Research Quarter 2017 | Chicago Market Overview 1 181 West Madison Street, Suite 4700, Chicago, Illinois 60602 | (312) 487-5977 | Mbres.Com Third Quarter

CHICAGO CBD MARKET OVERVIEW & SNAPSHOTS

THIRD QUARTER 2017

THIRDRESEARCH QUARTER 2017 | CHICAGO MARKET OVERVIEW 1 181 WEST MADISON STREET, SUITE 4700, CHICAGO, ILLINOIS 60602 | (312) 487-5977 | MBRES.COM THIRD QUARTER

2017 TABLE OF CONTENTS

SECTION ONE CHICAGO CHICAGO ECONOMY MARKET OVERVIEW 01 Economic Analysis

SECTION TWO CHICAGO CENTRAL BUSINESS DISTRICT

02 Chicago CBD Executive Summary

SUPPLY 03 New Development 04 Sublease Space 05 Large Blocks of Direct Availability

DEMAND 06 Vacancy Rates 07 Large Deals 08 Absorption

FEATURES 09 Lease Comparables 10 Investment Sales 11 Forecast 12 Market Statistics

SECTION THREE CENTRAL BUSINESS DISTRICT SNAPSHOTS

CBD SUBMARKET SNAPSHOTS The Chicago Market Overview is published 13 Central Business District Map quarterly by MB Real Estate Services Inc. 14 Central Loop 15 East Loop To obtain additional copies or for further 16 North Michigan Avenue information, please contact: 17 River North 18 West Loop Caitlin Ritter, Research Manager 19 River West

181 West Madison Street, Suite 4700 SECTION FOUR Chicago, Illinois 60602 ADDITIONAL INFORMATION (312) 487-5977 20 Glossary [email protected] 21 About MB Real Estate

www.mbres.com CHICAGO ECONOMIC ANALYSIS SECTION ONE CHICAGO ECONOMY ECONOMIC ANALYSIS

Total nonfarm payroll employment increased nationally by 274,000 in the third quarter of 2017, bringing the unemployment rate down to 4.2 percent overall at the end of September. According to the Bureau of Labor Statistics, third quarter job gains occurred primarily in education and health services, as well as professional and business services.

According to the Illinois Department of Employment Security’s (IDES) latest figures, the August 2017 unemployment rate for Chicago’s total MSA, including parts of Northwest Indiana and Southern Wisconsin, was 5.3 percent, down from 5.8 percent in August 2016. Chicago’s total MSA nonfarm payroll employment increased by 24,700 during the same time period, with gains occurring primarily in financial activities.

In June, the Federal Reserve increased interest rates by 25 basis points, from a range of 0.75 to 1.0 percent to a range of 1.0 to 1.25. Despite a lack of inflation, another increase in interest rates is expected this December, which would be the fifth hike since 2015.

HISTORIC UNEMPLOYMENT RATE 12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0% 2012 2013 2014 2015 2016 2017

Chicago MSA Unemployment Rate National Unemployment Rate

CHICAGO MSA EMPLOYMENT CHANGE BY INDUSTRY (AUGUST 2016 - AUGUST 2017)

Financial activities 9,300

Professional and business services 7,600

Leisure and hospitality 3,200

Education and health services 2,900

Information 2,700

Other services 2,400

Construction 1,800

Trade, transportation, and utilities (600)

Government (1,900)

Manufacturing (2,700)

Source: Bureau of Labor Statistics THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 1 CHICAGO ECONOMIC ANALYSIS SECTION TWO CENTRAL BUSINESS DISTRICT EXECUTIVE SUMMARY

Chicago’s CBD office market remained strong in the third quarter of 2017 despite an increased direct vacancy rate of 12.2 percent and 380,017 square feet of negative absorption. The 1.1 percentage point vacancy rate increase from the third quarter of 2016 was expected due to the 2.65 million square feet of new inventory that has been added to the market. Key Indicators:

• There were 12 large new deals and 11 large renewal, expansion, and sublease deals signed in the third quarter of 2017.

