately 1.2 million 5 4 square feet of space to the market in mid-2018. Outside of the Loop in Source: CoStar, Colliers International Research 0 the Fulton Market submarket, construction activity continues to gain 2010 2011 2012 2013 2014 2015 2016 2017 YTD traction, as Sterling Bay’s “Vendor Village” development at 210 N. Class A Class B Class C Carpenter Street broke ground during the first quarter and a number 4,000,000 3,652,913 of proposed sites received zoning approval from the city to move 3,500,000 forward with construction in the coming months. 3,00New0,000 Construction | Chicago CBD Office Market 2,500,000 4,000,000 Construction is well underway at the John Buck Company’s new 3,652,913 2,000,000 1,892,460 1,897,981 3,500,000 35-story office tower at 151 N. Franklin in the West Loop. The 1,504,364 1,500,000 1,284,404
Square Footage 3,000,000 development has secured anchor tenants CNA Financial and law firm 1,081,702 1,000,000 933,710 2,500,000 665,000 Hinshaw and Culbertson to leases for approximately 300,000 square 479,000 531,190 500,2,000000,000 1,892,460 1,897,981 feet and 130,000 square feet, respectively. 151 N. Franklin will deliver 1,504,364 0 0000 1,500 0,000 1,284,404 807,355 square feet to the market in mid-2018 and will look to land Square Footage 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20151,081,7022016 2017 1,000,000 933,710 YTD 665,000 another large anchor tenant throughout 2017, as it is currently 53 479,000 531,190 500,000 percent preleased. 0 0000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 20.0% Source: CoStar, Colliers International Research
15.0% 20.0% 14.3%
) 13.6% 13.5% 12.6%12.5% 12.6% (%
12.0% 12.0% 11.2% 11.7% 10.0% 10.0% 9.6% 9.8% 15.0% 8.5% 9.0% 14.3% ) Vacancy 13.6% 13.5% 12.6%12.5% 12.6% (%
12.0% 12.0% 11.2% 11.7% 10.0% 5.0%10.0% 9.6% 9.8% 8.5% 9.0% Vacancy
5 Research & Forecast Report | First Quarter 2017 | Downtown0.0% 5.0% Chicago / Office | Colliers International Central Loop East Loop North Michigan Ave. River NorthWest Loop
0.0% 2015 2016 2017 Central Loop East Loop North Michigan Ave. River NorthWest Loop
2015 2016 2017
4,000,000 30
3,500,000 3,698,756 4,000,000 2530 3,000,003,5000,000 3,698,756 2025 2,500,003,000 0,000 2,525,051 20 2,000,002,5000,000 15 2,525,051 1,500,002,000 0,000 1,698,445 15 9 10 1,500,000 1,698,445 1,000,000 9 10 44 1,000,000 5 500,000 445 500,000 0 0 0 As of 1Q - 2015 As of 1Q - 2016 As of 1Q - 2017 0 As of 1Q - 2015 As of 1Q - 2016 As of 1Q - 2017 SF of Transactions # of Transactions SF of Transactions # of Transactions Construction (continued)
A separate West Loop mid-rise office tower is well underway after a joint venture of White Oak Realty Partners and Vanderbilt Investment Properties secured a $97.2 million dollar construction loan to break ground on a new 20-story, 434,931-square-foot office building at 625 W. Adams Street during the second quarter of 2016. The development broke ground on speculation, and has yet to secure any preleasing commitments from tenants. The building is scheduled to deliver in April 2018 and will compete with John Buck’s Development at 151 N. Franklin Street for anchor tenants throughout 2017.
During the fourth quarter of 2016, developer Sterling Bay broke ground at 110 N Carpenter Street on a new 608,000-square-foot loft office building in the rapidly emerging Fulton Market submarket. Earlier in the year, McDonald’s Corporation announced that it will move its world headquarters out of suburban Oak Brook and 625 W. ADAMS STREET RENDERING into the planned development, agreeing to occupy approximately 485,000 square feet upon the development’s completion in 2018. As the building’s sole office tenant, McDonald’s has since worked with Sterling Bay to design the property according to its needs. The development will bring approximately 2,000 new jobs to the Fulton Market neighborhood, helping to make it one of the country’s hottest submarkets.
During the first quarter, Sterling Bay broke ground on a 12-story, 224,354-square-foot office building at 210 N. Carpenter in the Fulton Market submarket. Coined “Vendor Village,” Sterling Bay plans to fill the building with companies that will require downtown offices within a close proximity to McDonald’s new headquarters building, as their suburban offices near McDonalds longtime suburban HQ will lose their effectiveness when the fast-food giant leaves the area in 2018. “Vendor Village” has yet to secure any preleasing commitments and is scheduled for a late-2018 delivery. GENSLER RENDERING OF 110 N CARPENTER STREET Rehabilitation work on the Old Main Post Office continued during the first quarter of 2017, beginning one of the largest redevelopment projects in the country. New owner 601W Cos. has announced plans to pour $500 million into the 2.7 million-square-foot building, which has been left empty and decaying since 1995. This redevelopment, which would transform the property into an office building consisting of approximately 2.5 million square feet, is slated to be completed in 2020 and includes replacing the building’s existing mechanical systems, removing asbestos, fixing the building’s façade, and several other significant rehabilitation projects. The landlord is currently courting several of the city’s largest tenants, and will look to secure significant preleasing commitments over the next several years.
GENSLER RENDERING OF OLD MAIN POST OFFICE REDEVELOPMENT
6 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Significant Lease and Sale Activity
Chicago CBD Office Leasing Activity – 1Q 2017
TENANT BUILDING SUBMKT CLASS SIZE (SF) DEAL TYPE Outcome Health 515 N. State A RN 394,000 New Lease Nielsen 200 W. Jackson B WL 215,000 Renewal/Expansion PPM America 225 W. Wacker A WL 101,000 Renewal/Expansion Grainger 500 W. Madison A WL 60,000 Renewal/Expansion BDT Capital Partners 401 N. Michigan A NMA 58,000 Renewal/Expansion Strata Decision Technology 200 E. Randolph A EL 51,168 Renewal/Expansion Northwestern University 645 N. Michigan B NMA 51,637 Renewal The National Restaurant Association 233 S. Wacker A WL 51,000 New Lease The American Academy of Art 332 S. Michigan C EL 51,000 Renewal Imanage 540 W. Madison A WL 48,307 Expansion Dyson 1330 W. Fulton Market A FM 40,686 New Lease
Chicago CBD Office Investment Sales – 1Q 2017
STATUS ADDRESS SUBMKT CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER SOLD 181 W. Madison CL A 936,683 $360,000,000 $384.33 CBRE Global Investors HNA Group SOLD 680 N. Lakeshore Drive NMA B 493,064 $109,500,000 $222.08 Golub TopMed SOLD 303 W. Erie RN B 70,000 $15,000,000 $214.29 Cedar Street Alvarez & Marsal SOLD 205 W. Randolph WL C 198,698 $28,700,000.00 $144.44 Farbman Group Alvarez & Marsal UC 150 N. Wacker WL B 246,613 TBD TBD American Realty Advisors TBD UC 125 S. Wacker WL B 518,276 TBD TBD MetLife TBD FS 540 W. Madison WL A 1,111,925 TBD TBD Joint Venture of David TBD Werner RE, Joseph Mizrachi, Carlton Associates FS 225 W. Randolph WL B 849,252 TBD TBD Kushner Companies, RBS TBD Greenwich Capital FS 1-33 S. State EL B 833,000 TBD TBD Madison Capital, Kohlberg TBD Kravis Roberts & Co. FS 111 N. State EL B 700,000 TBD TBD The Macy's Department TBD Stores Company FS 300 S. Wacker WL A 563,638 TBD TBD Beacon Capital Partners TBD FS 300 N. Elizabeth FM B 121,751 TBD TBD Sterling Bay TBD FS 320 N. Elizabeth FM B 41,853 TBD TBD Sterling Bay TBD CL = Central Loop EL = East Loop NMA = North Michigan Avenue RN = River North WL = West Loop FM = Fulton Market FS = For Sale UC = Under Contract
7 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International CL WILLOW AR K LA SA LLE EUGENIE
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P VACANCY 11.6% 11.2% 12.0%
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WACKER 157,344 287,119 (274,169) 90 YTD ABSORPTION RENTAL RATE $35.96 $36.85 $37.22 FULTON WACKER SOUTH WATER
94 SON
Submarket HighlightsET & Forecast LAKE LAKE LAKE LAKE ST After posting 287,119EAS squareT feet LO of positiveOP net absorption41 throughout 2016, the Central Loop posted
RANDOLPH RANDOLPH RANDOLPH RANDOLP274,169H square feet of negative net absorption duringHARBOR the first quarter of 2017. The substantial amount TED
GAN of negative absorption was driven by DLA Piper’s move from 203 N. LaSalle in the Central Loop to the CINE ENTER GREEN RA PE ORIA WEST CENTRAL West Loop’s new tower at 444 W. Lake during the quarter, as DLA left behind approximately 293,000 MOR
WASHINGTON HALS WASHINGTON WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN S CARP LOOP LOOP square feet of newlyP vacantARK space upon its departure.
