Metropolitan Chicago Market Review
Offi ce Market Review Year-End 2017 To our valued customers, partners and future clients…
There is a lot of speculation about the true value of Bitcoin and other digital currencies, but the past few years have made it clear that the real currency of the future is data. The so-called “FANG” companies – Facebook, Amazon, Netflix and Google – all rely on data and demographic information to inform everything they do. With the advent of voice-activated devices like Alexa and Google Home and the proliferation of GPS-enabled smartphones, companies are selling convenience, but what they’re getting is information. Location, preferences, habits, interests, hobbies. They know when you need to order more laundry detergent, when you’re considering buying a car, whether you’ve had a baby and what kind of entertainment you enjoy.
Science fiction author Arthur C. Clarke once wrote that “Any sufficiently advanced technology is indistinguishable from magic.” Target knows - based on what I’ve bought in the past - what I’m likely to need in the future, and when I’ll need it. I could swear that sometimes online ads are reading my mind. I don’t mean to sound paranoid or ungrateful. Data algorithms brought us “Stranger Things,” and I love that show.
Past behavior and circumstances are key determinants of our future activity, and real estate is no different. Demographics and data are the components that drive companies to make sound business decisions. While construction outpaced absorption in Chicago’s industrial markets last year, continued positive absorption across overall office and industrial markets is the lasting legacy of 2017. Accessing and understanding the drivers of our market are important to understanding the ongoing tug-of-war between supply and demand. We are pleased to present our summary and analysis of 2017’s market activity, and are always available to provide the information to help you with your next decision.
Regards, Table of Contents
NAI Hiffman Metropolitan Chicago Offi ce Market Review Year-End 2017
04 Economic Overview 07 Office Statistics
08 Suburban Office Summary 10 North Suburban 12 Northwest Suburban 14 O’Hare 16 East-West Corridor 18 I-55 Corridor
20 Downtown Office Summary 22 West Loop 24 Central Loop 26 East Loop 28 North Michigan Avenue 30 River North
32 NAI Global/Methodology
34 NAI Hiffman Fourth Quarter 2017 Economic Overview
Global Economy U.S. Dollar Index • The global economy is regaining momentum, reflecting improvement in both the advanced 150 and developing nations. Inflation in the advanced economies slowed sharply in 2015, but has picked-up since the oil price rebound that began in early 2016. However, it is unlikely 120 to reaccelerate further next year as oil prices continue to trend sideways.
• Global growth reached a stronger-than- 90 expected 3 percent in 2017—a notable recovery ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 U.S. Dollar U.S. Recession Period from a post-crisis low of 2.4 percent in 2016. The substantial improvement reflected an Source: Board of Governors of the Federal Reserve System investment-led pickup in advanced economies and a growth acceleration in emerging market U.S. GDP Change by Quarter and developing economies. The World Bank 6.0 forecasts global economic growth to edge up to 3.1 percent in 2018. 4.0 3.1% 3.2% 2.6% • Economists forecast 2018 to be on track to be 2.0 1.8% the first year since the financial crisis that the 1.2% global economy will be operating at or near full 0 capacity. -2.0
-4.0 U.S. Economy 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 2017 IMF Projection GDP Growth (%) Source: U.S. Bureau of Economic Analysis • The U.S. economic outlook is healthy according to the key economic indicators. The most critical Crude Oil Prices indicator is the gross domestic product, which 160 measures the nation's production output. The New York Federal Reserve estimated U.S. gross domestic product growth for the fourth quarter of 2017 near 120 4 percent, based on revisions of prior data that
suggested stronger economic activities. 80 • The U.S. manufacturing sector is primed for another year of growth in 2018. The Institute for Supply 40 Management's PMI registered 59.7 percent in December, an increase of 1.5 percentage points 0 over the November reading of 58.2 percent. Of the ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 18 manufacturing industries, 16 reported growth in Dollars per Barrel Source: U.S. Energy Information Administration December. • The U.S. unemployment rate dipped slightly to 4.1 percent at the end of December, from the 4.2 percent reported third quarter. The jobless rate fell to the lowest levels since records began in 1976 in Hawaii, Mississippi and California. The rate in Hawaii was 2.0 percent, while Mississippi's dropped to 4.6 percent and California's declined to 4.3 percent. 4.8% 4.8% 4.1% CHICAGO METRO ILLINOIS UNITED STATES UNEMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT
Local Economy • According to the Bureau of Labor Statistics, the Chicago unemployment rate measured 4.8 percent in December, S&P/Case-Shiller Home Price Index 70 basis points lower than the recorded unemployment 250 rate of 5.5 percent during the same time period last year. The Chicago economy has expanded by an estimated 14,845 jobs year-over-year. This growth is driven by 200 gains in the financial services and education and health services sectors.
• The Midwest Economy Index (MEI) measured 0.22 in 150 November, up significantly over the -0.01 recorded last year at this time. The MEI measures growth in nonfarm business activity from four broad sectors of the 100 Midwest economy: 1) manufacturing, 2) construction ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 Chicago Home Price Index 10-City Composite Home Price Index and mining, 3) services, and 4) consumer spending. Source: S&P Dow Jones Indices • Chicago’s July 2017 home price level recorded a 4.15 percent year-over-year increase according to the S&P S&P 500 Index CoreLogic Case-Shiller home price index. This rate is lower than the 10-City and 20-City Composites’ 2,500 respective 6.02 and 6.38 percent growth rates. • According to the National Association of Realtors, the 2,000 Chicago-area housing market is expected to be the weakest of any of the nation's 100 largest metropolitan areas during 2017. The prices of homes throughout the 1,500 Chicago metropolitan area are expected to climb just 1.95 percent, and sales of new and existing homes are expected to increase 2.27 percent. Nationally, home 1,000 prices are anticipated to climb 3.9 percent and home sales are predicted to rise 2.6 percent 500 • The Consumer Price Index for All Urban Consumers ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 (CPI-U) in the Chicago area increased by 1.7 percent Source: S&P Dow Jones Indices in December over the amount recorded for December of last year. Over the year energy costs rose 7.4 percent, primarily due to an increase in gasoline prices. For the same period, the food index increased 0.8 percent.