• Northern Trust signed a 462,000 square foot lease at 333 S. Wabash, the East Loop office tower that CNA will be vacating when it moves to the trophy tower currently under construction at 151 N. Franklin.

• Fulton West, Sterling Bay’s 287,928 square foot development at 1330 W. Fulton in River West, is now complete and, tenants are currently moving in. Sterling Bay also broke ground on a 203,589 square foot building at 210 N. Carpenter.

• The sublease market decreased by 56,978 square feet in the third quarter of 2017, bringing the total amount of available sublease space down to 3,522,266 square feet. This is the fourth quarter in a row that the sublease market has contracted after reaching a seven year high in the third quarter of 2016.

• The average initial net rent for new deals in the past year was $22.50 per square foot across all classes. Average renewal net rent across all classes was $21.27 per square foot.

• Chicago’s investment sales market is regaining momentum after three quarters of very little activity. Seven buildings sold, three buildings went under contract, and five buildings were put on the market in the third quarter.

CBD VACANCY AND THIRD QUARTER ABSORPTION SUMMARY

Direct Vacancy Change r Change r Change r Change r A B C Total 3Q2017

Central Loop 12.6% 12.5% 10.8% 12.2% East Loop 9.1% 14.2% 13.8% 13.2% N. Michigan Ave. 18.2% 9.1% 10.2% 12.3% River North 4.8% 11.1% 12.7% 9.9% West Loop 12.8% 13.2% 11.4% 12.7% River West 2.1% - - 10.1% 7.7% Chicago CBD Total 12.1% 12.6% 11.8% 12.2%

Net Absorption A B C Total 3Q2017

Central Loop (291,925) (66,366) (5,497) (363,788) East Loop (1,358) (12,112) (55,986) (69,456) N. Michigan Ave. 35,576 (38,964) (9,532) (12,920) River North 7,746 14,035 75,026 96,807 West Loop (296,275) 246,246 10,721 (39,308) River West (11,279) - 19,927 8,648 Chicago CBD Total (557,515) 142,839 34,659 (380,017)

Numbers in parentheses are negative

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 2 CENTRAL BUSINESS DISTRICT : SUPPLY NEW DEVELOPMENT STERLING BAY’S FULTON WEST DELIVERED

• Fulton West, Sterling Bay’s 287,928 square foot development 2000 - 2017 INVENTORY ADDITIONS % Leased (Avg)

at 1330 W. Fulton in River West, is now complete, and tenants 2000 - 5 Properties ,, s 95.8% are currently moving in. This is the third new office development 2001 - 2 Properties , s 86.9% 2002 - 2 Properties ,, s 94.6% delivered since the fourth quarter of 2016, making the 2003 - 0 Properties s 0.0% combined total of new inventory 2.65 million square feet. 2004 - 1 Property ,, s 100.0% 2005 - 2 Properties ,, s 97.4% 2006 - 2 Properties ,, s 96.9% • There are four additional developments currently under 2007 - 0 Properties s 0.0% construction, which will add an additional 2.1 million square 2008 - 2 Properties , s 70.6% feet of inventory in 2018: John Buck’s development at 151 N. 2009 - 3 Properties ,, s 81.4% 2010 - 1 Expansion , s 92.9% Franklin, White Oak Realty’s development at 625 W. Adams, 2011 - 0 Properties s 0.0% the new corporate headquarters that Sterling Bay is building 2012 - 0 Properties s 0.0% 2013 - 0 Properties s 0.0% for McDonald’s at 1045 W. Randolph, and another Sterling Bay 2014 - 0 Properties s 0.0% development at 210 N. Carpenter. 2015 - 1 Property , s 93.5% 2016 - 1 Property ,, s 78.7% 2017 - 1 Property ,, s 81.7% • The redevelopment of Chicago’s Old Main Post Office is also Total - 23 Properties ,, s underway, which will add approximately 2.5 million square feet of office inventory when it is completed in 2019 or 2020. UNDER CONSTRUCTION/ANNOUNCED % Leased The Post Office ,, s 0.0% • Construction is expected to begin soon on two more 110 N. Wacker ,, s 39.5% developments that will add an estimated total of 1.85 151 N. Franklin , s 53.6% 1045 W. Randolph , s 92.8% million square feet of office inventory by 2020. Howard 333 N. Green , s 50.6% Hughes and Riverside Investment & Development are 625 W. Adams , s 0.0% planning to break ground on a 1.35 million square foot 210 N. Carpenter , s 11.5% tower at 110 N. Wacker in January of 2018, with Bank of Total ,, s America as an anchor tenant. Sterling Bay is likely to begin 2000-2017 INVENTORY ADDITIONS