MADISON MADISON MADISON MADISON MADISONThe Central Loop likely reached its tightest point in this building cycle during the fourth quarter of 2016, as DLA Piper’s move out of the submarket precedes similar large relocations to the West Loop by Cars. com and law firm Seyfarth Shaw LLP in the coming months in addition to Hinshaw & Culbertson’s exit MONROE S MONROE MONROE MONROE
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Looking ahead, the Central Loop submarket will continue to rely on its tenant-friendly rental rates relative JACKSON JACKSON JACKSON JACKSON to the West Loop and River North to attract and retain large office users. The submarket’s emerging GRANT technology community, highlightedP ARK by the recent leases of SpotHero and PowerReviews, will prove vital VAN BUREN VAN BUREN VAN BUREN VANto BUREN its health in the future. AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
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T KING DR Statistical Highlights Net Absorption & Vacancy | Central Loop Office Market The Central Loop’s aggregate vacancy rate increased by 80 basis points during the first quarter, landing at 12.0 percent. 1,000,000 16.0% 1,000,000 16.0% 14.3% 14.2% 14.3% 813,819 The submarket’s Class B inventory was responsible for the 800,000 14.0% 14.0% 14.0% 14.3% 14.2% 14.3% 813,819 14.0% overall increase, as Class B vacancy rose 140 basis points to 800,000 12.0% 12.0% 12.0% 600,000 518,087 11.2% 12.0% 12.0% 12.0% 13.2 percent during the quarter. Amidst the Class B vacancy Vacanc 600,000 11.2% 10.0% 400,000 518,087 increase, which was driven by DLA Piper’s move out of the 287,119 Vacanc 8.0% 10.0% 400,000 y submarket, demand across Class A and C inventory was 200,000 287,119 8.0% Square Footage 68,369 6.0% 36,174 y stagnant, posting 8,336 square feet and 13,857 square feet of 200,0000 4.0% positive net absorption, respectively. Square Footage 68,369 36,174 6.0% -200,0000 (110,189) 2.0% 4.0% (274,169) The average direct asking rent in the submarket currently -2-40000,0,00000 (110,189) 0.0% 2011 2012 2013 2014 2015 2016 2017 2.0% resides at $37.22 per square foot gross, up from $36.85 (274,169) -400,000 Absorption Vacancy 0.0% posted in the fourth quarter of 2016. The rental rate increase 2011 2012 2013 2014 2015 2016 2017 Source: CoStar, Colliers International Research was driven by all classes within the submarket, as landlords Absorption Vacancy continued to take advantage of the citywide landlord friendly environment. Rental growth within the submarket is likely to flatten in the coming months as several large tenants move out of the submarket and shadow space created by the West Loop’s $50.00 new towers hits the market. Asking$45.00 Gross Rental Rates | Central Loop Office Market $40.00 $50.00 $35.00 Large Blocks of Availability $45.00 $30.00 $40.00 $25.00 There are currently seven (7) large blocks of contiguous $35.00 $20.00 and direct space containing at least 100,000 square feet in $30.00 $15.00 $25.00 the submarket. Currently 125 S. Clark Street has a 289,141 $10.00 contiguous block of space available, which is one of the five $20.$500.00 largest blocks of available contiguous space in the CBD. The $15.$000.00 2011 2012 2013 2014 2015 2016 2017 property is currently undergoing a full-scale renovation and $10.00 Class A Class B Class C Average has landed coworking giant WeWork to occupy 112,000 square $5.00 $0.00 feet and local tech-darling SpotHero to occupy roughly 28,000 2011 2012 2013 2014 2015 2016 2017 square feet as the renovations are being completed. Additionally, Class A Class B Class C Average there is a 277,349 contiguous block of space available at 203 N. LaSalle, which recently completed $15 million in renovations to Source: CoStar, Colliers International Research the building’s lobby, tenant lounge, and exercise facility.
Construction Large Block Availabilities | Central Loop Office Market No new construction was delivered to the Central Loop during the quarter, however, architect-developer Thomas Roszak 100,000+ square feet announced plans to construct a 20-story, 224,300 square foot BUILDING CLASS SIZE (SF) FLOOR TYPE creative-loft office building at 145 S. Wells. Plans call for the 125 S. Clark B 289,141 2-14 Direct building to be constructed on the site of an existing parking 203 N. LaSalle B 277,349 14-20 Direct garage, but the developer has declared that construction will 2 N. LaSalle A 216,187 2-11 Direct not begin on speculation, or without a portion of the building 175 W. Jackson B 172,235 17-20 Direct preleased to future tenants. If the developer can secure 222 N. LaSalle B 165,866 3-6 Direct significant preleasing and the subsequent financing needed to get the building of the ground, it will mark the first new office 1 N. Dearborn B 156,612 5-7 Direct space delivered to the submarket since the delivery of 22 W. 175 W. Jackson B 135,369 8-9 Direct Washington in 2008. 131 S. Dearborn Street A 128,622 7-8 Direct 1 S. Dearborn Street A 106,624 14-17 Direct
9 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Lease and Sale Highlights
There were no significant lease transactions in the Central Loop submarket during the first quarter.
While Investment Sales Activity remained sluggish in the Central Loop on a volume basis, the submarket was home to the largest investment sales transaction within the CBD during the quarter. CBRE’s Global Investment Fund sold 181 W. Madison to Chinese conglomerate HNA Group for $360,000,000 ($384.33/SF) after the building spent a year on the market for sale.
Significant Lease and Sale Activity
Central Loop Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE 181 W MADISON STREET NO SIGNIFICANT LEASE TRANSACTIONS
Central Loop Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
SOLD 181 W. Madison Street A 952,559 $360,000,000 $384.33 CBRE Global Investors HNA Group
10 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International CL WILLOW AR K LA SA LLE EUGENIE
CONCORD CONCORD
CONCORD VINE NORTH
NORTH NORTH NORTH R WEED STO ON A 1000 FEET ARK YT BURTON
DA BLACKHAWK FREMONT TH P WICK LS BLACKHAWK AND
OGDEN NOR
WEL 300 METERS ORLEANS WIEL SEDG AND
EASTMAN WK SCHILLER CLEVEL MOHA HUDSON EVERGREEN EVERGREEN BANKS CHIE TH BRANCH GOETHE RIT NOR
HOOKER SC SCOTT OT SCOTT EVERGREEN T
DIVISION DIVISION DIVISION ST ONE
CHER ELM ELM ELM RY CEDAR HILL RUS S HICK MAPLE BLIS H HOBBIE BELLEVUE ORY WENDELL HAINES East Loop OAK OAK OAK WALTON WALTON The East Loop possesses a dynamic inventory base that includes office towers MICHIGAN LOCUST interspersedDELAWARE amongst residential condominium buildings. With Millennium Park,
CHESTNUT T CHESTNUT E WICK AN DER ROHE RABEE LL ARK R Y FRY the city’s largest public space, serving as the submarket’s focal point, the East Loop S V CL DEARBORN SA DE WIT LA HUDSON SEDG INSTITUTE PL. PEARSON MA SING
E S LA MIE
L LE offers a unique office environment that is conducive to the work-life balance often
I ENTER CHICAGO
S CHICAGO
M E
GAN SUPERIOR CARP desired by the tenants that office there. L Y
SUPERIOR T A
HURON GREEN K MOR TAT E
N AIRBANK F S S H
TED Although the East Loop’s distinct culture continues to remain
E ANGAMON O
S HURON R
C E KINGSBUR
attractive to moreI eclectic office tenants such as advertising
HALS D Market Indicators Q1 2016 Q4 2016 CURRENT PE ORIA
AIR R
F NORTH Ke ERIE I V firms, not-for-profitI organizations and educational institutions, ERIE E n . CL H n e d N VACANCY 13.1% 12.6% 12.5% ST
ONTARIO recently,ASH landlords of theMICHIGAN submarket have been successful in G B RUS
y A E x p w OHIO RIVER retainingWA and attracting traditional office space users by offering QTR ABSORPTION 142,756 (35,095) 27,958
OHIO M AVENUE G more affordable space options relative to those available in
UR y NORTH YTD ABSORPTION 142,756 262,585 27,958 GRAND E GRAND the Central and West Loop. The submarket is bordered by the
McCL H
T $33.42 $34.30 $34.55 ILLINOIS Chicago River on the north, Van Buren Street on the South, Lake RENTAL RATE LS HUBBARD Michigan on the east, and State Street on the west. ORLEANS FRANKLIN WEL