POPULATION (2015 CENSUS EST.) 12,859,995 GROSS METRO PRODUCT (2016) $791.6 BILLION
POPULATION CHANGE (2000-2015) +3.5% EMPLOYMENT - NONFARM (2016) 6,029,400
MEDIAN HOUSEHOLD INCOME (2015) $60,413 JOBS GAINED (4Q 2016-4Q 2017) 13,900
5 Kenosha Regional Airport Chicago Offi ce Markets
Waukegan Regional Airport OFFICE MARKET OVERVIEWS Fox Lake North Suburban...... 10 Gurnee Waukegan Northwest Suburban ...... 12 McHenry Grayslake O’Hare ...... 14 94 East-West Corridor ...... 16 I-55 Corridor ...... 18
Libertyville West Loop...... 22 Crystal Lake North Central Loop ...... 24 Vernon Hills Lake Forest Suburban East Loop ...... 26 Lake Zurich North Michigan Avenue . . . . 28 Buffalo Highland Park Grove River North ...... 30 Deerfield Northwest Northbrook Suburban Chicago Executive Dundee Airport 94 Glenview Arlington 294 90 Heights Evanston Elgin Schaumburg Niles Skokie
South Elgin O’HareOhare Int'l AirportArea
Dupage Franklin Park 90 Airport Addison 290 St Charles 94 355 Carol Stream CBD (Central Business District) Lombard 290 Chicago 90 41 Chicago Oak St 94 Midway Airport 171 East-West Chicago Ave 294 North Aurora 90 88 55 41 CorridorDowners River North Westmont Chicago Midway Grove Ohio43 St 12 North Michigan12 State St
Airport Michigan Ave Naperville Burr 20 Avenue20 Aurora Ridge Kinzie St Oak 90 Lawn Wack Darien 57 er Dr I-55 50 94 9483 East Loop 90 Corridor Randolph St Bolingbrook West Central 294 Loop Loop
Halsted St 57 Carpenter St Harvey Michigan Ave 355 Dr Wacker 94 Wells St Wells 6 Romeoville 290 Congress Pky 55 294 80 Gary/Chicago A Offi ce Market Statistics Fourth Quarter 2017
Market/Market/ TotalTotal RBA RBA Direct Direct SubleaseSublease TotalTotal TotalTotal 1Q 20174Q 2017 Net Net Total Total 2017 2017 4Q 2017 1Q 2017Under UnderNew Leasing Asking Rental SubmarketSubmarket (SF)(SF) Vacancy Vacancy VacancyVacancy VacancyVacancy AvailableAvailable AbsorptionAbsorption (SF) (SF) Absorption Absorption (SF) (SF Constr. Constr. (SF) Activity(SF) (SF) Rates (PSF)
North Suburban 30,080,709 17.17% 1.11% 18.27% 24.31% 41,558 -358,221 0 345,408 Class “A” 17,494,223 18.96% 1.53% 20.49% 26.88% -7,845 -268,851 0 $27.91 Class “B” 9,762,923 14.79% 0.66% 15.45% 21.45% 38,224 -100,902 0 $21.09 Class “C” 2,870,563 14.35% 0.07% 14.41% 18.37% 11,179 11,532 0 $18.22 Northwest Suburban 35,797,231 24.74% 0.72% 25.46% 29.34% 96,877 -35,455 0 381,281 Class “A” 19,033,424 26.39% 0.85% 27.24% 31.67% 121,265 -2,862 0 $24.26 Class “B” 13,828,769 24.64% 0.39% 25.03% 28.45% -25,526 18,251 0 $17.25 Class “C” 2,935,038 14.49% 1.39% 15.88% 18.44% 1,138 -20,066 0 $15.55 O’Hare 15,150,172 14.54% 0.43% 14.98% 19.32% 201,510 438,916 0 177,824 Class “A” 8,296,341 10.04% 0.68% 10.72% 15.33% 189,547 232,693 0 $32.36 Class “B” 5,954,161 21.23% 0.13% 21.36% 25.88% 11,859 205,669 0 $19.69 Class “C” 899,670 11.87% 0.16% 12.03% 12.71% 104 554 0 $16.75 East-West Corridor 43,460,913 16.05% 2.13% 18.18% 21.83% 206,763 252,415 0 739,841 Class “A” 22,019,743 17.08% 1.56% 18.65% 22.29% 168,767 224,444 0 $26.77 Class “B” 16,520,210 15.87% 3.49% 19.36% 23.55% 16,717 1,953 0 $19.35 Class “C” 4,920,960 12.06% 0.08% 12.14% 14.00% 21,279 26,018 0 $18.17 I-55 Corridor 4,017,923 11.42% 0.18% 11.60% 18.75% 83,708 70,816 0 53,811 Class “A” 579,550 2.89% 0.00% 2.89% 27.22% -2,214 15,820 0 $26.35 Class “B” 2,825,270 14.00% 0.25% 14.25% 19.25% 84,448 66,530 0 $17.90 Class “C” 613,103 7.63% 0.00% 7.63% 8.40% 1,474 -11,534 0 $16.09 Suburban Totals 128,506,948 18.41% 1.24% 19.65% 24.11% 630,416 368,471 0 1,702,665 Class “A” 67,376,281 19.21% 1.23% 20.44% 25.31% 469,520 206,968 0 $26.76 Class “B” 48,891,333 18.68% 1.45% 20.13% 24.55% 125,722 154,999 0 $19.00 Class “C” 12,239,334 12.94% 0.39% 13.34% 15.71% 35,174 6,504 0 $17.23 West Loop 48,715,006 11.81% 1.04% 12.85% 16.60% 298,879 850,169 1,305,970 981,862 Class “A” 33,609,131 12.24% 1.11% 13.35% 16.65% 161,219 931,692 1,305,970 $42.45 Class “B” 11,212,802 12.95% 1.09% 14.04% 19.27% 124,950 -39,996 0 $32.35 Class “C” 3,893,073 4.80% 0.26% 5.06% 8.47% 12,710 -41,527 0 $28.44 Central Loop 37,621,028 11.11% 0.76% 11.87% 18.66% -38,478 -709,435 0 375,171 Class “A” 19,678,279 12.32% 0.62% 12.94% 19.48% -77,955 -607,199 0 $41.19 Class “B” 14,562,266 8.81% 1.10% 9.92% 18.63% -51,497 -234,272 0 $32.66 Class “C” 3,380.483 13.96% 0.14% 14.10% 13.93% 90,974 132,036 0 $24.98 East Loop 23,177,584 13.14% 0.98% 14.12% 17.63% 105,287 141,336 0 256,152 Class “A” 10,864,735 13.60% 0.94% 14.55% 19.77% 14,926 155,568 0 $36.92 Class “B” 7,349,927 13.55% 1.51% 15.06% 16.15% 83,846 28,125 0 $31.51 Class “C” 4,962,922 11.53% 0.30% 11.83% 15.13% 6,515 -42,357 0 $27.88 North Michigan Ave 13,085,025 10.80% 0.75% 11.55% 10.74% 19,276 101,780 0 134,311 Class “A” 6,215,459 14.52% 0.90% 15.41% 10.61% -14,353 24,251 0 $40.09 Class “B” 6,131,682 7.48% 0.63% 8.11% 10.77% 40,463 87,974 0 $33.57 Class “C” 737,884 6.96% 0.49% 7.45% 11.63% -6,834 -10,445 0 $27.47 River North 13,439,634 8.02% 0.92% 8.94% 17.74% 21,630 -94,989 0 70,997 Class “A” 4,088,938 5.82% 0.95% 6.77% 12.67% -35,105 -25,680 0 $50.62 Class “B” 5,695,248 10.25% 0.82% 11.07% 24.28% 8,089 -116,209 0 $31.64 Class “C” 3,655,448 7.00% 1.05% 8.05% 13.24% 48,646 49,900 0 $29.16 Downtown Totals 136,038,277 11.37% 0.91% 12.28% 16.89% 406,594 288,861 1,305,970 1,818,492 Class “A” 74,456,542 12.30% 0.93% 13.23% 17.13% 48,732 478,632 0 $42.56 Class “B” 44,951,925 10.62% 1.06% 11.69% 18.03% 205,851 -274,378 0 $32.49 Class “C” 16,629,810 9.25% 0.43% 9.68% 12.76% 152,011 84,607 0 $27.59 Metro Chicago Totals 265,545,225 14.79% 1.07% 15.86% 20.40% 1,037,010 657,332 1,305,970 3,521,157 Class “A” 141,832,823 15.58% 1.07% 16.65% 21.02% 518,252 685,600 0 $34.60 Class “B” 93,843,258 14.82% 1.27% 16.09% 21.43% 331,573 -119,379 0 $25.74 Class “C” 28,869,144 10.81% 0.42% 11.23% 14.01% 187,185 91,111 0 $22.41
7 Fourth Quarter 2017 Suburban Offi ce Market
900,000 24% Several trends are bucked in the fourth 21% quarter as the suburbs 450,000 record the strongest absorption in three 18% years, causing the 0,000 vacancy rates to 15% descend
-450,000 12% ‘12 20132014 2015 2016 2017
Vacancy Rate (%) Net Absorption (SF)
19.65% 630,416 $31.24 VACANCY RATE SF NET ABSORPTION PSF ASKING RENTS*
• New leasing activity remained strong with 1.7 million square feet of signed leases in the fourth quarter. Particularly noteworthy was new leasing in the I-55 Corridor and O’Hare submarkets where transaction volume was up 54.64 percent and 53.84 percent, respectively from Q3 levels. • The overall vacancy rate in the suburban office market decreased 9 basis points to 19.65 percent, breaking the upward trend that began in the third quarter of 2016. • Average overall gross asking rents in the suburbs remained relatively flat since the third quarter rate of $20.19 per square foot, declining 0.19 percent to $20.15 per square foot. • Net absorption in the fourth quarter of over 630,000 square feet was stronger than it’s been in more than 3 years. US Cellular’s occupancy of their 119,219 square foot lease had the single most significant impact. Although each submarket contributed, O’Hare and the East-West Corridor accounted for approximately two- thirds of the total suburban absorption.