construction soon on yet another Fulton Market office Delivered (2000-2009) ,, s project at 333 N. Green. WPP Group has signed a lease for Delivered (2010-2016) ,, s 253,000 square feet of the approximately 500,000 square Delivered (2017) ,, s foot planned development. Total ,, s Under Construction/Announced ,, s

NEW DELIVERIES WILL CONTRIBUTE OVER TWO MILLION TO INVENTORY BY 2018 4,000,000 20% 3,500,000 18% 3,000,000 16% 2,500,000 14% 2,000,000 12% 1,500,000 10% 1,000,000 8% 500,000 0 6% (500,000) 4% (1,000,000) 2% (1,500,000) 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD New Construction Delivery (square feet) Absorption (square feet) Direct Vacancy Rate %

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 3 CENTRAL BUSINESS DISTRICT : SUPPLY SUBLEASE SPACE SUBLEASE MARKET CONTRACTS

• Chicago’s CBD sublease market decreased by 56,978 square feet in the third quarter of 2017, bringing the total amount of available sublease space down to 3,522,266 square feet. This is the fourth quarter in a row that the sublease market inventory has contracted after reaching a seven year high in the third quarter of 2016.

• Two new large blocks of space came on the market in the third quarter: Baxalta’s 82,798 square feet at 540 W. Madison and KCG’s 57,071 square feet at 350 N. Orleans.

• Morton Salt’s 67,798 square foot block of sublease space at 123 N. Wacker was taken off the market in the third quarter and is now available as direct space.

4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2,404,109 3,158,562 4,201,801 3,576,846 2,897,711 3,214,365 3,060,757 3,161,152 3,351,486 4,055,289 3,522,266 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

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

CLASS A Building Address Size (sf) Occupancy Expiration Floor(s) Sublandlord 71 S. Wacker 214,069 Vacant Feburary 2020 10-17 Hyatt Hotels Corporation 540 W. Madison 82,798 Vacant December 2027 8-9 Baxalta 233 S. Wacker 80,383 Vacant September 2019 46-47 Chubb 200 W. Madison 68,605 Vacant September 2018 2-4 Harrington College of Design 1 N. Wacker 63,315 June 2018 January 2021 13-14 OCC (Options Clearing Corporation) 161 N. Clark 61,326 Vacant October 2019 6-7 GE Capital Rail Services Total - 6 Spaces 570,496 CLASS B Building Address Size (sf) Occupancy Expiration Floor(s) Sublandlord 225 W. Randolph 265,244 Vacant December 2022 22-25, 27 AT&T 225 W. Randolph 156,364 Negotiable November 2022 17-19 AT&T 222 W. Merchandise Mart 113,260 30 Days June 2028 17 Motorola 1 N. Dearborn 105,151 60 Days December 2025 12-13 Pierce & Associates 141 W. Jackson (Annex) 76,740 120 Days May 2027 4-6 CME Group 111 N. Canal 58,073 Vacant October 2018 7 Papyrus-Recycled Greetings 350 N. Orleans 57,071 60 Days August 2026 2 KCG 225 W. Randolph 51,794 Vacant November 2022 28-29 Avant Credit Total - 8 Spaces 883,697