HUBBARD TH CITY FRONT NEW ARK AZA DRIVE P
NOR PL NORTH WATER PE ORIA KINZIE KINZIE Submarket Highlights & Forecast WACKER 90 The East Loop followed a robust 2016 with an uninspiring first quarter
FULTON WACKER SOUTH WATER of 2017, reporting 27,958 square feet of positive net absorption, which pushed the submarket’s vacancy rate down ten basis points to 12.5 94 SON LAKE LAKE LAKE LAKE ET percent. After averaging 250,892 square feet of positive net absorption ST 41 over the previous six quarters, the East Loop’s first quarter stands out EAST LOOP as a slight hiccup for a submarket in the midst of an extremely strong RANDOLPH RANDOLPH RANDOLPH RANDOLPH HARBOR run. TED GAN CINE ENTER GREEN RA
PE ORIA WEST CENTRAL MOR
WASHINGTON HALS WASHINGTON WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN
S The East Loop’s recent success has been propelled by its Class CARP LOOP LOOP P ARK A assets, as the Aon Center along with Prudential Plaza have been MADISON MADISON MADISON MADISON MADISON able to attract large tenants such as Kraft Heinz, Wilson Sporting Goods, and Clark Hill PLC over the past year to occupy large blocks
MONROE S MONROE MONROE MONROE of space in the submarket. However, as these Class A buildings have E AINE LL ON attracted a substantial number of tenants, they are now left with few E ASH LS FERSON B CKER SPL SA ARK
TAT available spaces for such tenants, which may slow momentum within FRANKLIN DE JEF CLINT CANAL WA WEL LA DEARBORN CL WA MICHIGAN ADAMS ADAMS S the submarket as tenants shy away from its Class B inventory. The
JACKSON JACKSON JACKSON JACKSON East Loop’s Class B inventory will largely determine the submarket’s GRANT metrics throughout 2017 given the limited number of quality options P ARK left across its Class A inventory and the lack of significant demand for VAN BUREN VAN BUREN VAN BUREN VAN BUREN Class C space within the submarket AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
VERNON PARK LS SA ARK YMOUTH BALBO INANCIAL PL CL FEDERAL F LA WEL DEARBORN
POLK
ABERDEEN POLK 8TH FERSON R ENTER JEF CABRINI CABRINI GAN LER ARK TER CARP MIL MOR E P 9TH ASH B
TAYLOR TAT WA MICHIGAN S
11TH COLUMBUS
ROOSEVELT ROOSEVELT
12TH PL RY GAN O’BRIEN 90 SOLIDARITY
MOR 13TH 13TH NEWBER MAXWELL MAXWELL MAXWELL McFETRIDGE YMOUTH ARK FEDERAL PL LIBERTY 94 CL 14TH 14TH 14TH
y R n a D RAIRIE P
14TH PL 14TH PL
15TH PL y w p x E n a
16TH 16TH LA KE SHORE DRIV S
LER 17TH RY AINE ON
MIL 17TH FERSON PE ORIA
17TH PL SPL JEF CLINT DE FEDERAL NEWBER DEARBORN E 18TH 18TH 18TH
19TH T ON
CANAL 19TH CANALPOR NORMAL
Y 19TH PL T CLINT ENTER GAN
LER CULLERTON UME ANGAMON
MOR CULLERTON MIL CARP SHELB S PE ORIA RAIRIE CAL P E R UBLE ASH B ARK CHINA PL TAT
LUMBER S INDIANA WA MICHIGAN CL
CERMAK CERMAK H N
E 22ND PL RT TO OV ARCHER GR ALEXANDER
RINCE 23RD WENTWO P 23RD
23RD PL LUMBER
WA 24TH 24TH LL
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E NORMAL 24TH PL 24TH PL Stev enson Expwy CORB 55 ET
T KING DR Submarket Highlights & Forecast (continued) Net Absorption & Vacancy | East Loop Office Market Moving forward, the East Loop will continue to offer high- quality office space at discounted rental rates compared 500,000 18.0% 414,976 500,000 16.0% 18.0% to those seen in River North and the West Loop. While the 400,000 15.3% 15.6% 15.2% 15.0% 414,976 14.0% 16.0% submarket has experienced an extremely strong run in demand 400,000 15.6% 13.6% 15.3% 15.0% 15.2% 300,000 262,58512.6 % 12.5% 228,889 12.0% 14.0% for space over the past two years, it will be hard-pressed to 206,903 13.6% Vacanc 300,000 200,000 262,58512.6 % 10.0%12.5% lease the approximately 1.1 million square feet of space CNA 228,889 12.0% Vacanc
206,903 y 8.0% (750,000 square feet) and DDB Worldwide (350,000 square 10200,000,000 0 10.0%
Square Footage 27,958 feet) will combine to vacate in the second quarter of 2018. 6.0% y 100,000 0 8.0% 4.0% Square Footage 27,958 The submarket will likely remain stable, with vacancy slowly (46,154) -100,000 6.0% decreasing until mid-2018, when the submarket’s vacancy rate 0 (78,851) 2.0% 4.0% -200,000 (46,154) 0.0% will rise substantially. -100,000 2011 2012 2013 2014 2015 2016 2017 (78,851) 2.0%
Absorption Vacancy -200,000 0.0% Statistical Highlights 2011 2012 2013 2014 2015 2016 2017 Source: CoStar, Colliers International Research Class A vacancy in the East Loop decreased by 70 basis point Absorption Vacancy during the first quarter, landing at 11.1 percent. Since the fourth quarter of 2015, Class A vacancy within the East Loop has decreased from 16.2 percent to today’s 11.1 percent, highlighting $50.00 the strength of demand for Class A space in the East Loop. Asking$45.00 Gross Rental Rates | East Loop Office Market Meanwhile, Class B vacancy rose by 40 basis points to 14.5 $40.00 $50.00 percent during the quarter, while Class C vacancy decreased $35.00 $3$40.005.00 by 30 basis points to 10.4 percent. $2$45.000.00
$20.00 The average direct asking rate in the East Loop currently $35.00 $1$35.000.00 resides at $34.55 per square foot gross, up significantly from $10.00 $25.00 the $33.42 per square foot rate posted in the first quarter of $5.00 $20.00 2016. Rental Rate growth within the submarket has been driven $0.00 2011 2012 2013 2014 2015 2016 2017 by its Class A and B assets, which have increased by $0.83 $15.00 Class A Class B Class C Average and $2.62 since the first quarter of 2016. $10.00 $5.00
$0.00 Large Blocks of Availability 2011 2012 2013 2014 2015 2016 2017
Class A Class B Class C Average The number of available, large, contiguous blocks of space Source: CoStar, Colliers International Research available on a direct basis currently resides at seven blocks. The 366,506 square foot block of space at 333 S. Wabash is currently one of the largest available blocks of contiguous space throughout the city. Large Block Availabilities | East Loop Office Market
Construction 100,000+ square feet BUILDING CLASS SIZE (SF) FLOOR TYPE No new construction was delivered to the East Loop during the 333 S. Wabash B 366,506 31-36 Direct first quarter. 200 E. Randolph A 354,127 32-42 Direct 333 S. Wabash B 183,253 18-24 Direct 233 N. Michigan B 154,082 22-26 Direct 200 E. Randolph A 131,268 68-71 Direct 333 S. Wabash B 130,895 4-8 Direct 401 S. State B 102,651 4-6 Direct
12 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Lease and Sale Highlights
During the first quarter, Strata Decision Technology announced that it signed a lease to renew its existing 34,000 square feet space and expand by an additional 17,000 square feet at 200 E. Randolph. Additionally, The American Academy of Art stated that is has restructured and renewed its lease for approximately 51,000 square feet at 332 S. Michigan. As a whole, large leasing activity within the submarket has subsided over the past six months after experiencing dynamic leasing activity throughout late 2015 and the first nine months of 2016.
Investment Sales activity gained momentum during the quarter as two properties were put on the market for sale. A joint venture of Madison Capital Partners and Kohlberg Kravis Roberts & Co. put the Sullivan Center on the market for sale nine months after acquiring the property and subsequently selling the property’s 200,000 square feet of retail space in 2016. Additionally, The Macy’s Department Stores Company placed approximately 700,000 square feet of its department store at 111 N. State for sale. The space at 111 N. State has a high probability of being converted to office space upon its eventual sale, which could dramatically impact the East Loop submarket by adding 700,000 square feet of newly vacant space to the submarket. SULLIVAN CENTER | 1 -33 S STATE STREET
Significant Lease and Sale Activity
East Loop Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE
Strata Decision Technology 200 E. Randolph A 51,168 Renewal/Expansion
The American Academy of Art 332 S. Michigan C 51,000 Renewal
East Loop Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
Madison Street Capital, FS 1-33 S. State A 833,000 TBD TBD TBD Kohlberg Kravis Roberts & Co.