Arrows indicate change from previous year. * Premier Class A Gross Rents
MARKET SIZE 128,506,948 SF 4Q 2017 NET ABSORPTION 630,416 SF TOTAL VACANCY 25,246,830 SF (19.65%) YE 2017 NET ABSORPTION 368,471 SF DIRECT VACANCY 23,658,876 SF (18.41%) 4Q17 NEW LEASING ACTIVITY 1,702,665 SF SUBLEASE VACANCY 1,587,954 SF (1.24%) YE NEW LEASING ACTIVITY 6,065,924 SF AVAILABLE SPACE 30,980,984 SF (24.11%) UNDER CONSTRUCTION 0 SF 4Q 2017 NEW SUPPLY 0 SF Vacancy by Submarket Largest Blocks of Available Space
Building Address Block Size (SF) 25.46% AT&T Center, 2000 W ATT Center Dr, Hoffman Estates 1,367,997 24.74% Innovation Park Lake County, 600 N US Highway 45, Libertyville 908,091 19.65% 18.27% 18.18% 1301 E Algonquin Rd, Schaumburg 360,200 18.41% 17.17% 14.98% 16.05% 6200 S Route 53, Lisle 360,000 14.54% 11.60%13.38% 263 Shuman Blvd, Naperville 354,000 11.42% Schaumburg Towers II, 1450 American Ln, Schaumburg 340,620 2 Overlook Pt, Lincolnshire 302,678 2 Pierce Pl, Itasca 291,645 2001 Lakewood Blvd, Hoffman Estates 281,382 North Northwest O’Hare East-West I-55 Overall Suburban Suburban Corridor Corridor Suburban Oakmont Point, 700 Oakmont Ln, Westmont 256,767
Direct Vacancy Sublease Vacancy (SL) All or partially a sublease listing
• Fourth quarter sales volume of $401.69 million was the peak for 2017 and 30.64 percent higher than the $307.47 million in sales conducted during the third quarter. Sales in the Northwest Suburban and East-West Corridor submarkets, refl ecting volumes of $104.8 million and $202.6 million respectively, were both supported by large portfolio sales. The largest portfolio sale was a purchase by the Lincoln Property Group of two mid-rise class A buildings and a development site of 7.5 acres in Lisle for $129.0 million. The most signifi cant single transaction was the acquisition of the 256,743-square-foot Parkway North Center in Deerfi eld for $47.0 million.
Signifi cant Buildings on the Market
Submarket Building Address Size (SF) Target Price | PSF Seller Status Northwest Suburban Lakewood Center (3-Building Portfolio) 1,690,214 Undisclosed C-III Capital Partners, LLC Marketing
Northwest Suburban 1400 & 1450 American Ln, Schaumburg 882,069 $71,000,000 | $80.49 Retail Prop. of America Marketing
O'Hare 8600 & 8700 W Bryn Mawr Ave, Chicago 840,346 Undisclosed GlenStar Properties, LLC Marketing
Signifi cant Sale Transactions
Building Address Sold (SF) Sale Price | PSF Buyer Seller Central Park of Lisle I-II (2-Building & 7 AC LandPortfolio) 656,301 $129,000,000 | $194 Lincoln Property Group The Blackstone Group
500 Park Blvd/1 Pierce Pl (2-Building Portfolio) 976,036 $78,300,000 | $80 Balfour Pacific Long Wharf
One Parkway North, 1 Parkway Blvd N 256,743 $47,000,000 | $183 Horn, Eichenwald Investments The Blackstone Group
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type Esplanade V, 3250 Lacey Rd, Downers Grove 47,000 NEC Display Solutions New lease
Landmark of Lake Forest I, 100 S Saunders Rd, Lake Forest 43,101 Abbott Laboratories New lease
Arlington Corp Cntr 3250 N Arlington Heights Rd, Arlington Heights 38,479 Cook County Health New lease
9 Fourth Quarter 2017
173
41 45 Waukegan North Suburban Regional Airport
Gurnee 83 Waukegan Absorption continues to increase in the North Grayslake 120
21 Suburban submarket but the substantial volume 94 of future tenant occupancies artifi cially infl ates 176 the vacancy rate. Libertyville Lake Forest Vernon Hills 60 600,000 22% 45 41 e Zurich 22 Buffalo Highland Park 300,000 19% Grove Deerfield 21 68 Northbrook 0 16% Chicago Executive Airport 94 Glenview Arlington 294 -300,000 13% Heights 43 Evanston
aumburg Niles Skokie -600,000 10% ‘12 20132014 2015 2016 2017 Ohare Int'l Airport Vacancy Rate (%) Net Absorption (SF)
18.27% 41,558 $34.76 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• The overall vacancy rate increased over the 16.31 percent recorded in the third quarter to 18.27 percent fourth quarter 2017. This occurred despite net absorption reaching 41,558 square feet, its highest point since the third quarter of 2016, due to a significant volume of leased space remaining unoccupied until 2018. Under these conditions, the increased vacancy is not highly indicative of market conditions and likely to correct in subsequent quarters.
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE (SF) 30,080,709 SF 6.07% SUBLEASE TOTAL VACANCY 5,496,985 SF (18.27%) DIRECT VACANCY 5,163,461 SF (17.17%)
SUBLEASE VACANCY 333,524 SF (1.11%) 22%
29% AVAILABLE SPACE 7,311,538 SF (24.31%) 5.5
4Q 2017 NET ABSORPTION (SF) 41,558 SF 4% MSF TOTAL
YE 2017 NET ABSORPTION (SF) -358,221 SF 7% VACANCY
10%
4Q 2017 NEW LEASING ACTIVITY 345,408 SF 8%
10%
10% UNDER CONSTRUCTION (SF) 0 4Q 2017 NEW SUPPLY (SF) 0 93.93% DIRECT 43,101 256,743 SF NEW LEASE SF SALE 100 S Saunders Rd | Lake Forest, Illinois 1 Parkway Blvd N | Deerfield, Illinois
Abbott Laboratories is set to occupy the entire 4th Eichenwald Horn Investments Corp acquired the Parkway North floor of this Class A building in March of 2018. While Center from The Blackstone Group for $47 million, or $183 PSF. this is a new lease, they previously leased the 3rd & The class A building which was built in 1985 and renovated in 4th floors from May 2007 to May 2017. 2016, was 92.5 percent occupied at sale.
• Gross asking rental rates didn't alter significantly since last quarter, as each property class moved less than 1 percent. Class A declined 0.64 percent, class B declined 0.94 percent, and class C increased 0.89 percent. • Sales volume in the North Suburban submarket reached $92 million sold, which was only slightly down from the third quarter result of $113 million. Year-end sales volume reached $356.0 million in 2017. • New leasing activity increased 3.1 percent as it climbed from 334,921 square feet in the third quarter to 345,408 square feet fourth quarter.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$27.91 $21.09 $18.22 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 20406080100 Class A Class B Class C Signifi cant Sale Transactions
Building Address Sold (SF) Sale Price | PSF Buyer Seller AON Office Building, 1000 Milwaukee Ave, Glenview 405,039 $9,700,000 | $24 RDP Milwaukee Ave Holdings CW Capital Asset Management The 400 Building, 400 Skokie Blvd, Northbrook 195,326 $20,950,000 | $107 Ameritus Romanek Properties, Ltd 1 Parkway Blvd N, Deerfield 256,743 $47,000,000 | $183 Horn Eichenwald Investments The Blackstone Group LP
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type Landmark of Lake Forest, 100 S Saunders Rd, Lake Forest 43,101 Abbott Laboratories New lease The 909 Davis Building, 909 Davis St, Evanston 26,076 Industrious New lease 1324 Golf Rd Waukegan 17,757 Waukegan Park District New lease 11 Fourth Quarter 2017 173
45
Wau Region Northwest Suburban Fox Lake 12 McHenry
94 Improved leasing velocity results in the strongest 14 net absorption since the second quarter of 2016, Libertyville 176 176 which reins in Northwest Suburban vacancy Crystal Lake L 14 rates. 14 Lake Zurich 22 Buffalo 750,000 28% 12 Grove
31 68
375,000 25% 25 Chicago Executive Dundee Palatine Airport 62 14 53 Hoffman Arlington 29 Estates 90 Heights 0 22% 59 Elgin Schaumburg 72 20 Hanover Elk Grove South Elgin Village -375,000 19% Park Ohare R Int'l Airport 19 Bloomingdale Wood Dale 20 -750,000 16% Dupage 290 Frank Addison ‘12 20132014 2015 2016 2017 St Charles Airport Vacancy Rate (%) Net Absorption (SF) 355
25.46% 96,877 $27.09 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• The overall vacancy rate declined 17 basis points to 25.46% in the fourth quarter, edging down for the first time in three quarters due to the strongest net absorption since the second quarter of 2016. The 96,877 absorbed in the fourth quarter served to cut the year-end net absorption deficit to -35,455. • The strong and accelerating pace of leasing activity continues with 381,281 square feet leased fourth quarter, another increase of 8.2 percent over third quarter. The largest lease in the quarter was the commitment to 52,276 square feet by Fresenius Medical Care. The company intends to occupy during the second quarter of 2018. Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 35,797,231 SF 2.83% SUBLEASE TOTAL VACANCY 9,112,704 SF (25.46%) DIRECT VACANCY 8,856,110 SF (24.74%)
SUBLEASE VACANCY 256,594 SF (0.72%) 22%
29% AVAILABLE SPACE 10,502,813 SF (29.34%) 9.1
4Q 2017 NET ABSORPTION 96,877 SF 4% MSF TOTAL
YE 2017 NET ABSORPTION -35,455 SF 7% VACANCY
10%
4Q 2017 NEW LEASING ACTIVITY 381,281 SF 8%
10%
10% UNDER CONSTRUCTION 0 SF 4Q 2017 NEW SUPPLY 0 SF 97.17% DIRECT 52,276 205,917 SF NEW LEASE SF SALE 1 Corporate Dr | Long Grove, Illinois Chatham Centre | Schaumburg, Illinois
Fresenius Medical Care is expanding its regional Core Acquisitions purchased this 10-story class A presence by taking space in the first and second floor building constructed in 1990 from Barings Real Estate of this 3-story office facility. Advisors for $13.4 million while it was 71 percent leased. Owner intends to implement capital improvements.