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 4 CENTRAL BUSINESS DISTRICT : SUPPLY LARGE BLOCKS OF DIRECT AVAILABILITY LARGE BLOCKS OF DIRECT VACANCY REMAIN STABLE

• The largest block of directly available space is still the 432,709 CLASS B square feet at 625 W. Adams, which has been under construction Building Address Size (sf) Availability Submarket

since May of 2016, but has yet to pre-lease any of its space. 203 N. LaSalle 277,349 Vacant Central Loop 300 S. Riverside 259,238 Vacant West Loop 2 N. LaSalle 232,757 Vacant Central Loop • The number of direct blocks of available space decreased to a 125 S. Clark 175,718 Vacant Central Loop 222 N. LaSalle 164,926 June 2018 Central Loop total of 73 in the third quarter of 2017 from 80 last quarter. There 200 W. Monroe 161,287 January 2018 West Loop 175 W. Jackson 157,130 July 2018 Central Loop is a total of eight direct blocks larger than 200,000 square feet, 222 W. Merchandise Mart 153,900 September 2018 River North down from 11 last quarter. 233 N. Michigan 143,067 Negotiable East Loop 333 S. Wabash 141,420 June 2018 East Loop 175 W. Jackson 133,071 July 2018 Central Loop 130 E. Randolph 99,064 Vacant East Loop • Of the roughly 8.4 million square feet of available direct large 2 N. LaSalle 84,135 Vacant Central Loop blocks, about 4.6 million are currently vacant, and about 3.8 330 N. Green 76,432 Vacant River West 205 N. Michigan 73,820 Vacant East Loop million have future availability dates. 55 E. Monroe 73,145 Vacant East Loop 100 S. Wacker 72,782 Vacant West Loop 222 S. Riverside 72,502 January 2018 West Loop • MBRE has identified at least 52 tenants actively seeking 50,000 600 W. Chicago 72,472 Vacant River North 200 W. Jackson 70,193 Vacant West Loop square feet or more in the CBD. 330 N. Wabash 68,564 Vacant North Michigan Avenue 33 W. Monroe 64,476 Vacant Central Loop 233 N. Michigan 62,865 Vacant East Loop 120 S. LaSalle 62,557 Vacant Central Loop 303 E. Wacker 61,019 Vacant East Loop 1 S. Wacker 57,054 Vacant West Loop CLASS A 175 W. Jackson 55,896 December 2017 Central Loop Building Address Size (sf) Availability Submarket 1 N. Dearborn 52,373 Vacant Central Loop 625 W. Adams 432,709 April 2018 West Loop 1 N. Dearborn 52,292 Negotiable Central Loop 200 E. Randolph 354,127 August 2018 East Loop 29 Blocks 3,231,504 151 N. Franklin 257,016 June 2018 West Loop 71 S. Wacker 246,872 March 2020 West Loop 227 W. Monroe 188,346 Vacant West Loop 550 W. Jackson 144,207 Vacant West Loop 500 W. Madison 141,404 January 2018 West Loop CLASS C 222 W. Adams 139,034 November 2018 West Loop 200 E. Randolph 131,268 Vacant East Loop Building Address Size (sf) Availability Submarket 30 S. Wacker 129,216 Vacant West Loop 123 N. Wacker 121,428 Vacant West Loop 311 W. Monroe 363,204 Vacant West Loop 111 S. Wacker 112,052 January 2018 West Loop 401 S. State 166,205 Vacant East Loop 222 W. Adams 109,981 Vacant West Loop 1 S. Dearborn 106,624 January 2020 Central Loop 1 N. State 97,995 Vacant East Loop 444 W. Lake 106,292 Vacant West Loop 122 S. Michigan 91,636 November 2017 East Loop 123 N. Wacker 93,454 February 2018 West Loop 122 S. Michigan 79,045 November 2017 East Loop 233 S. Wacker 91,807 Vacant West Loop 233 S. Wacker 91,807 Vacant West Loop 435-445 N. Michigan 69,943 Negotiable North Michigan Avenue 131 S. Dearborn 91,666 Vacant Central Loop 20 N. Wacker 68,137 March 2018 West Loop 71 S. Wacker 91,414 Vacant West Loop 440 S. LaSalle 89,045 Vacant Central Loop 540 N. LaSalle 56,130 Vacant River North 191 N. Wacker 70,794 Vacant West Loop 1 N. State 53,940 Vacant East Loop 151 N. Franklin 69,876 June 2018 West Loop 311 S. Wacker 68,761 July 2018 West Loop 79 W. Monroe 51,523 November 2018 Central Loop 131 S. Dearborn 64,311 Vacant Central Loop 1 N. State 50,023 Vacant East Loop 131 S. Dearborn 64,311 November 2017 Central Loop 71 S. Wacker 63,317 Vacant West Loop 11 Blocks 1,147,781 200 W. Madison 61,853 September 2018 Central Loop 111 S. Wacker 60,329 January 2018 West Loop 20 W. Kinzie 58,805 Vacant River North 77 W. Wacker 55,032 Vacant Central Loop 455 N. Cityfront Plaza 52,045 Vacant North Michigan Avenue 35 W. Wacker 50,000 Vacant Central Loop 33 Blocks 4,009,203