FS 111 N. State A 700,000 TBD TBD The Macy’s Department Stores Company TBD
FS = For Sale
13 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International CL WILLOW AR K LA SA LLE EUGENIE
CONCORD CONCORD CONCORD VINE North Michigan Avenue NORTH NORTH NORTH NORTH R WEED STO ON A 1000 FEET ARK YT BURTON The North Michigan Avenue submarket possesses a unique building composition
DA BLACKHAWK FREMONT TH P WICK LS BLACKHAWK AND
OGDEN NOR
WEL 300 METERS ORLEANS SEDG WIEL made up of hotels, retail space, office buildings, medical facilities and residential AND EASTMAN WK SCHILLER properties. This, along with its peripheral location, makes it an appealing home for CLEVEL MOHA HUDSON EVERGREEN EVERGREEN BANKS
less traditionalCHIE office tenants. TH BRANCH GOETHE RIT NOR The submarket’s small office tenant base is composed HOOKER SC SCOTT OT SCOTT EVERGREEN T primarily of advertising firms, media agencies and a growing Market Indicators Q1 2016 Q4 2016 CURRENT DIVISION DIVISION numberDIVISION ofST ONE medical office users that desire close proximity to VACANCY 11.8% 9.6% 8.5% CHER theELM large hospitals in the area. The submarket is bordered by ELM ELM RY Oak Street on the north, the Chicago River on the south, State 101,149 12,561 134,686 CEDAR QTR ABSORPTION HILL RUS S HICK MAPLE Street on the west and Lake Michigan on the east. BLIS H HOBBIE BELLEVUE 101,149 362,877 134,686 ORY WENDELL YTD ABSORPTION HAINES OAK OAK OAK RENTAL RATE $33.34 $34.77 $35.56
WALTON WALTON MICHIGAN LOCUST DELAWARE
CHESTNUT T CHESTNUT E WICK AN DER ROHE RABEE LL ARK R Y FRY S V CL DEARBORN SA DE WIT LA HUDSON SEDG INSTITUTE PL. PEARSON Submarket Highlights & Forecast MA SING
E S LA MIE
L LE
I ENTER CHICAGO
S CHICAGO
M The North Michigan Avenue submarket kicked off 2017 with another E
GAN SUPERIOR CARP L Y
SUPERIOR T A
HURON GREEN K solid quarter, posting 134,686 square feet of positive net absorption, MOR TAT E
N
AIRBANK F S S H TED
E ANGAMON O
S HURON which caused a 1.1 percent decrease in the submarket’s overall vacancy R
C E KINGSBUR I
HALS D PE ORIA
AIR R
F NORTH rate, currently residing at 8.5 percent. The submarket has undergone Ke ERIE I
V I ERIE E n . CL H n e d N
ST a dramatic transformation over the past 15 months, reporting 497,563
ONTARIO ASH MICHIGAN G B RUS
y A E x p w OHIO RIVER WA square feet of positive net absorption over the period, causing the
OHIO M
AVENUE G
UR submarket’s vacancy rate to decrease by a staggering 4.1 percent. y NORTH GRAND E GRAND
McCL H
ILLINOIS T LS The looming conversion of the recently sold Tribune Tower from an HUBBARD ORLEANS FRANKLIN WEL
HUBBARD TH CITY FRONT office building into a mixed-use asset will reduce the submarket’s overall NEW ARK AZA DRIVE P
NOR PL NORTH WATER PE ORIA office inventory and illustrate the submarket’s ability to retain tenants KINZIE KINZIE who are forced to vacate their existing spaces. The submarket will rely WACKER 90 on its relatively inexpensive rental rates to attract cost-conscious office users who are willing to operate at a considerable distance from the FULTON WACKER SOUTH WATER traditional Loop area.
94 SON LAKE LAKE LAKE LAKE ET ST EAST LOOP 41
RANDOLPH RANDOLPH RANDOLPH RANDOLPH HARBOR TED GAN CINE ENTER GREEN RA
PE ORIA WEST CENTRAL MOR
WASHINGTON HALS WASHINGTON WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN S CARP LOOP LOOP P ARK
MADISON MADISON MADISON MADISON MADISON
MONROE S MONROE MONROE MONROE E AINE LL ON E ASH LS FERSON B CKER SPL SA ARK TAT FRANKLIN DE JEF CLINT CANAL WA WEL LA S MICHIGAN DEARBORN ADAMS ADAMS CL WA
JACKSON JACKSON JACKSON JACKSON GRANT P ARK VAN BUREN VAN BUREN VAN BUREN VAN BUREN AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
VERNON PARK LS SA ARK YMOUTH BALBO INANCIAL CL PL FEDERAL F LA WEL DEARBORN
POLK
ABERDEEN POLK 8TH FERSON R ENTER JEF CABRINI CABRINI GAN LER ARK TER CARP MIL MOR E P 9TH ASH B
TAYLOR TAT WA MICHIGAN S
11TH COLUMBUS
ROOSEVELT ROOSEVELT
12TH PL RY GAN O’BRIEN 90 SOLIDARITY
MOR 13TH 13TH NEWBER MAXWELL MAXWELL MAXWELL McFETRIDGE YMOUTH ARK FEDERAL PL LIBERTY 94 CL 14TH 14TH 14TH
y R n a D RAIRIE P
14TH PL 14TH PL
15TH PL y w p x E n a
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LER 17TH RY AINE ON
MIL 17TH FERSON PE ORIA
17TH PL SPL JEF CLINT DE FEDERAL NEWBER DEARBORN E 18TH 18TH 18TH
19TH T ON
CANAL 19TH CANALPOR NORMAL
Y 19TH PL T CLINT ENTER GAN
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MOR CULLERTON MIL CARP SHELB S PE ORIA RAIRIE CAL P E R UBLE ASH B ARK CHINA PL TAT
LUMBER S INDIANA WA MICHIGAN CL
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T KING DR Submarket Highlights & Forecast (continued) Net Absorption & Vacancy | N Michigan Ave Office Market While its peripheral location and boutique office user base 400,000 have historically led to low leasing volume relative to other 362,877 35400,000,0000 14.7% 14.5% submarkets in the CBD, the submarket’s strong medical and 13.8% 13.6% 362,877 30350,000,0000 14.7% 14.5% 12.6% education-based tenants have helped the submarket rebound 13.8% 13.6% 25300,000,0000 217,675 Vacanc 199,694 12.6% from poor market fundamentals over the past two years. Over 200,000 9.6% 250,000 217,675 Vacanc 8.5% y the past nine months, large lease transactions by Northwestern 150,000 199,694 134,686 200,000 9.6%
Square Footage 100,000 University (51,637 square feet) and Lurie Children’s Hospital 8.5% y 150,000 134,686 30,005 (68,082 square feet) within the submarket have illustrated this 50,000 16,222 Square Footage 100,000 0 trend. 50,000 30,005 -50,000 16,222
-100,0000 (71,159) Moving forward, the submarket will continue to rely on 2011 2012 2013 2014 2015 2016 2017 -50,000 healthcare tenants drawn to the area’s medical infrastructure -100,000 (71,159) Absorption Vacancy consisting of the Rehabilitation Institute of Chicago’s recently 2011 2012 2013 2014 2015 2016 2017 completed $500 million facility at 630 N. McClurg Court and Source: CoStar, Colliers International ResearchAbsorption Vacancy Northwestern Memorial Hospital’s $300 million research centercurrently under construction in the submarket. The submarket’s ability to continue to transform itself into a medically-powered agglomeration economy will prove vital $50.00 to its office market, as the influx of supply in other markets Asking$45.00 Gross Rental Rates | N Michigan Ave Office Market will likely provide more options to tenants currently occupying $40.00 $3$55.000.00 space in the North Michigan Avenue submarket who desire to $3$40.005.00 be more centrally located. $2$45.000.00
$2$30.005.00 Statistical Highlights $1$35.000.00 $1$20.005.00 $5.00 The submarket’s 134,686 square feet of positive net absorption $20.00 $0.00 during the first quarter was powered by its Class B demand, $15.00 2011 2012 2013 2014 2015 2016 2017 which totaled 97,688 square feet of positive net absorption. $10.00 Class A Class B Class C Average Over the past five quarters, the submarket’s Class B assets $5.00 $0.00 have contributed approximately 47 percent of the submarket’s 2011 2012 2013 2014 2015 2016 2017 positive net demand, indicating strong tenant demand for Class Class A Class B Class C Average B space in the North Michigan Avenue submarket. Source: CoStar, Colliers International Research The average gross asking direct rental rate increased for the eighth consecutive quarter in the North Michigan Avenue submarket, increasing to $35.56 per square foot gross from $34.77 one quarter prior. Overall, the average gross asking rent Large Block Availabilities | N Michigan Ave Office Market across all classes in the submarket has increased by a healthy 100,000+ square feet 4.91 percent over the past 12 months, however, the submarket continues to remain a less expensive option for tenants than the BUILDING CLASS SIZE (SF) FLOOR TYPE Central Loop, River North, and the West Loop ------
Large Blocks of Availability
There are currently no large, contiguous blocks of space available within the North Michigan Avenue submarket.
Construction
No new construction was delivered to the North Michigan Avenue submarket during the first quarter. There are no office developments anticipated in the submarket in the near future.
15 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Lease and Sale Highlights
Large leasing activity within the North Michigan Avenue submarket gained momentum after a sluggish fourth quarter of 2016, as BDT Capital Partners renewed its existing lease and expanded into 58,000 square feet at 401 N. Michigan and Northwestern University renewed its lease for 51,367 square feet at 645 N. Michigan.
Investment sales activity remained slow during the first quarter, with the sale of 680 N. Lake Shore Drive being the sole transaction of the quarter within the submarket. Golub sold a large stake in the property to Florida-based TopMed Realty for $109,500,000 ($222.08/ SF). TopMed announced that it plans to make the property the “preeminent” medical office and research building in the city.