• Sales volume in the Northwest Suburban submarket totaled $106.1 million fourth quarter with an average price of $63 per square foot. Nearly 74 percent of that sales total was derived from the $78.3 million portfolio purchase by Balfour Pacific of 500 Park Blvd and 1 Pierce Place in Itasca. Year-end investment sales totaled $269.9 million. • Leasing activity improved 8.2 percent from 352,252 square feet in the third quarter to 381,281 square feet fourth quarter. The largest lease in the quarter was the commitment to 52,276 square feet by Fresenius Medical Care which they intend to occupy during the second quarter of 2018.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$24.26 $17.25 $15.55 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 20406080100120 Signifi cant Sale Transactions Class A Class B Class C
Building Address Sold (SF) Sale Price | PSF Buyer Seller Chatham Centre, 1901 N Roselle Rd, Schaumburg 205,917 $13,375,000 | $65 Core Acquisitions, LLC Barings Real Estate Advisors 930 E Woodfield Rd, Schaumburg 44,000 $4,435,500 | $101 Emergency Nurses Association American Academy of Dermatology 1336 Basswood Rd, Schaumburg 30,020 $2,300,000 | $77 Concept Schools Cornel Williams Signifi cant Lease Transactions Building Address Leased (SF) Tenant Lease Type 1 Corporate Dr, Long Grove 52,276 Fresenius Medical Care New lease
Arlington Corp Cntr 3250 N Arlington Hts Rd, Arlington Heights 38,479 Cook County Health New lease
13 Fourth Quarter 2017 Northbrook Chicago Executive O'Hare Airport 94 Arlington 294 Heights
The highest net absorption since 2014 helps to 90 14 compress vacancy rates near long-term lows as Des Plaines asking rates continue their steady climb. 12 45 Elk Grove 72 Park Ridge Village Ohare Int'l Airport Rosemont 250,000 25%
171
22% 19 125,000 19
19% 290 Franklin Park 0 Addison 16%
-125,000 5 13%
Lombard 290 -250,000 10% ‘12 20132014 2015 2016 2017
Vacancy Rate (%) Net Absorption (SF)
14.98% 201,510 $36.70 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE* • The overall vacancy was driven back down 55 basis points from 15.53 percent in the third quarter to 14.98 percent in the fourth quarter due to significant positive net absorption. Net absorption reached 201,510 square feet in the fourth quarter, effectively matching the peak in 2014, driven by strong leasing and U.S. Cellular taking occupancy of their 119,219 square foot expansion at 8420 W. Bryn Mawr Ave. • Gross asking rental rents for properties in all three property classes continued their consistent rise this year as vacancies remained tight. Class A properties increased 0.4 percent, class B properties increased 1.44 percent, and class C properties increased 4.17 percent. Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 15,150,172 SF 2.89% SUBLEASE TOTAL VACANCY 2,269,113 SF (14.98%) DIRECT VACANCY 2,203,518 SF (14,54%)
SUBLEASE VACANCY 65,595 SF (0.43%) 22%
29% AVAILABLE SPACE 2,927,090 SF (19.32%) 2.3
4Q 2017 NET ABSORPTION 201,510 SF 4% MSF TOTAL
YE 2017 NET ABSORPTION 438,916 SF 7% VACANCY
10%
4Q 2017 NEW LEASING ACTIVITY 177,824 SF 8%
10% UNDER CONSTRUCTION 0 SF 10% 4Q 2017 NEW SUPPLY 0 SF 97.11% DIRECT 25,195 14,133 SF NEW LEASE SF SALE 1800 E. Oakton St. | Des Plaines, Illinois 123 N Northwest Hwy | Park Ridge, Illinois
The Knanaya Catholic society of Chicago signed a GW properties acquired the class C property from Citi 25,195 SF lease to fully occupy both floors in the National Bank for $1.1 million with the intention to demolish second quarter of 2018. and redevelop the site for multi-tenant retail.
• Office sales were slow in the fourth quarter with only $2.7 million in sales, down from $20.9 million in the third quarter. Total year-end office sales were $70.5 million in 2017, which is 7.1 percent higher than 2016 sales if the large Blackstone portfolio sale of the Riverway Complex is ignored. • New leasing activity improved 53.8 percent in the fourth quarter with 177,824 square feet in new commitments compared to 115,591 square feet in the third quarter.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$32.36 $19.69 $16.75 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE 100k+ SF Class A Class B Class C 0 1020304050 Class A Class B Class C Signifi cant Sale Transactions Building Address Sold (SF) Sale Price | PSF Buyer Seller 1800 E Oakton St, Des Plaines 25,195 $630,000 | $25 Undisclosed Undisclosed O'Hare West Office Plaza I, 611 Busse Rd, Bensenville 25,000 $900,000 | $36 Undisclosed Undisclosed 123 N Northwest Hwy, Park Ridge 14,133 $1,075,000 | $76 GW Properties CitiBank Signifi cant Lease Transactions Building Address Leased (SF) Tenant Lease Type 1800 E Oakton St, Des Plaines 25,195 Knanaya Catholic society of Chicago New lease
8700 W Bryn Mawr 19,346 Meitheal Pharmaceuticals New lease
2700 S River Road, Des Plaines 19,000 American Eagle New lease NAI Hiffman transaction 15 No Fourth Quarter 2017 Chicago Executive Airport
Arlington 294 90 Heights
Elgin East-West Corridor Schaumburg Elk Grove Village Ohare Rose Int'l Airport Net absorption surged to its highest volume in
64 Dupage 290 Franklin more than two years contributing to the vacancy Airport St Charles 64 Elmhurst rate declining to its lowest level since 2009. 355 31 83 38 Lombard 25 38 Oakbrook 59 Terrace Oak Brook 400,000 24% 294 North Aurora 88 34 Downers Grove Westmont
59 Naperville 22% Aurora 34 355 200,000 55
20% Bolingbrook
0
18% Romeoville
-200,000 16% ‘12 20132014 2015 2016 2017
Vacancy Rate (%) Net Absorption (SF) 18.18% 206,763 $30.49 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• Overall vacancy declined by 118 basis points fourth quarter, and the East-West Corridor submarket recorded its highest quarterly net absorption since 2015. The strong rebound in absorption came from a combination of new leasing activity and tenants that leased space in previous quarters taking occupancy, including Dashiell Corporation (30,532 square feet) and Rex Electronic & Technology (25,461 square feet). • Although down from the third quarter's volume of 1.1 million, new leasing activity remained strong in the fourth quarter with nearly 740,000 square feet of commitments signed. Significant transactions included NEC Display Solutions of America (47,714 square feet) and AECOM (26,668 square feet).
Arrows indicate change from previous quarter. * Premier Class A Gross Rate MARKET SIZE 43,460,913 SF 11.72% SUBLE ASE TOTAL VACANCY 7,901,194 SF (18.18%) DIRECT VACANCY 6,975,477 SF (16.05%)
SUBLEASE VACANCY 925,717 SF (2.13%) 22%
29% AVAILABLE SPACE 9,710,631 SF (21.83%) 7.9
4% 4Q 2017 NET ABSORPTION 206,763 SF MSF TOTAL
7% VACANCY YE 2017 NET ABSORPTION 252,415 SF
10%
4Q 2017 NEW LEASING ACTIVITY 739,841 SF 8%
10%
10% UNDER CONSTRUCTION 0 SF 88.28% DIRECT 4Q 2017 NEW SUPPLY 0 SF 47,714 656,301 SF NEW LEASE SF SALE 3250 Lacey Rd | Downers Grove, Illinois Central Park of Lisle I-II | Lisle, Illinois
NEC Display Solutions of America signed a new lease Lincoln Property Group acquired two mid-rise class at 3250 Lacey Rd in Downers Grove. The headquarters A buildings which included two parking decks on a relocation includes space for a technology showcase and plot of 25 acres as well as an adjacent 7.5 AC parcel demo facility as well as a research and development lab. zoned for development of a third office building.