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 5 CENTRAL BUSINESS DISTRICT : DEMAND VACANCY RATES CLASS A VACANCY RATE INCREASE

• The overall direct vacancy rate in the CBD increased by 67 basis points to 12.22 percent the third quarter from 11.55 percent at the end of the second quarter.

• The Class A vacancy rate increased by 1.99 percentage points from the second quarter to 12.11 percent by the end of the third quarter.

• The Class B vacancy rate decreased by 38 basis points this quarter, bringing the rate to 12.63 percent.

• The Class C vacancy rate is currently 11.81 percent, a 9 basis point decrease from the end of the second quarter.

HISTORIC DIRECT VACANCY : RATES INCREASE SLIGHTLY AFTER STEADY DECLINE 18%

16%

14%

12%

10% 13.57% 14.08% 14.97% 16.56% 14.36% 11.67% 11.52% 15.32% 16.04% 15.41% 15.11% 14.54% 13.59% 12.03% 11.35% 12.22% 8% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

HISTORIC YEAR-END DIRECT VACANCY MARKET BY CLASS : PATTERNS HOLD 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

Class A Class B Class C

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 6 CENTRAL BUSINESS DISTRICT : DEMAND LARGE DEALS PLANNED OFFICE TOWER SIGNS LARGE DEAL

• There were 23 large deals signed in the third quarter of 2017, bringing the total for the year up to 71.

• The largest new deal signed in the third quarter was Northern Trust’s 462,000 square foot lease at 333 S. Wabash. Northern Trust will occupy the space in 2020, after CNA moves out and the building undergoes extensive renovations. Northern Trust will be consolidating up to 3,000 employees from multiple locations, but will not be relocating its headquarters from it current location at 50 S. LaSalle.

• Two large deals were signed that enable Sterling Bay to move forward with two new developments in the Fulton Market area of the River West submarket: WPP signed a lease for 253,000 square feet of the 500,000 square foot building planned for 333 N. Green and Leopardo signed a lease for 24,000 square feet of the 203,589 square foot building now under construction at 210 N. Carpenter.

• Two large new deals were signed in the burgeoning area in and around Goose Island, just outside of the CBD. Spaces, an Amsterdam based co-working firm, leased 27,110 square feet at 1500 N. Halsted, and Mars Foods leased 20,000 square feet at 1131 W. Blackhawk, across from its subsidiary, Wrigley’s Global Innovation Center.