Significant Lease and Sale Activity
North Michigan Avenue Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE BDT Capital Partners 401 N. Michigan A 58,000 Renewal/Expansion 680 N. LAKE SHORE DRIVE
Northwestern University 645 N. Michigan B 51,637 Renewal
North Michigan Avenue Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
SOLD 680 N. Lake Shore Drive B 493,064 $109,500,000 $222.08 Golub & Co TopMed Realty
FS = For Sale
16 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International CL WILLOW AR K LA SA LLE River NorthEUGENIE
CONCORD CONCORD
CONCORD VINE NORTH NORTH River North continuesNORTH to be oneNORTH of the fastest growing submarkets in the CBD. The R WEED STO ON result of new office development, a boomingA residential community and most recently, 1000 FEET ARK YT BURTON
DA BLACKHAWK FREMONT TH P WICK LS BLACKHAWK an infiltration of the city’sAND technology companies, River North has transformed from
OGDEN NOR
WEL 300 METERS ORLEANS SEDG WIEL AND
a once fairlyWK undeveloped area consisting of warehouses and loft properties into a EASTMAN SCHILLER CLEVEL MOHA lively and dynamicHUDSON office environment. EVERGREEN EVERGREEN BANKS CHIE TH BRANCH GOETHE RIT
NOR River North now contains a mix of office options ranging from
HOOKER SC SCOTT Class B and C OTloft-style properties to its newest Class A trophySCOTT EVERGREEN T Market Indicators Q1 2016 Q4 2016 CURRENT
DIVISION office towers.DIVISION The range in office space options capturesDIVISION the ST ONE interest of both traditional and unconventional office users VACANCY 10.4% 9.8% 10.0% CHER ELM leadingELM to its low vacancyELM rate. The submarket’s boundaries RY QTR ABSORPTION (232,871) 66,404 (36,058) CEDAR include Oak Street on the north,HIL Lthe Chicago River on RUSthe S HICK MAPLE BLIS H (232,871) (129,976) (36,058) HOBBIE BELLEVUE YTD ABSORPTION ORY south and west and State Street on theWENDEL east.L HAINES OAK $37.81 $39.58 $40.31 OAK OAK RENTAL RATE
WALTON WALTON MICHIGAN LOCUST DELAWARE
CHESTNUT T CHESTNUT E WICK AN DER ROHE RABEE LL Submarket Highlights & Forecast ARK R Y FRY S V CL DEARBORN SA DE WIT LA HUDSON SEDG INSTITUTE PL. PEARSON MA SING
E S LA MIE
L LE River North continues to be one of Chicago’s best performing
I ENTER CHICAGO
S CHICAGO
M E
GAN SUPERIOR submarkets as its Class A inventory boasts the lowest vacancy CARP L Y
SUPERIOR T A
HURON GREEN K MOR TAT E
N rate of any Class A AIRBANK submarket in the CBD and the highest average F S S H TED
E ANGAMON O
S HURON R direct askingC rental rates in the city. Further cementing its status E KINGSBUR I
HALS D PE ORIA
AIR R
F NORTH Ke ERIE I
as the hub of Chicago’s burgeoning technologyV sector, River North I ERIE E n . CL H n e d N ST
ONTARIO ASH was home to MICHIGANthe largest lease transaction of the first quarter, as G B RUS
y A E x p w OHIO RIVER WA Outcome Health signed a lease to occupy 394,000 square feet at
OHIO M
AVENUE G
UR y NORTH 515 N. State. Outcome Health, one of Chicago’s fastest growing GRAND E GRAND McCL technologyH companies, is relocating and expanding from its current ILLINOIS T LS HUBBARD 66,000 square foot space at 330 N. Wabash, creating approximately WEL ORLEANS FRANKLIN
HUBBARD TH CITY FRONT NEW ARK 330,000 square feetAZA DRIVE of positive net absorption upon its relocation in P
NOR PL NORTH WATER PE ORIA KINZIE KINZIE the fourth quarter of this year.
WACKER 90
FULTON WACKER SOUTH WATER
94 SON LAKE LAKE LAKE LAKE ET ST EAST LOOP 41
RANDOLPH RANDOLPH RANDOLPH RANDOLPH HARBOR TED GAN CINE ENTER GREEN RA
PE ORIA WEST CENTRAL MOR
WASHINGTON HALS WASHINGTON WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN S CARP LOOP LOOP P ARK
MADISON MADISON MADISON MADISON MADISON
MONROE S MONROE MONROE MONROE E AINE LL ON E ASH LS FERSON B CKER SPL SA ARK TAT FRANKLIN LA DE JEF CLINT CANAL WA WEL CL WA DEARBORN MICHIGAN ADAMS ADAMS S
JACKSON JACKSON JACKSON JACKSON GRANT P ARK VAN BUREN VAN BUREN VAN BUREN VAN BUREN AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
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11TH COLUMBUS
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MOR 13TH 13TH NEWBER MAXWELL MAXWELL MAXWELL McFETRIDGE YMOUTH ARK FEDERAL PL LIBERTY 94 CL 14TH 14TH 14TH
y R n a D RAIRIE P
14TH PL 14TH PL
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LER 17TH RY AINE ON
MIL 17TH FERSON PE ORIA
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T KING DR Submarket Highlights & Forecast (continued) Net Absorption & Vacancy | River North Office Market River North projects to remain the strongest submarket in the CBD through 2017 as space remains extremely limited despite 50500,000,0000 16.0% 16.0% 415,786415,786 14.0% 14.0% having the highest rents in the city. The most significant 40400,000,0000 13.6%13.6% 13.1%13.1% challenge to River North’s status as the strongest submarket in 12.0%12.0% 12.0% 12.0% 30300,000,0000 Vacanc the CBD will come from the West Loop submarket as tenants 9.8% 10.0% 10.0% Vacanc 174,978 9.5% 9.8% 10.0% 10.0% 200,000 174,978 9.5% 9.0% are attracted to the four new properties the submarket will 200,000 132,786 9.0% 132,786 8.0% y 92,836 90,726 8.0% y 100,000 92,836 90,726 have delivered by the end of 2018. Square Footage 100,000 6.0% Square Footage 6.0% 0 0 4.0% Statistical Highlights (36,058) 4.0% (100,000) (36,058)2.0% (100,000) (129,976) 2.0% (200,000) 0.0% During the first quarter River North experienced 36,058 square 2011 2012 2013 2014 2015 2016 (129,976)2017 (200,000) 0.0% feet of negative net absorption, pushing the submarket’s 2011 2012 2013 2014 2015 2016 2017 Absorption Vacancy vacancy rate up 20 basis points to 10.0 percent. The catalyst Absorption Vacancy behind the negative net absorption was the submarket’s Class Source: CoStar, Colliers International Research A inventory, which reported 109,209 square feet of negative net absorption during the quarter, while Class B assets reported 37,781 square feet of positive net absorption and Class C assets posted 35,280 square feet of positive net absorption. $5Asking0.00 Gross Rental Rates | River North Office Market Despite the negative net absorption posted by River North’s $45.00 $50.00 Class A assets during the first quarter, Class A vacancy within $40.00 $3$45.005.00
River North resides at 7.7 percent, making it one of the tightest $3$40.000.00 submarkets in the city. Given the demand for high-quality space $2$35.00 in River North, it is likely that the submarket’s Class A vacancy $2$30.00 rate will trend downwards and finish 2017 at an extremely $1$25.005.00 $10.00 low rate after Context Media absorbs 394,000 square feet of $20.00 $5.00 currently vacant space. $15.00 $0.00 $10.00 2011 2012 2013 2014 2015 2016 2017
The average direct asking rental rate in the submarket currently $5.00 Class A Class B Class C Average resides at $40.31 per square foot gross, up from $39.58 posted $0.00 2011 2012 2013 2014 2015 2016 2017 during the fourth quarter of 2016. The rental rate increase was Class A Class B Class C Average driven primarily by the submarket’s Class A product, which experienced a $2.04 increase during the first quarter. Source: CoStar, Colliers International Research
Large Blocks of Availability
The number of available large, contiguous blocks of space Large Block Availabilities | River North Office Market available on a direct basis currently resides at two blocks. The largest block of space is located at 350 N. Orleans and 100,000+ square feet consists of 217,822 square feet. There is also a block of space BUILDING CLASS SIZE (SF) FLOOR TYPE available consisting of 154,295 square feet on the fourth and 350 N. Orleans B 217,822 3-6 Direct fifth floors of the Merchandise Mart. Additionally, Motorola 222 Merchandise Mart B 154,295 4-5 Direct Mobility recently placed 113,260 square feet on the 17th floor of the Merchandise Mart as available for sublease, meaning there are currently three options available for large tenants looking to occupy space in River North.
Construction
No new construction was delivered to River North during the first quarter. There is an eight- story, 56,000-square-foot Class A office building currently under construction at 412 N. Wells Street in River North. The building at 412 N. Wells is being developed on speculation by Chicago-based developer Centrum Partners and is projected to be completed by the end of 2017.
18 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Lease and Sale Highlights
Large leasing activity remained prominent in the submarket during the first quarter with the CBD’s largest lease of the quarter taking place in River North. Outcome Health’s 394,000-square-foot lease at 515 N. State removes the largest available block of space within the submarket and ensures that the submarket’s Class A vacancy rate will remain amongst the city’s lowest for the foreseeable future. The extremely limited availability of sizable blocks of space within the submarket makes large relocations into the submarket unlikely relative to other submarkets in the CBD.
Investment sales activity in River North remained sluggish during the first quarter of 2017, as the sole transaction of the quarter occurred when Cedar Street sold 303 W. Erie to Alvarez & Marsal for $15,000,000 ($214.29/SF).