• Investment sales in the East-West corridor peaked for the year in the fourth quarter at $202.89 million. This represented over half of the total value transacted in the suburbs and brought year-to-date sales to $356.27 million. While that is more than 10 percent less than the 2016 total, it was a 276 percent improvement over the same quarter last year. • Gross asking rental rates increased for premier class A buildings by 1.4 percent and class C properties, which had more absorption than class B, increased 4.7 percent. However, traditional class A and class B declined by 1.1 percent and 2.5 percent respectively.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$26.77 $19.35 $18.17 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE 100k+ SF Class A Class B Class C 0 30 60 90 120 150 Class A Class B Class C Signifi cant Sale Transactions Building Address Sold (SF) Sale Price | PSF Buyer Seller Central Park of Lisle I-II (2-Building & Land Portfolio)* 656,301 $129,000,000 | $194 Lincoln Property Company The Blackstone Group 701 Building, 701 E 22nd St, Lombard 174,098 $23,400,000 | $134 Lincoln Property Company M&J Wilkow Ltd.
711 Jorie Blvd, Oak Brook 200,162 $14,450,000 | $72 Exeter Property Group McDonalds Corporation *Part of a portfolio sale Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type Esplanade V, 3250 Lacey Rd, Downers Grove 47,714 NEC Display Solutions of America, Inc. New lease
Cornerstone I, 4320 Winfield Rd, Warrenville 26,668 AECOM New lease
4 Westbrook Corporate Center, Westchester 20,673 Legacy Professionals New lease NAI Hiffman transaction 17 Fourth Quarter 2017
Oak Brook
294 I-55 Corridor 88 Downers Grove Westmont
Strong absorption, generated through improved Naperville leasing and delayed occupations, help to drive Burr Ridge 83 the vacancy rate to its lowest level in 14 years. 355 55 53 Darien
150,000 18% Bolingbrook 100,000 16%
50,000 14% Romeoville 0
12% -50,000
-100,000 10% ‘12 20132014 2015 2016 2017 Vacancy Rate (%) Net Absorption (SF)
11.60% 83,708 $28.00 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• The overall vacancy rate in the I-55 Corridor declined 15.9 percent from the third quarter to a rate of 11.60 percent at the end of the quarter, the lowest rate since 2003. The dramatic improvement resulted from a combination of delayed tenant occupancies and the strongest quarterly net absorption since the second quarter of 2013. • New leasing activity totaled 58,311 square feet, a 54.6 percent improvement over last quarter's 37,707 square feet of activity.
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 4,017,923 SF 1.51% SUBLEASE TOTAL VACANCY 466,079 SF (11.60%) DIRECT VACANCY 459,025 SF (11.42%)
SUBLEASE VACANCY 7,054 SF (0.18%) 22%
29% AVAILABLE SPACE 753,194 SF (18.75%) 466K
4Q 2017 NET ABSORPTION 83,708 SF 4% SF TOTAL
YE 2017 NET ABSORPTION 70,816 SF 7% VACANCY
10%
4Q 2017 NEW LEASING ACTIVITY 53,811 SF 8%
10% UNDER CONSTRUCTION 0 SF 10% 4Q 2017 NEW SUPPLY 0 SF 98.49% DIRECT 17,000 41,600 SF NEW LEASE SF SALE 161 Lily Cache Ln | Bolingbrook, Illinois 625 Willowbrook Center Pky | Willowbrook, Illinois
Biolife Plasma Services Center committed to fully- Meade Electric Company acquired the 41,600-SF occupy a new 17,000-SF class B medical building in class B building from Prologis for $4.37 million, or February. $105 PSF. The company intends to fully occupy and operate from the facility.
• While new leasing activity was insufficient alone to drive the 83,708 net square feet absorbed in the fourth quarter, it was bolstered by strong renewals, including the Wheels Clipper 15,272-square-foot transaction. Furthermore, limited new vacancies occurred during the fourth quarter. • Gross asking rental rates increased 2.7 percent for class A properties. Class B and C fell 1.2 and 0.7 percent, respectively.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$26.35 $17.90 $16.09 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE 100k+ SF Class A Class B Class C 0246810 Class A Class B Class C
Signifi cant Sale Transactions
Building Address Sold (SF) Sale Price | PSF Buyer Seller 625 Willowbrook Center Pky, Willowbrook 41,600 $4,368,000 | $105 Meade Electric Company Prologis NAI Hiffman transaction
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type 161 Lily Cache Ln, Bolingbrook 17,000 Biolife Plasma Services Center New lease North Waterfall Glen, 9014 Heritage Pky, Woodridge 15,373 Wheels Clipper Inc Renewal 19 Fourth Quarter 2017 Downtown Offi ce Market
Vacancy dropped for 1.0M 18% the fi rst time this year, and the fi rst dip in fi ve quarters. 0.5M 15%
0 12%
-0.5M 9%
-1.0M 6% ‘12 20132014 2015 2016 2017
Vacancy Rate (%) Net Absorption (SF)
12.28% 406,594 $45.00 VACANCY RATE SF NET ABSORPTION PSF ASKING RENTS*
• Overall vacancy for the downtown office market dropped to 12.28 percent, 30 basis points lower than the previous quarter. The dip in vacancy is the first in five quarters, and continues to show positive growth for the downtown office market. Net absorption totaled 406,594 SF as firms continued the flight to trophy assets. Drops in vacancy and positive absorption is expected in 2018 as McDonald's 485,000 square-foot headquarters facility is scheduled to deliver in the spring of 2018. • Average gross asking rental rates for trophy properties in the downtown market decreased 0.79 percent from last quarter, to measure $45.00 per square foot at the end of the year.
Arrows indicate change from previous quarter. * Premier Class A Gross Rents
MARKET SIZE 136,038,277 SF 4Q 2017 NET ABSORPTION 406,594 SF TOTAL VACANCY 16,701,208 SF (12.28%) YE 2017 NET ABSORPTION 288,861 SF DIRECT VACANCY 15,469,704 SF (11.37%) 4Q 2017 NEW LEASING ACTIVITY 1,818,492 SF SUBLEASE VACANCY 1,242,356 SF (0.91%) UNDER CONSTRUCTION 1,305,970 SF AVAILABLE SPACE 22,980,504 SF (16.89%) 4Q 2017 NEW SUPPLY 0 SF Vacancy by Submarket Largest Blocks of Available Space
Submarket Building Address Block Size (SF)
14.14% West Loop Willis Tower, 233 S Wacker Dr 644,352 12.85% 13.14% 12.28% East Loop AON Center, 200 E Randolph St 577,772 11.87% 11.46% 11.81% 11.37% River North 222 Merchandise Mart Plz 559,887 11.11% 10.80% 8.94% Central Loop Board of Trade, 141 W Jackson Blvd 509,887 8.02% River North River North Point, 350 N Orleans St 502,545 Central Loop 175 W Jackson Blvd 479,714 West Loop 71 S Wacker Dr 464,144 NMA 515 N State St 447,716
1 West Central East North River Overall West Loop 625 W Adams St 434,930 Loop Loop Loop Michigan North Downtown Avenue West Loop 311 W Monroe St 349,975 Direct Vacancy Sublease Vacancy 1Under Construction
• Leasing activity slowed compared to last quarter's 2.25 million square feet, but remained stable at 1.82 million square feet. Despite no breakthrough lease signings, many notable firms expanded or moved to the CBD including: Chicago Tribune signed a relocation for 138,561 square feet, Facebook expanded 83,093 square feet, Sprout Social expanded 64,311 square feet, and Peapod signed 52,827 square feet to move from Skokie to the CBD. • Sales volume spiked fourth quarter totaling $1.13 billion, a significant increase year-over-year over the $314.16 million recorded during the fourth quarter of 2016. Despite the spike in sales volume fourth quarter, the year-end total of $2.21 billion was still a 20.07 percent decrease from 2016's total of $2.75 billion.