LARGE LEASE TRANSACTIONS (OVER 15,000 SQUARE FEET) NEW Tenant Type Submarket Building Address Size (sf) Northern Trust New East Loop 333 S. Wabash 462,000 WPP New River West 333 N. Green (proposed) 253,000 GATX Corporation New West Loop 233 S. Wacker 90,000 Spaces New River West 900 W. Randolph 40,000 Spaces New Goose Island 1500 N. Halsted 27,100 Sun Times New River West 1201 W. Washington 26,000 Leopardo New River West 210 N. Carpenter 24,000 Eating Recovery Center New River North 1 E. Erie 22,891 The Hartford New West Loop 200 W. Madison 21,402 Mars Food New Goose Island 1131 W. Blackhawk 20,000 Kleuver and Platt New East Loop 150 N. Michigan 18,774 Mid America Real Estate Group New North Michigan Ave 410 N. Michigan 15,200 Total - 12 Deals 1,020,367

RENEWAL/EXPANSION/SUBLEASE Tenant Type Submarket Building Address Size (sf) Quarles & Brady Ren/Exp River North 300 N. LaSalle 100,000 Barnes & Thornburg Ren/Exp West Loop 1 N. Wacker 95,155 Relativity (Formerly kCura) Exp Central Loop 231 S. Lasalle 46,219 Belvedere Trading Ren West Loop 10 S. Riverside 36,648 Trunk Club Exp River North 333 W. Ohio 30,286 Honigman Miller Schwartz & Cohn Sublease West Loop 155 N. Wacker 28,077 The Chicago Housing Authority Exp East Loop 333 S. Wabash 26,179 Server Central Ren Central Loop 111 W. Jackson 23,868 Fox Swibel Levin & Carroll Ren West Loop 200 W. Madison 22,974 HealthScape Advisors Ren/Exp Central Loop 55 W. Monroe 21,139 Konica Minolta Exp West Loop 500 W. Madison 20,062 Total - 11 Deals 450,607

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 7 CENTRAL BUSINESS DISTRICT : DEMAND ABSORPTION NEGATIVE ABSORPTION IN CLASS A SECTOR

• There was a total of 380,017 square feet of negative absorption in the CBD in the third quarter of 2017, which brings the year to date figure down to 747,117 square feet of positive absorption. • The largest amount of negative absorption was in the Class A sector of the Central and West Loop submarkets. The Central Loop’s 291,925 square feet of negative absorption was primarily due to Seyfarth Shaw fully vacating its 307,000 square foot space at 131 S. Dearborn after relocating to Willis Tower in March. The West Loop’s 296,275 square feet of negative absorption was primarily due to William Blair fully vacating its 289,686 square foot space at 222 W. Adams after relocating to the new office tower at 150 N. Riverside in June. • The Class B sector of the West Loop had the most positive absorption in the third quarter. The largest contributor to the 246,246 square feet of positive absorption was Cars.com, which moved into 158,197 square feet at 300 S. Riverside.

HISTORIC ABSORPTION 3,000,000 2,566,896 2,500,000 2,144,094 2,000,000 1,888,648

1,500,000 1,275,048 1,305,274

913,519 1,000,000 720,110 747,117 472,780 500,000

0 (74,794) (136,763) (500,000) (298,110) (509,999) (670,489) (1,000,000) (720,154) (936,680) (1,500,000) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

HISTORIC ABSORPTION BY SUBMARKET 4,000,000

3,000,000

2,000,000

1,000,000

(1,000,000)

(2,000,000) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD Central Loop East Loop River North North Michigan Avenue South Loop West Loop River West

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 8 CENTRAL BUSINESS DISTRICT : FEATURES LEASE COMPARABLES RENTAL RATES INCREASE

• The average initial net rent for new deals in the past year was $22.50 per square foot across all classes. Average renewal net rent across all classes was $21.27 per square foot.

• Tenant improvement allowances for new leases have increased across all classes as construction costs continue to rise.

• The highest net asking rents for space at existing Class A properties currently on the market is $46 per square foot.

• The average estimated initial taxes and operating costs for leases signed over the past year was $17.23 for Class A properties, $14.70 for Class B properties, and $9.23 for Class C properties.