Significant Lease and Sale Activity
River North Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE
Outcome Health 515 N. State A 394,000 New Lease
515 N. STATE STREET River North Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
SOLD 303 W. Erie B 70,000 $15,000,000 $214.29 Cedar Street Alvarez & Marsal
19 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International CL WILLOW AR K LA SA LLE EUGENIE
CONCORD CONCORD
CONCORD VINE NORTH
NORTH NORTH NORTH R WEED STO ON A 1000 FEET ARK YT BURTON
DA BLACKHAWK FREMONT TH P WICK LS BLACKHAWK AND
OGDEN NOR
WEL 300 METERS ORLEANS SEDG WIEL AND
EASTMAN WK SCHILLER CLEVEL MOHA HUDSON EVERGREEN EVERGREEN BANKS CHIE TH BRANCH GOETHE RIT NOR
HOOKER SC SCOTT OT SCOTT EVERGREEN T
DIVISION DIVISION DIVISION ST ONE
CHER ELM ELM ELM RY CEDAR HILL RUS S HICK MAPLE BLIS H HOBBIE BELLEVUE ORY WENDELL HAINES OAK OAK OAK
WALTON WALTON MICHIGAN West Loop LOCUST DELAWARE CHESTNUT T CHESTNUT E WICK AN DER ROHE RABEE LL ARK R Y FRY S V CL DEARBORN SA DE WIT LA SEDG HUDSON INSTITUTE PL. PEARSON MA SING
E S LA MIE
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LE The West Loop’s reputation as the CBD’s leading submarket is the result of it possessing
I ENTER CHICAGO
S CHICAGO
M E
GAN SUPERIOR the largest office inventory of any submarket, its proximity to public transit and tenant CARP L Y
SUPERIOR T A K HURON GREEN MOR TAT E
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AIRBANK F desire for the image associated with being locatedS on or near Wacker Drive, an addressS H TED
E ANGAMON O
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C E KINGSBUR I thatHALS has a long-standing positive reputation for office tenants. D PE ORIA
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V I ERIE E n . CL H n e d N ST
Further contributing to the submarket’s growth was the ONTARIO ASH MICHIGAN G B RUS
y A
development boom experienced over the past decade WA E x p w OHIO RIVER
OHIO M AVENUE G which added several highly-efficient, state-of-the-art Market Indicators Q1 2016 Q4 2016 CURRENT
UR y NORTH GRAND E trophyGRAND towers to building inventory. The West Loop is
11.7% 13.5% 14.3%McCL
VACANCY H
bordered on the north by Kinzie Street, on the south by T ILLINOIS LS 10,776 (241,248) 491,621 Van BurenHUBBARD Street, by Halsted Street on the west and Wells QTR ABSORPTION WEL ORLEANS FRANKLIN
HUBBARD TH CITY FRONT NEW ARK
street on the east. AZA DRIVE YTD ABSORPTION 10,776 66,612P 491,621 NOR PL NORTH WATER PE ORIA KINZIE KINZIE RENTAL RATE $39.71 $41.23 $42.34 WACKER 90
FULTON WACKER Submarket Highlights & ForecastSOUTH WATER
94 SON The West Loop submarket began theET year with 491,261 square feet of LAKE LAKE LAKE LAKE positive net absorption, powered byST the relocations of anchor tenants DLA Piper and McDermott Will &EAS Emery toT the LO recentlyOP delivered tower41
RANDOLPH RANDOLPH RANDOLPH RANDOLPH HARBOR at 444 W. Lake. After posting a vacancy rate as low as 11.1 percent in late TED GAN CINE ENTER GREEN RA PE ORIA WEST CENTRAL2016, the submarket’s vacancy rate has climbed to 14.3 percent due to MOR
WASHINGTON HALS WASHINGTON WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN S
CARP the delivery of 2,366,106 square feet of new supply to the market over LOOP LOOP P ARK the past two quarters. MADISON MADISON MADISON MADISON MADISON After delivering 1,081,702 square feet of space via the completion of
MONROE S MONROE MONROE444 W. Lake MONROEin the fourth quarter of 2016, the West Loop delivered E AINE
LL an additional 1,284,404 square feet during the first quarter of 2017, as ON E ASH LS FERSON B CKER SPL SA ARK
smaller tenantsTAT began to move into the new tower at 150 N. Riverside. MICHIGAN S DE JEF CLINT CANAL WA FRANKLIN LA WEL WA CL ADAMS ADAMS DEARBORN As 150 N. Riverside’s anchor tenants occupy their new spaces and each developments’ ancillary tenants gradually relocate over the next 12 JACKSON JACKSON JACKSON JACKSON months, approximately 1.3 million square feet of existing shadow space GRANT will become newly vacant space in theP submarket.ARK VAN BUREN VAN BUREN VAN BUREN VAN BUREN AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
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ABERDEEN POLK 8TH FERSON R ENTER JEF CABRINI CABRINI GAN LER ARK TER CARP MIL MOR E P 9TH ASH B
TAYLOR TAT WA MICHIGAN S
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y R n a D RAIRIE P
14TH PL 14TH PL
15TH PL y w p x E n a
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MIL 17TH FERSON PE ORIA
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19TH T ON
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RINCE 23RD WENTWO P 23RD
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E NORMAL 24TH PL 24TH PL Stev enson Expwy CORB 55 ET
T KING DR Submarket Highlights & Forecast (continued)
Net1,200, Absorption000 & Vacancy | West Loop Office Market 16.0% However, this future vacant space is largely accounted for in 960,90514.1 % 14.3% 14.0% the existing vacancy rate, as space that has yet to be occupied 1,1,02000,0,000000 13.5% 16.0% 12.9% 12.5% 14.3% in the new towers is accounted for as vacant, and many of 1,000,000 960,90514.1 % 11.7% 14.0% 12.0% 800,000 11.5% 13.5% Vacanc 12.9% 12.5% the smaller tenants are expanding into the new towers, largely 11.7% 12.0% 10.0% 800,000 579,580 11.5% Vacanc 600,000 offsetting the negative net absorption created by the anchor 491,621 y 579,580 445,517 10.0% 8.0% 600,000 y
Square Footage 491,621 tenants downsizing in their relocations. Therefore, the West 400,000 445,517 8.0% 6.0% Loop’s vacancy rate may climb slightly in the coming months, Square Footage 400,000 204,334 200,000 6.0% 204,334 66,412 4.0% however, the predominant increase in the submarket’s vacancy 200,000 66,412 4.0% rate has been realized in the current 14.3 percent vacancy rate. 0 2.0% 0 2.0% (85,980) (200,000) (85,980) 0.0% (200,000) 2011 2012 2013 2014 2015 2016 20170.0% The submarket is set to deliver an additional 1,242,286 square 2011 2012 2013 2014 2015 2016 2017 Absorption Vacancy feet of Class A+ space in mid-2018 with the deliveries of John Absorption Vacancy Buck’s 807,355 square foot tower at 151 N. Franklin and White Oak Realty’s 434,931 square foot building at 625 W. Adams. As Source: CoStar, Colliers International Research 151 N. Franklin is approximately 50 percent preleased and 625 W. Adams has yet to secure any preleasing, these developments combined will push the submarket’s vacancy rate upwards of Asking Gross Rental Rates | West Loop Office Market 15.3 percent if they are unable to secure substantial preleasing $50.000.00 $45.00 activity over the next 12 months. $45.00 $40.00 $40.00 $35.00 The West Loop has likely passed its tightest vacancy rate of $35.00 $30.00 this building cycle and will continue to soften moving into $30.00 $25.00 $25.00 2018 as additional supply is delivered. While strong leasing $20.00 activity in the submarket over the past six months illustrates $1$25.000.00 continued demand for quality space in the submarket, demand $10.005.00 will be hard pressed to keep up with the aggregate supply of the $1$50.00.00 $0$5.0.000 recently completed deliveries and those scheduled for 2018. 2011 2012 2013 2014 2015 2016 2017 $0.00 Additionally, the anticipated delivery of 2.5 million square feet 2011 2012 Class A 2013Class B Class2014 C Average 2015 2016 2017 of office space at the Old Post Office in 2020 or 2021 will Class A Class B Class C Average ensure that the submarket’s tightest window of this cycle has passed over a longer period. Source: CoStar, Colliers International Research
Statistical Highlights
The average direct asking rental rate in the West Loop Large Block Availabilities | West Loop Office Market continued to increase, rising from $41.23 per square foot gross to $42.34. The average direct asking rental rate in the 100,000+ square feet submarket has increased by $3.17 over the past two quarters, BUILDING CLASS SIZE (SF) FLOOR TYPE as the deliveries of 444 W. Lake and 150 N. Riverside have 625 W. Adams A 432,169 7-20 Direct pushed the submarket’s rental rate to its current all-time high. 311 W. Monroe B 383,868 2-14 Direct 300 S. Riverside B 265,093 2-6 Direct The West Loop reported positive 491,621 square feet of net absorption in the first quarter, however, the submarket’s 151 N. Franklin A 257,016 26-35 Direct vacancy rose by 80 basis points to 14.3 percent due to the 71 S. Wacker A 246,872 9-17 Direct delivery of 1,284,404 square feet. The submarket’s positive 550 W. Jackson A 170,606 2-8 Direct absorption was driven solely by its Class A inventory during 233 S. Wacker A 165,153 50-53 Direct the quarter, as its Class A assets reported 508,716 square feet 200 W. Monroe B 158,698 7-12 Direct of positive net absorption, while its Class B inventory posted 56 500 W. Madison A 155,807 4-7 Direct square feet of negative net absorption and its Class C portfolio 30 S. Wacker A 129,216 31-35 Direct experienced 17,039 square feet of negative net absorption. 111 S. Wacker A 112,052 12-16 Direct Large Blocks of Availability 1 S. Dearborn A 106,624 14-17 Direct 444 W. Lake A 106,292 44-49 Direct There are currently 15 large, contiguous blocks of space 222 W. Adams A 104,058 30-34 Direct available on a direct basis in the West Loop. The West Loop 120 S. Riverside A 102,072 11-14 Direct currently has two properties under construction that are contributing to the large block availability in the submarket.