Signifi cant Buildings on the Market
Submarket Building Address Size (SF) Target Price | PSF Seller Status West Loop Bank of America Plaza, 540 W Madison St 1,111,925 Undisclosed Carlton Associates, Inc. Marketing
Central Loop Grant Thornton Tower, 161 N Clark St 1,068,877 Undisclosed CBRE Global Investors Marketing
West Loop Civic Opera House, 20 N Wacker Dr 915,000 Undisclosed Berkley Properties, LLC Marketing
Signifi cant Sale Transactions
Building Address Sold (SF) Sale Price | PSF Buyer Seller 401 N Michigan Ave 772,404 $360,000,000 | $466 Walton Street Capital, LLC Zeller Realty Group
Bank of America Building, 231 S LaSalle St 1,055,926 $162,000,000 | $153 Beacon Capital Partners The 601W Companies
One North Dearborn, 1 N Dearborn St 940,341 $130,340,000 | $283 New York State Common Retirement Fund Beacon Capital Partners
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type Riverside Plaza, 222 S Riverside Plz 143,734 Fifth Third Bank Lease renewal
One Prudential Plaza, 130 E Randolph St 138,561 Chicago Tribune New lease
CME Center, 30 S Wacker Dr 117,812 BP Products North America, Inc. Lease renewal
21 Chicago 90 Fourth Quarter 2017 Chicago Oak St 94 Midway Airport 171 West Loop Chicago Ave
Vacancy rates fell for the fi rst time in four quarters O43hio St 12 as strong positive absorption was recorded at year- State St 20 end. 90 Kinzie St Oak Lawn 94
1,000,000 18% 50 57 83
15%
500,000 12%
9% 0 Halsted St Wells St Wells Wacker Dr Wacker Carpenter St Harvey 6% Michigan Ave
-500,000 3% ‘12 20132014 2015 2016 2017 290 Congress Pky Vacancy Rate (%) Net Absorption (SF) 294 80
12.85% 298,879 $48.21 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• The overall vacancy in the West Loop submarket decreased by 120 basis points and positive absorption was recorded fourth quarter. The dramatic increase in absorption is attributed to Facebook's 83,093-square-foot expansion in November, and many smaller tenants who occupied space including: Honigman Miller Schwartz and Cohn LLP (28,077 SF), Angelo Gordon & Co. (28,689 SF), and A. Finkl & Sons Co. (12,000 SF).
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 48,715,006 SF Vacancy by Building Class TOTAL VACANCY 6,259,878 SF (12.85%)
DIRECT VACANCY 5,753,374 SF (11.81%) 13.35% 14.04% SUBLEASE VACANCY 505,232 SF (1.04%) AVAILABLE SPACE 8,085,562 SF (16.60%) 5.06% 4Q 2017 NET ABSORPTION 298,879 SF YE 2017 NET ABSORPTION 850,169 SF 4Q 2017 NEW LEASING ACTIVITY 981,862 SF Class A Class B Class C Vacancy Rate Vacancy Rate Vacancy Rate UNDER CONSTRUCTION 1,305,970 SF Direct Vacancy Sublease Vacancy 4Q 2017 NEW SUPPLY 0 SF 246,613 SF SALE
150 N Wacker Dr
Primavera Family Limited Partnership acquired the building at 150 N Wacker Dr for $79.9 million, or $324 PSF.
83,093 SF LEASE
191 N Wacker Dr
Facebook, Inc. expanded its Chicago presence with a 83,093 square foot expansion at 150 N Wacker Dr.
• Leasing activity continued to gain traction as tenants renewed large blocks of space which included: Fifth Third Bank (143,743 SF), BP Products N.A (117,812 SF), and Trading Technologies International (70,000 SF). Along with renewals signed fourth quarter, Facebook expanded at 150 N Wacker Dr by 83,093 SF, and Peapod signed to move its headquarters from Skokie to 300 S Riverside Plz taking 52,827 SF in April of 2018. • Sales volume totaled $118.71 million fourth quarter, bringing the year-end total to $625.56 million, a 61.46 percent increase from 2016's total sales volume of $387.44 million. The continued increase in sales volume speaks to the sustained interest in West Loop office assets by investors.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$42.45 $32.35 $28.44 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF
0 102030405060 Class A Class B Class C Signifi cant Sale Transactions Building Address Sold (SF) Sale Price | PSF Buyer Seller 150 N Wacker Dr 246,613 $79,946,000 | $324 Primavera Family Limited Partnership American Realty Partners Burnham 600, 600 W Jackson Blvd 114,142 $23,500,000 | $206 Stockbridge Capital Group, LLC Fifield Capital Partners Signifi cant Lease Transactions Building Address Leased (SF) Tenant Lease Type Riverside Plaza, 222 S Riverside Plz 143,734 Fifth Third Bank Renewal
CME Center, 30 S Wacker Dr 117,812 BP Products North America, Inc. Renewal
191 N Wacker Dr 83,093 Facebook, Inc. New lease
23 Fourth Quarter 2017 Chicago 90 41 Chicago Oak St 94 Midway Airport Central Loop 71 Chicago Ave 90 Vacancy rates saw a slight uptick for the fourth
consecutive quarter, but recorded the lowest O43hio St 12 12 State St negative absorption of the year. 20 20 Kinzie St Oak Lawn 4 W 16% acker D 600,000 50 57 r 83 94 14% 300,000 Randolph S 12% 0 10% Halsted St Wells St Wacker Dr Wacker Harvey -300,000 Michigan Ave 8% 6
-600,000 6% 20132014 2015 2016 2017 Congress Pky ‘12 294 80 Vacancy Rate (%) Net Absorption (SF)
11.87% -38,478 $47.31 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• Negative absorption was recorded in the Central Loop submarket for the fourth consecutive quarter, and totaled -38,748 square feet fourth quarter 2017. Despite the recent trend of negative absorption, some notable tenants that moved in included: Shure Inc. opened a branch office taking 35,812 SF, Hub Insurance leased 28,000 SF, and Ignite expanded into 20,377 SF. • Gross asking rental rates increased by 0.47 percent for trophy buildings. Class A and B rental rates increased by 1.75 and 1,94 percent, respectively.
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 37,621,028 SF Vacancy by Building Class TOTAL VACANCY 4,467,269 SF (11.87%) DIRECT VACANCY 4,179,564 SF (11.11%)
SUBLEASE VACANCY 287,705 SF (0.76%) 14.10% 12.94% AVAILABLE SPACE 7,018,556 SF (18.66%) 9.92% 4Q 2017 NET ABSORPTION -38,478 SF YE 2017 NET ABSORPTION -709,435 SF 4Q 2017 NEW LEASING ACTIVITY 375,171 SF UNDER CONSTRUCTION 0 SF Class A Class B Class C Vacancy Rate Vacancy Rate Vacancy Rate 4Q 2017 NEW SUPPLY 0 SF Direct Vacancy Sublease Vacancy 1,055,926 SF SALE
231 S LaSalle St
Beacon Capital Partners acquired the Bank of America building for $162.0 million, or $153.42 PSF.
64,311 SF NEW LEASE
131 S Dearborn St
Sprout Social, Inc. expanded by 64,311 SF at 131 S Dearborn St. The fi rm now occupies 128,622 SF.
• Strong investment sales in the fourth quarter were recorded in the Central Loop submarket totaling $493.3 million to bring the 2017 year-end total to $856.6 million, a 48.84 percent increase over 2016's year-end total of $575.49 million. The Central Loop had the largest sales volume fourth quarter out of all five CBD submarkets. • Leasing activity spiked in the fourth quarter and totaled 375,171 square feet, a 29.16 percent increase over the previous quarter. Tenants in the 15,000 to 70,000 range completed the bulk of leasing activity, and notable leases included: Sprout Social expanded to 64,311 SF doubling their footprint, and Quantitative Risk Management signed to take 17,697 SF.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$41.19 $32.66 $24.98 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 102030405010 20 30 40 50 Class A Class B Class C Signifi cant Sale Transactions Building Address Sold (SF) Sale Price | PSF Buyer Seller Bank of America Building, 231 S LaSalle St 1,055,926 $162,000,000 | $153 Beacon Capital Partners The 601W Companies One North Dearborn, 1 N Dearborn St 940,341 $130,340,000 | $283 New York State Common Retirement Fund Beacon Capital Partnersv 120 N LaSalle St 390,769 $107,000,000 | $274 Lincoln Property Company Prudential Financial Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type 131 S Dearborn St 64,311 Sprout Social, Inc. New lease
181 W Madison St 17,697 Quantitative Risk Management, Inc. New lease
25 Fourth Quarter 2017 Chicago 90 41 o Oak St 94 East Loop Chicago Ave 90 41 Vacancy continues to fall as net absorption in the
East Loop reaches its highest level since the fi rst 12 State St quarter of 2016. 20 Oak Lawn Wacker D 400,000 20% 57 r 50 94 200,000 18% Randolph St 0 16%
-200,000 14% Wells St Wacker Dr Wacker Harvey Michigan Ave -400,000 12% 6
-600,000 10% Congress Pky ‘12 20132014 2015 2016 2017 294 80 Vacancy Rate (%) Net Absorption (SF)
14.12% 105,287 $39.82 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• Net absorption continued its recently improving trend, growing 85.3% from 56,826 square feet in the third quarter to 105,287 square feet in the fourth quarter. The total vacancy rate fell 47 basis points to 14.12 percent. • Leasing activity slowed fourth quarter and totaled 256,152 square feet. Local news giant, Chicago Tribune, signed a 138,561 SF relocation due to the Tribune Tower undergoing redevelopment plans under new ownership. Additional notable commitments included: Hill-Rom Holdings (47,977 SF), Kleuver and Platt (18,774 SF), and Envestnet Inc. (13,181 SF). Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 23,177,584 SF Vacancy by Building Class TOTAL VACANCY 3,274,285 SF (14.12%) DIRECT VACANCY 3,046,403 SF (13.14%)
SUBLEASE VACANCY 227,882 SF (0.98%) 14.55% 15.06% AVAILABLE SPACE 4,086,213 SF (17.63%) 11.83% 4Q 2017 NET ABSORPTION 105,287 SF YE 2017 NET ABSORPTION 141,336 SF
4Q 2017 NEW LEASING ACTIVITY 256,152 Class A Class B Class C Vacancy Rate Vacancy Rate Vacancy Rate UNDER CONSTRUCTION 0 SF Direct Vacancy Sublease Vacancy 4Q 2017 NEW SUPPLY 0 SF 138,561 SF NEW LEASE One Prudential Center
Newspaper and editorial journal, Chicago Tribune signed a 138,561 SF lease at 130 E Randolph St.