AVERAGE LEASE TERMS ON NEW AND RENEWAL DEALS

AVERAGE NET AVERAGE ABATEMENT AVERAGE TERM AVERAGE TENANT IMPROVEMENT INITIAL RATE (MONTHS) (YEARS) NEW DEALS A BC A BC A BC A BC

4Q2016 - 3Q2017 $25.14 $21.43 $20.21 $64.47 $52.27 $37.54 9.6 6.8 5.5 8.7 7.4 5.8 4Q2015 - 3Q2016 $24.18 $20.38 $19.29 $59.08 $48.07 $32.17 7.4 6.5 6.4 8.7 7.2 7.5 4Q2014 - 3Q2015 $23.18 $21.46 $17.72 $56.77 $56.18 $57.14 8.3 6.4 8.4 8.8 7.1 6.4 4Q2013 - 3Q2014 $18.83 $18.99 $15.20 $47.74 $49.72 $44.05 7.0 5.8 4.8 8.0 7.1 5.5 4Q2012 - 3Q2013 $19.66 $16.11 $15.10 $37.49 $31.62 $23.54 6.1 5.7 4.2 7.3 6.2 4.8 4Q2011 - 3Q2012 $19.81 $15.80 $13.73 $35.04 $31.82 $23.72 6.3 6.4 5.6 7.3 6.8 6.1 4Q2010 - 3Q2011 $20.23 $14.67 $12.45 $46.58 $27.88 $28.28 8.1 6.9 4.9 8.1 6.9 5.9 4Q2009 - 3Q2010 $19.63 $15.55 $11.13 $41.01 $27.07 $18.45 8.6 6.9 6.0 8.0 6.6 5.8 4Q2008 - 3Q2009 $20.83 $15.88 $12.75 $40.38 $34.24 $32.57 6.8 4.9 4.8 8.5 7.1 7.6 4Q2007 - 3Q2008 $21.58 $16.97 $14.51 $44.08 $37.90 $26.53 4.4 4.2 3.8 8.1 6.8 7.1 4Q2006 - 3Q2007 $18.94 $14.78 $13.19 $47.06 $38.64 $19.97 5.4 5.5 3.0 8.2 7.2 5.5 4Q2005 - 3Q2006 $17.57 $13.12 $14.54 $44.87 $37.85 $17.76 6.9 4.6 2.4 8.1 6.9 5.1 4Q2004 - 3Q2005 $17.40 $12.57 $9.92 $48.03 $41.35 $28.30 7.5 6.8 4.6 9.9 8.2 7.1 4Q2003 - 3Q2004 $16.79 $12.95 $9.30 $40.64 $41.90 $15.19 5.3 6.7 3.4 9.6 8.8 5.7

AVERAGE NET AVERAGE ABATEMENT AVERAGE TERM AVERAGE TENANT IMPROVEMENT INITIAL RATE (MONTHS) (YEARS) RENEWAL DEALS A BC A BC A BC A BC