21 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Construction
Riverside Investment & Development delivered a new 54-story, 1,284,404 square foot office tower at 150 N. Riverside Plaza to the West Loop submarket during the first quarter. The new tower was approximately 80 percent preleased upon delivery, with anchor tenants including William Blair & Company, Hyatt Hotels Corporation, and Navigant Consulting.
After breaking ground during the first quarter of 2016, an additional office building is currently being developed by the John Buck Company at 151 N. Franklin Street. The developer is currently searching for a final anchor tenant to accompany CNA Financial and law firm Hinshaw & Culbertson in the building. The 35-story, 807,355 square foot development is approximately 50 percent preleased and will be called the CNA Center after CNA Financial secured naming rights to the building as part of its deal to occupy 275,000 square feet in the building upon its completion in mid-2018.
Additionally, a second office development owned by a joint venture of Vanderbilt Investment Properties and White Oak Realty Partners at 625 W. Adams Street is under construction. The 20-story, 434,931 square foot development is being built on speculation, meaning that building’s ownership has yet to prelease any space in the building to future tenants. The developments ownership venture borrowed approximately $97 million dollars on the development site to commence construction, which can be seen as a significant bet on the continued strength of Chicago’s office market moving forward. The development is actively seeking anchor tenants and will be completed by mid-2018.
After the sale of the Old Post Office in mid-2016 to New York-based 601W Companies, the company recently broke ground on its projected $500 million redevelopment of the building. This redevelopment, which would transform the property into an office building consisting of approximately 2.5 million square feet, is slated to be completed in 2020 and includes replacing the building’s existing mechanical systems, removing asbestos, fixing the building’s façade, and several other significant rehabilitation projects.
601W Companies has kicked off preliminary preleasing discussions with some of the city’s largest tenants, believing that the building’s transit oriented location, riverfront access, and unparalleled amenities will attract large office users. In all, there is now 3,742,286 square feet of office space under construction in the West Loop, with 1,242,286 square feet set to deliver in mid-2018.
22 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International Lease and Sale Highlights
The West Loop was home to five lease transactions larger than 40,000 square feet during the first quarter, including Nielsen signing a lease to renew its existing 71,000 square feet at 200 W. Jackson and expand by approximately 144,000 square feet in the building to accommodate the relocation of its existing suburban offices into the new space. Additionally, PPM America signed a lease to renew its existing 75,000 square feet at 225 W. Wacker and expand by approximately 25,000 square feet in the building.
Investment Sales activity in the submarket remained lethargic during the first quarter, with one transaction officially closed, as 205 W. Randolph was sold to Alvarez & Marsal for $28,700,000 ($144.44). While investment sales activity has remained slow since a record-setting 2015, activity appears to be on the rise as 150 N. Wacker and 125 S. Wacker were each put under contract during the quarter and it was announced that 300 S. Wacker has been put on the market for sale.
Significant Lease and Sale Activity 515 N. STATE STREET West Loop Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE
Nielsen 200 W. Jackson B 215,000 Renewal/Expansion
PPM America 225 W. Wacker A 101,000 Renewal/Expansion
Grainger 500 W. Madison A 60,000 Renewal
The National Restaurant Association 233 S. Wacker A 51,000 New Lease
IManage 540 W. Madison A 48,307 Expansion
West Loop Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
SOLD 205 W. Randolph C 198,698 $28,700,000 $144.44 Farbman Group Alvarez & Marsal
UC 150 N. Wacker B 246,613 TBD TBD American Realty Advisors TBD
UC 125 S. Wacker B 518,276 TBD TBD MetLife TBD
David Werner RE, FS 540 W. Madison A 1,111,925 TBD TBD TBD Joseph Mizrachi, Carlton Associates
Kushner Companies, FS 225 W. Randolph B 849,252 TBD TBD TBD RBS Greenwhich Capital
FS 300 S. Wacker A 563,638 TBD TBD TBD TBD
UC = Under Contract FS = For Sale
23 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International `FULLERTON AND ASHL
L INCOL ARMITAGE N
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Fulton Market AND BLACKHAWK
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image associated with HObeingOKER located in theSC trendy FultonSCOTT Market Neighborhood, and the OT SCOTT EVERGREEN T
penetration of the city’sDIVISION technology companies.DIVISION DIVISION ST ONE
CHER ELM Fulton Market is currently transforming from ELMan SubmarketNEARELM Highlights & Forecast RY CEDAR underdeveloped area consisting of warehouse and HILL RUS S HICK MAPLE BLIS H HOBBIE Over the past five years, Chicago’s meatpacking district,BELLEVUE now termed industrial properties into a rapidly emergingORY office and WENDELL HAINES the Fulton Market submarket, has undergone an unprecedented residential environment. The submarket contains a mix NORTH OAK OAK OAK of office options ranging from Class B and C brick and transformation from a heavily industrialized area focused on the storage of consumerWA goodsLTON to one of the city’sWALTON hottest submarkets timber loft-style properties to new A Plus modernTED loft MICHIGAN LOCUST DELAWARE space at Sterling Bay’s 1K Fulton. While the submarketHALS has forSIDE office tenants. As the Chicago Transit Authority opened a
CHESTNUT T CHESTNUT E
new $38 millionWICK “L” station to service the submarket in 2012 and
experienced significant growth since Google announced AN DER ROHE RABEE LL ARK R Y FRY S V CL DEARBORN SA DE WIT LA SEDG Google announcedHUDSON itsINS TITUTEdecision PL. a year later to PmoveEARSON its regional MA its decision to move its regional headquartersSING to the
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S HURON R for both development and redevelopment opportunities of all urbanC E KINGSBUR
timeline significantly. The Fulton Market boundaries I
D PE ORIA
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asset types. I include Grand Avenue on the North, WashingtonERIE Boulevard E nn . CL H RIVER N ST
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on the South, Ashland Avenue on the West, and Halsted RUS
y A E x p w OHIO In the officeNOR sector,TH Fulton Market’s status as a WA new home for
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UR technology tenants stems from many factors, the most notable y GRAND GRAND E McCL being: River North’s extremely low vacancy rate and costly rentalH
ILLINOIS T rates, the continued growth LS of Chicago’s technology industry, and STREETERVILLE 90 HUBBARD ORLEANS FRANKLIN WEL
FULTON HUBBARD TH CITY FRONT NEW ARK
companies’ desire to brand themselves through their real estate AZA DRIVE P
NOR PL NORTH WATER
MARKET PE ORIA 94 KINZIE decisions for marketing and recruitmentKINZIE purposes.
As the original “can’t miss” destination for Chicago’s technologyWACKER companies, River North was able to land technology tenants of all FULTON WACKER SOUTH WATER OGDEN sizes, however, its extremely saturated office market has led to SON
LAKE minimal availabilityLAKE and some of the highest rentalLAKE rates in the city, ET ST forcing tenants to look for a trendy creative office space in otherEAS T LOOP 41
RANDOLPH submarkets,RANDOLP particularlyH Fulton Market. RANDOLPH HARBOR AND TED GAN A CINE ENTER ASHL GREEN AD ELIZABETH RA
PE ORIA WEST CENTRAL MOR
WASHINGTON HALS WASHINGTON WASHINGTON MILLENNIUM ANGAMON ABERDEEN S CARP LOOP LOOP P ARK MADISON MADISON MADISON
MONROE S MONROE MONROE ASH E B AINE LL ON E WA LS FERSON
GREEKTOWN CKER SPL SA ARK TAT FRANKLIN CL S DEARBORN DE JEF CLINT CANAL WA WEL LA ADAMS ADAMS MICHIGAN
JACKSON JACKSON JACKSON GRANT
VAN BUREN VAN BUREN VAN BUREN
P ARK AKE SHORE DRIVE L 290 Eisenho wer Expwy CONGRESS CONGRESS COLUMBUS HARRISON HARRISON HARRISON E LL
VERNON PARK LS SA ARK YMOUTH BALBO INANCIAL CL PL FEDERAL F LA WEL DEARBORN
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LITTLE 11TH COLUMBUS ITALY
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MOR 13TH 13TH NEWBER MAXWELL MAXWELL MAXWELL McFETRIDGE YMOUTH ARK FEDERAL PL LIBERTY 94 CL NEAR 14TH 14TH 14TH
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15TH PL y w p x E n a
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T KING DR Submarket Highlights & Forecast (continued) square foot development at 210 N. Carpenter. Together, the six projects will deliver a total of 1,348,763 square feet of Class A A key driving force behind River North’s saturation and Chicago’s office space to the submarket. While eight more office projects are economic recovery as a whole has been the sustained growth proposed in the submarket, highlighted by Sterling Bay’s proposed of its technology sector, as Chicago experienced somewhat of a 400,000 square foot project at 331 N. Halsted, the majority of technology renaissance in 2008 with the birth of Groupon that the proposed developments are smaller than 200,000 square has ceased to lose momentum, resulting in its current reputation feet due to neighborhood zoning ordinances and scarce land as one of the nation’s top technology hubs. The sector’s sustained availability. Given the small-scale of the proposed developments, growth has created stiff competition within the technology industry the submarket is unlikely to be flooded with space at any one point, for recruiting and retaining top talent within the workforce, driving allowing landlords to largely control rental rates in their favor, many of the firms to cater to the work-life balance that the which is already evident as landlord’s preleasing Class A space in technologically affluent millennials desire by putting their offices in the submarket are asking for base rents between $42.00-46.00 unique spaces in buildings that offer amenities such as roof decks, per square foot gross, making the submarket’s Class A space more state-of-the-art fitness facilities, and bike rooms. While millennials expensive than every submarket in the city outside of River North seek a multitude of amenities at the workplace, they also want and the West Loop. to work in urban areas that are extremely close to where they live. Fulton Market’s proximity to popular neighborhoods amongst Moving forward, the lack of large development opportunities in millennials – such as Wicker Park, Bucktown and Fulton Market’s the submarket means that there will be finite opportunities to own burgeoning residential community – has given prospective attract tenants as sizable as Google and McDonalds, limiting companies an edge with recruiting and retaining young talent, the submarket’s maximum density for large office tenants. The compared to competitors in the Loop. submarket is likely to experience strong demand from smaller technology-centric tenants, such as Glassdoor, who are looking As a result of this strong demand for creative office space in for Class A creative loft space at the proposed development sites the Fulton Market submarket, there are currently six office and those under construction. As the Fulton Market submarket developments under construction, including McDonald’s new saturates, tenants seeking millennial talent in nontraditional office 608,000 square foot headquarters building at 110 N. Carpenter, space outside of the Loop’s traditional submarkets will shift their Tucker Development’s 45,614 square foot redevelopment at 900- focus northwards towards the Goose Island and Clybourn Corridor 924 W. Randolph, and Sterling Bay’s “Vendor Village,” a 225,000 areas as they continue to develop.