99,204 SF RENEWAL
One Illinois Center
Combined Insurance Co. of America signed a 99,204 SF renewal at 111 E Wacker Dr.
• Gross asking rental rates increased for trophy buildings (2.02 percent) and Class A (0.74 percent) properties, while Class C (0.04 percent) and B (-0.14 percent) rental rates remained relatively unchanged. The continued rise in rental rates shows the demand for premier spaces in the CBD. Construction deliveries of new buildings in the West Loop should create demand and competition.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$36.92 $31.51 $27.88 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 5 10 15 20 25 30 35 Class A Class B Class C
Signifi cant Sale Transactions
None To Report
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type 130 E Randolph St 138,561 Chicago Tribune New lease
111 E Wacker Dr 99,204 Combined Insurance Company of America Renewal
122 S Michigan Ave 23,589 Illinois Department of Public Health Renewal 27 Fourth Quarter 2017 Chicago 90 41 go Oak St 94 ay North Michigan Avenuert Chicago Ave 90 41 Vacancy continues to tighten to new lows as the
second year of strong absorption comes to a 12 12 State St close. 20 Michigan Ave 20 Oak Lawn Wacker D 200,000 18% 57 r 50 94
100,000 16% Randolph St
0 14% Wells St Wacker Dr Wacker Harvey -100,000 12% Michigan Ave 6
10% -200,000 Congress Pky ‘12 20132014 2015 2016 2017 294 80 Vacancy Rate (%) Net Absorption (SF)
11.55% 19,276 $41.20 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• The overall vacancy rate for the North Michigan avenue submarket measured 11.46 percent fourth quarter, a 130 basis point drop from last quarter. Positive absorption was recorded for the third time in 2017, and totaled 19,276 SF fourth quarter. • Leasing activity remained relatively unchanged and no large leases were signed at the end of the year. Leasing velocity was primarily made up of smaller firms taking space that included: Glencoe Capital Holdings (12,293 SF), The Scion Group (9,684 SF), and Latham & Watkins (4,778 SF).
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 13,085,025 SF Vacancy by Building Class TOTAL VACANCY 1,510,309 SF (11.55%) DIRECT VACANCY 1,412,579 SF (10.80%) 15.41% SUBLEASE VACANCY 97,730 SF (0.75%) AVAILABLE SPACE 1,405,332 SF (10.74%) 8.11% 7.45% 4Q 2017 NET ABSORPTION 19,276 SF YE 2017 NET ABSORPTION 101,780 SF
4Q 2017 NEW LEASING ACTIVITY 134,311 Class A Class B Class C Vacancy Rate Vacancy Rate Vacancy Rate UNDER CONSTRUCTION 0 SF Direct Vacancy Sublease Vacancy 4Q 2017 NEW SUPPLY 0 SF 12,293 SF NEW LEASE
515 N State St
Glencoe Capital Holdings, LLC signed a 12,293 SF lease at 515 N State St.
772,404 SF SALE
401 N Michigan Ave
Walton Street Capital acquired 401 N Michigan Ave for $360.0 million or $466 PSF, the largest sale of the fourth quarter.
• After four consecutive quarters of limited investment activity, the North Michigan Avenue submarket recorded the largest investment sale during the fourth quarter at 401 N Michigan Ave for $360.0 million or $466 PSF. Total sales volume in the submarket was $446.4 million, the second highest of all the CBD submarkets. • Gross asking rental rates remained unchanged for trophy buildings, while a spike occurred in Class A and C rental rates by 2.37 and 1.10 percent, respectively. Class B asking rental rates dropped 0.33 percent.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$40.09 $33.57 $27.47 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 5 10 15 20 Signifi cant Sale Transactions Class A Class B Class C
Building Address Sold (SF) Sale Price | PSF Buyer Seller 401 N Michigan Ave 772,404 $360,000,000 | $466 Walton Street Capital, LLC Zeller Realty Group 500 N Michigan Ave 324,027 $86,350,000 | $266 Schapira Group The Macerich Company
Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type 515 N State St 12,293 Glencoe Capital Holdings, LLC New lease
29 Fourth Quarter 2017 Chicago 90
Chicago Oak St 94 Midway Airport River North 171 Chicago Ave 9 For the second consecutive quarter, positive
absorption was recorded and vacancy fell in Ohio43 St 12 State St River North. 20 90 Kinzie St Oak Lawn 94 W 400,000 16% a 50 57 83 94 14% 200,000 R 12% 0 10% Halsted St Wells St Wacker Dr Wacker Carpenter St Harvey
-200,000 Michigan Ave 8%
-400,000 6% 290 ‘12 20132014 2015 2016 2017 Congress Pky 294 80 Vacancy Rate (%) Net Absorption (SF)
8.94% 21,630 $53.56 VACANCY RATE SF NET ABSORPTION PSF ASKING RATE*
• Positive absorption was recorded in the River North submarket for the second consecutive quarter, positive absorption, which resulted in an overall vacancy rate drop of 33 basis points. • Gross asking rental rates for trophy space in the River North submarket recorded a 2.23 percent increase over last quarter. Rental rates for Class A and B increased by 2.23 percent and 0.76 percent, respectively. Class C rates remained unchanged.
Arrows indicate change from previous quarter. * Premier Class A Gross Rate
MARKET SIZE 13,439,634 SF Vacancy by Building Class TOTAL VACANCY 1,201,591 SF (8.94%) DIRECT VACANCY 1,077,784 SF (8.02%) SUBLEASE VACANCY 123,807 SF (0.92%) 11.07% AVAILABLE SPACE 2,384,738 SF (17.74%) 8.05% 4Q 2017 NET ABSORPTION 21,630 SF 6.77% YE 2017 NET ABSORPTION -94,989 SF 4Q 2017 NEW LEASING ACTIVITY 70,997 SF Class A Class B Class C UNDER CONSTRUCTION 0 SF Vacancy Rate Vacancy Rate Vacancy Rate 4Q 2017 NEW SUPPLY 0 SF Direct Vacancy Sublease Vacancy 155,45 4 SF SALE 213 W Institute Pl
KBS Growth & Income REIT acquired Institute Place Lofts for $43.5 million or $279.8 PSF.
10,009 SF NEW LEASE 435 N LaSalle St
Simple Mills signed a 10,009 SF lease at 435 N LaSalle St. The company plans to move to the building during the summer of 2018.
• Leasing activity slowed to 70,997 SF fourth quarter. Demand for creative office spaces should reset in 2018 after a slow close to the year. • Sales volume in the River North submarket totaled $69.2 million during the fourth quarter, to bring year-to- date sales to $170.3 million.
Asking Gross Rental Rates by Class Blocks of Available Space
20k+ SF
$52.13 $31.64 $29.16 50k+ SF PSF ASKING RATE PSF ASKING RATE PSF ASKING RATE Class A Class B Class C 100k+ SF 0 5 10 15 20 25 Signifi cant Sale Transactions Class A Class B Class C
Building Address Sold (SF) Sale Price | PSF Buyer Seller Institute Place Lofts, 213 W Institute Pl 155,454 $43,500,000 | $280 KBS Growth & Income REIT, Inc. Ameritus 343 W Erie St (Part of 6-Building Portfolio)* 80,000 $16,645,127 | $208 Mountain View Properties FrankGecker, LLP 747 N LaSalle St (Part of 6-Building Portfolio)* 43,411 $9,032,270 | $208 Mountain View Properties FrankGecker, LLP *Part of portfolio sale Signifi cant Lease Transactions
Building Address Leased (SF) Tenant Lease Type 435 N LaSalle St 10,009 Simple Mills New lease
31 NAI Global is strategic & innovative
Corporate Services Acquisition / Disposition Leasing Agency / Landlord Representation Tenant Representation Appraisal & Valuation
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Advisory & Consulting Services Property Management Acquisition / Disposition Capital Markets Build-to-Suit Project Management Feasibility Analysis Lease Administration Lease Audit Tax Appeal Title / Escrow / Survey Global Supply Chain & Logistics Locations by Country Asset Services Asset Management North America Europe, Africa & Corporate Facilities Management Canada The Middle East Property Management Mexico Austria Build-to-Suit / Construction United States Belgium Management Bulgaria Green / LEED™ Consultation Latin America & Czech Republic The Caribbean Denmark Argentina Finland Bahamas France We are an international real estate services Brazil Germany Chile Greece organization with the institutional strength Costa Rica Iceland of one of the world’s leading property Jamaica Israel Panama Kazakhstan investment companies. Peru Kuwait Venezuela Latvia Norway Our experts are strategic and innovative, Asia Pacifi c Qatar working collaboratively to realize maximum Australia Republic of Serbia China potential and generate creative solutions for Romania India Russian Federation our clients worldwide. Indonesia South Africa Japan Spain South Korea Sweden Our collaborative services platform Malaysia Switzerland provides an expansive, yet nimble and New Zealand Turkey Philippines Ukraine responsive structure enabling us to Singapore United Kingdom effi ciently deliver superior results. Taiwan Methodology & Defi nitions
Methodology Net Absorption The net change in occupied space in a given market between the current measurement The information included in this review is the result of a compilation period and the last measurement period. Net and analysis of data from various sources on class A, class B, absorption can be either positive or negative and must and class C properties located in the metropolitan Chicago area, include decreases as well as increases in inventory defined by the submarket map on page six of this report. NAI levels. For the purpose of this report, sublease space Hiffman obtained the information contained herein from property is included in the calculation of net absorption. representatives, the CoStar Group, RealCapital Analytics, industry periodicals and magazines, our in-house property database, and New Supply The total inventory delivered to the other sources. NAI Hiffman greatly appreciates the participation market since the last measurement period. Delivered of each of these individuals, companies and resources, is defined as total square footage and/or number without whose help this report would not have been possible. of buildings that has completed construction and received a certificate of occupancy during a stated All of the information detailed throughout this report is saved period. and organized in our own in-house database and is regularly updated. Utilizing this database, we can analyze, calculate and Under Construction Buildings where either: a) report demographic information, inventory, vacancy, availability, actual ground breaking has occurred (site excavation net absorption, and transactional information. or foundation work) and construction is ongoing (not abandoned or discontinued) but for which a Defi nitions certificate of occupancy has not yet been issued; or The NAI Hiffman Market Review tracks several measures of market b) properties undergoing conversion from another use conditions. This information is collected for individual properties or c) properties undergoing a major renovation where then consolidated, organized and analyzed for submarket and 75 percent or more of the building is not available for market totals. These terms, used throughout the reports, are lease and building generally requires a certificate of defined below according to NAIOP Terms & Definitions. occupancy to be made available for lease.
Total Inventory (Market Size) The total square footage of gross Available Space The total amount of space that is rentable area in a specific market. It includes the gross rentable currently being marketed as available for lease in a area in buildings that have received a certificate of occupancy. given time period. It includes space that is available, Total inventory increases when a new building is delivered and regardless of whether the space is vacant, occupied, decreases when an existing building is destroyed, demolished or available for sublease, or available at a future date. its use changes. Leasing Activity The total square footage of new Vacancy Rate A measurement expressed as a percentage of leases signed within a quarter, excluding lease the total amount of vacant space divided by the total amount of renewals. inventory. Vacant space is inventory that is not currently occupied.
33 Fourth Quarter 2017 NAI Hiffman Executive Leadership
Dennis Hiffman David Petersen Michael Flynn, CCIM, SIOR Bob Assoian Chairman CEO COO Managing Director 630 691 0616 630 691 0691 630 691 0600 630 317 0761 [email protected] [email protected] mfl [email protected] [email protected]
Offi ce Services
James Adler Perry Higa Ryan Maher Jason Streepy Executive Vice President Senior Vice President Associate Senior Vice President 630 691 0605 630 693 0684 630 693 0677 630 317 0743 [email protected] [email protected] [email protected] [email protected]
Stephen Chrastka AJ Jacobs Shane Murphy Aubrey Van Reken Vice President Vice President Associate Vice President 630 317 0746 630 317 0702 630 317 0724 630 693 0679 [email protected] [email protected] [email protected] [email protected]
Brian Edgerton Adam Johnson Daniel O’Neill Michael Van Zandt Vice President Vice President Executive Vice President Executive Vice President 630 693 0671 630 317 0729 630 691 0610 630 368 0848 [email protected] [email protected] [email protected] [email protected]
Thomas Gnadt Patrick Kiefer Jack Reardon Jason Wurtz Assocciate Executive Vice President Senior Vice President Senior Vice President 630 693 0659 630 693 0670 630 693 0647 630 693 0692 [email protected] [email protected] [email protected] [email protected]
Investment Services
Arthur Burrows Ted Staszak Senior Vice President Senior Vice President 630 693 0675 630 317 0728 [email protected] [email protected]
Ryan Chambers Patrick Sullivan Vice President Senior Vice President 630 317 0759 630 317 0797 [email protected] [email protected]
Retail Services
Dan Hiffman Jana Foreman Senior Sales Associate Senior Retail Leasing Representative 630 693 0655 630 693 0682 [email protected] [email protected] Industrial Services
Stephanie Aguas Kelly Disser Pat Hart Stephen Sullivan Associate Executive Vice President Associate Vice President 630 317 0704 630 317 0721 630-317-0758 847 610 0123 [email protected] [email protected] [email protected] [email protected]
Joe Bronson, SIOR Packy Doyle Terry Herlihy Alex Sutterer Executive Vice President Associate Senior Associate Associate 630 317 0725 630 691 0601 630 693 0664 630 693 0644 [email protected] [email protected] [email protected] [email protected]
John Cash, SIOR Jeff Fischer Daniel Leahy, SIOR Brett Tomfohrde Executive Vice President Executive Vice President Executive Vice President Associate 630 691 0609 630 317 0726 630 691 0604 630 693 0669 [email protected] jfi [email protected] [email protected] [email protected]
Brian Chandler Michael Freitag Jay Maher Eric Tresslar Associate Associate Vice President Executive Vice President 630 317 0738 630 693 0652 630 693 0689 630 693 0650 [email protected] [email protected] [email protected] [email protected]
Brian Colson Chris Gary Mark Moran Brandon Waters Executive Vice President Executive Vice President Executive Vice President Associate 630 691 0619 630 693 0694 630 693 0656 630 693 0673 [email protected] [email protected] [email protected] [email protected]
Steve Connolly, SIOR Aimee Goudas Lawrence Much, SIOR John Whitehead Executive Vice President Associate Executive Vice President Senior Vice President 630 693 0642 630 317 0714 630 691 0606 630 693 0643 [email protected] [email protected] [email protected] [email protected]
Kevin Cooney Bruce Granger Adam Naparsteck Josh Will Associate Senior Vice President Vice President Associate 630 693 0640 630 693 0648 630 693 0676 630 317 0794 [email protected] [email protected] [email protected] [email protected]
Benjamin Cremer David Haigh Adam Roth, CCIM, SIOR Senior Vice President Vice President Executive Vice President 630 691 0614 630 693 0649 630 691 0607 [email protected] [email protected] [email protected]
Marketing
Whitney Kannaka Matt Hronick Lauren Fishbune Director of Marketing Creative Director Designer & Project Manager 630 317 0713 630 693 0693 630 317 0737 [email protected] [email protected] lfi [email protected]
Daniel Braxton Karen Kirian Judy Loch Patricia Stefanska Julie Elsner Jordyn Krejci Alison O’Connell Paige Zarbuck Elsa Gaztambide Melody Lawrence Janice Ridderhoff Tracey Zommer
Research For further information regarding the content of this market review, or for specialty reports, please contact your local broker or:
Amanda Ortiz Dane Sorensen Edwin Chung Director of Research Senior Research Manager Research Associate 630 693 0645 630 317-0706 630 693 0668 [email protected] [email protected] [email protected]
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