Lease and Sale Highlights
Large leasing activity within the Fulton Market remained strong during the first quarter as Dyson and The Climate Corporation signed leases for 40,868 square feet and 21,118 square feet at Sterling Bay’s development at 1330 W. Fulton, which will deliver in July 2017. Together, they pushed preleasing at the development to approximately 62 percent, as it will continue to hunt for tenants through its delivery this summer.
Investment sales activity within the submarket picked up during the first quarter, as Sterling Bay placed 300 N. Elizabeth and 320 N. Elizabeth on the market for sale. These assets represent a different opportunity for investors in the submarket, as they are older assets with existing tenant rosters, as opposed to development sites, which have driven activity over the past 12 months. Significant Lease and Sale Activity
Fulton Market Office Leasing Activity – 1Q 2017
TENANT BUILDING CLASS SIZE (SF) DEAL TYPE
Dyson 1330 W. Fulton A 40,686 New Lease 1330 W. FULTON
Fulton Market Office Investment Sales Activity – 1Q 2017
STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER
FS 300 N. Elizabeth B 121,751 TBD TBD Sterling Bay TBD
FS 320 N. Elizabeth B 41,853 TBD TBD Sterling Bay TBD FS = For Sale
25 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International First Quarter 2017 Office Market Statistics | Local Standards (includes competitive owner-occupied properties)
DIRECT SUBLEASE TOTAL DIRECT NET SUBLET NET TOTAL NET YTD NET ASKING GROSS TOTAL DIRECT SUBLEASE TOTAL CLASS BLDGS VACANCY VACANCY VACANCY ABSORPTION ABSORPTION ABSORPTION ABSORPTION DIRECT RENT INVENTORY SF VACANCY SF VACANCY SF VACANCY SF % % % (SF) (SF) (SF) (SF) PER SF CENTRAL LOOP Class A 15 15,096,870 1,444,302 130,045 1,574,347 9.6% 0.8% 10.4% 3,396 4,940 8,336 8,336 $41.45 Class B 32 19,998,786 2,479,517 170,180 2,649,697 12.4% 0.9% 13.2% (278,598) (17,764) (296,362) (296,362) $34.71 Class C 15 2,568,005 282,577 4,152 286,729 11.0% 0.2% 11.2% -1,653 15,510 13,857 13,857 $27.88 Subtotal 62 37,663,661 4,206,396 304,377 4,510,773 11.2% 0.8% 12.0% -276,855 2,686 -274,169 -274,169 $37.22 EAST LOOP Class A 4 6,785,561 730,551 24,265 754,816 10.8% 0.4% 11.1% 32,670 13,355 46,025 46,025 $41.47 Class B 16 12,410,960 1,681,657 112,141 1,793,798 13.5% 0.9% 14.5% (8,405) -31,263 (39,668) (39,668) $34.67 Class C 36 7,142,249 722,080 21,770 743,850 10.1% 0.3% 10.4% 17,699 3,902 21,601 21,601 $29.91 Subtotal 56 26,338,770 3,134,288 158,176 3,292,464 11.9% 0.6% 12.5% 41,964 (14,006) 27,958 27,958 $34.55 NORTH MICHIGAN AVENUE Class A 6 3,786,721 334,671 10,289 344,960 8.8% 0.3% 9.1% 46,727 (7,944) 38,783 38,783 $41.00 Class B 23 6,655,320 599,038 42,619 641,657 9.0% 0.6% 9.6% 76,843 20,845 97,688 97,688 $32.85 Class C 9 1,453,438 20,327 0 20,327 1.4% 0.0% 1.4% (1,785) 0 -1,785 -1,785 $27.25 Subtotal 38 11,895,479 954,036 52,908 1,006,944 8.0% 0.4% 8.5% 121,785 12,901 134,686 134,686 $35.56 RIVER NORTH Class A 9 11,247,224 750,605 113,182 863,787 6.7% 1.0% 7.7% -43,233 (65,976) (109,209) (109,209) $47.25 Class B 29 4,449,542 632,278 -8,479 623,799 14.2% -0.2% 14.0% 15,758 22,113 37,871 37,871 $36.02 Class C 13 1,107,367 118,724 71,344 190,068 10.7% 6.4% 17.2% 28,742 6,538 35,280 35,280 $25.27 Subtotal 51 16,804,133 1,501,607 176,047 1,677,654 8.9% 1.0% 10.0% 1,267 -37,325 (36,058) (36,058) $40.31 WEST LOOP Class A 29 28,352,873 3,633,021 309,769 3,942,790 12.8% 1.1% 13.9% 527,099 (18,383) 508,716 508,716 $47.15 Class B 29 18,269,974 2,641,754 385,538 3,027,292 14.5% 2.1% 16.6% 38,535 (38,591) (56) (56) $37.95 Class C 29 3,954,464 269,153 16,790 285,943 6.8% 0.4% 7.2% -30,074 13,035 -17,039 -17,039 $29.32 Subtotal 87 50,577,311 6,543,928 712,097 7,256,025 12.9% 1.4% 14.3% 535,560 (43,939) 491,621 491,621 $42.34 FULTON MARKET Class A 1 531,190 17,560 0 17,560 3.3% 0.0% 3.3% 0 0 0 0 $43.32 Class B 19 885,912 108,062 3,829 111,891 12.2% 0.4% 12.6% 39,851 3,197 43,048 43,048 $33.60 Class C 15 658,946 69,012 29,650 98,662 10.5% 4.5% 15.0% -2,115 1,300 -815 -815 $28.64 Subtotal 35 2,076,048 194,634 33,479 228,113 9.4% 1.6% 11.0% 37,736 4,497 42,233 42,233 $33.91 TOTAL CHICAGO CBD Class A 64 65,800,439 6,910,710 587,550 7,498,260 10.5% 0.9% 11.4% 566,659 (74,008) 492,651 492,651 $44.79 Class B 148 62,670,494 8,142,306 705,828 8,848,134 13.0% 1.1% 14.1% (116,016) -41,463 (157,479) (157,479) $35.71 Class C 117 16,884,469 1,491,578 178,451 1,670,029 8.8% 1.1% 9.9% 27,227 (47,469) (20,242) (90,691) $28.18 Subtotal 329 145,355,402 16,534,889 1,437,084 17,971,973 11.4% 1.0% 12.4% 461,457 -75,186 386,271 386,271 $38.73 QUARTERLY COMPARISONS Q1-17 329 145,355,402 16,534,889 1,437,084 17,971,973 11.4% 1.0% 12.4% 461,457 -75,186 386,271 386,271 $38.73 Q4-16 328 144,070,998 15,829,776 1,439,391 17,269,167 11.0% 1.0% 12.0% 16,042 -58,010 -41,968 900,878 $37.97 Q3-16 327 142,989,296 14,764,116 1,381,381 16,145,497 10.3% 1.0% 11.3% 780,930 72,649 853,579 942,846 $37.33 Q2-16 327 142,989,296 15,609,357 1,389,719 16,999,076 10.9% 1.0% 11.9% 224,637 -338,852 -114,215 89,267 $36.87 Q1-16 327 142,989,296 15,833,994 1,050,867 16,884,861 11.1% 0.7% 11.8% 266,518 -63,036 203,482 203,482 $36.78
26 Research & Forecast Report | First Quarter 2017 | Downtown Chicago / Office | Colliers International MARKET CONTACT: 396 offices in Robert Patterson Research Analyst | Chicago countries on +1 312 777 2634 68 [email protected] 6 continents CONTRIBUTORS: Stephanie Bujwit | Senior Financial Analyst United States: 153 Mark Breithaupt | Director of Marketing Canada: 29 Stephanie Roberts | Communications Manager
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