4Q2016 - 3Q2017 $24.94 $19.05 $18.77 $32.21 $22.12 $10.40 4.0 4.8 2.3 6.7 5.8 4.1 4Q2015 - 3Q2016 $23.21 $18.80 $17.28 $25.10 $17.21 $16.11 5.1 3.1 5.7 6.3 4.7 6.1 4Q2014 - 3Q2015 $22.29 $18.02 $17.10 $29.40 $33.83 $23.50 5.6 7.4 4.5 6.4 8.4 7.5 4Q2013 - 3Q2014 $23.84 $18.86 $15.53 $38.76 $18.48 $13.00 5.2 5.1 4.6 6.7 5.6 5.1 4Q2012 - 3Q2013 $19.66 $15.77 $12.48 $16.90 $11.37 $6.80 4.1 4.3 2.8 5.5 5.4 4.2 4Q2011 - 3Q2012 $19.11 $14.81 $13.10 $11.35 $10.47 $9.54 3.9 3.0 2.2 5.0 4.2 3.7 4Q2010 - 3Q2011 $18.83 $14.17 $12.12 $18.20 $9.97 $8.72 5.2 4.4 3.9 6.3 4.5 4.4 4Q2009 - 3Q2010 $19.95 $15.75 $10.61 $17.10 $8.97 $5.95 5.6 4.1 5.3 5.8 4.8 5.2 4Q2008 - 3Q2009 $19.09 $16.84 $14.24 $18.34 $15.97 $13.61 3.8 3.1 2.6 5.7 5.1 6.5 4Q2007 - 3Q2008 $21.98 $15.77 $15.17 $19.05 $15.38 $12.14 2.5 2.5 2.3 6.8 5.7 6.6 4Q2006 - 3Q2007 $17.44 $14.22 $16.24 $17.89 $16.95 $12.33 4.5 2.5 1.2 6.7 6.1 5.9 4Q2005 - 3Q2006 $16.23 $13.24 $15.40 $23.25 $17.00 $10.29 4.3 3.2 0.7 6.9 6.4 5.4 4Q2004 - 3Q2005 $16.69 $12.46 $12.04 $24.90 $21.86 $4.25 5.4 3.0 0.8 8.6 8.2 4.8 4Q2003 - 3Q2004 $17.74 $13.28 $9.80 $22.41 $19.78 $11.09 2.4 3.5 1.1 8.3 7.1 6.8

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 9 CENTRAL BUSINESS DISTRICT : FEATURES INVESTMENT SALES INVESTMENT SALES MARKET SLUMP ENDS

• The largest sale in the third quarter was 231 S. LaSalle, which sold to Beacon for $165 million, or $166 per square foot.

• Sterling Bay has a contract to purchase Prudential Plaza, which includes 130 E. Randolph and 180 N. Stetson. The 2.2 million square foot complex would be the local developer’s largest investment thus far.

• The office portion of Chicago’s iconic John Hancock Center, located at 875 N. Michigan, was put on the market in the third quarter. The sale would include 896,980 square feet of office space, 717 parking spaces, and the naming rights.

THIRD QUARTER INVESTMENT MARKET ACTIVITY

Building Address Sale Date Size (sf) Price Price per SF Class Seller Status/Buyer

New On Market 875 N. Michigan 896,980 $350,000,000 $390 A The Hearn Company Marketing (3Q2017) New On Market 1 S. Dearborn 828,538 $400,000,000 $483 A Olen Properties Marketing (3Q2017) New On Market Crown Commercial Real 105 W. Adams 314,855 Undisclosed N/A B Marketing (3Q2017) Estate & Development New On Market 209 W. Jackson 142,121 $24,000,000 $169 B Farbman Group Marketing (3Q2017) New On Market 220 N. Green 90,000 Undisclosed N/A B AJ Capital Partners Marketing (3Q2017) On Market 35 W. Wacker 1,117,978 $450,000,000 $403 A UBS Marketing (2Q2017) On Market 161 N. Clark 1,068,877 $400,000,000 $374 A CBRE Global Investors Marketing (2Q2017) On Market 625 N. Michigan 290,000 $67,000,000 $231 B CIM Group/Golub Marketing (2Q2017) On Market 225 W. Wacker 650,812 $250,000,000 $384 A Mirae/Hines Marketing (1Q2017) 130 E. Randolph & Under Contract 2,192,432 $680,000,000 $310 A/B 601W Companies Sterling Bay 180 N. Stetson (3Q2017) Under Contract 1-33 S. State 753,686 $179,000,000 $237 B Madison Capital/KKR 601W Companies (3Q2017) Under Contract 300,316,320 N. Elizabeth 166,000 $43,000,000 $259 C Sterling Bay Alvaraz & Marsal (3Q2017) Under Contract 401 N. Michigan 761,164 $350,000,000 $460 B Zeller Realty Walton Street Capital (2Q2017) Under Contract 500 N. Michigan 322,443 $86,000,000 $267 B Macerich Schapira (2Q2017)

231 S. LaSalle 3rd Qtr 2017 995,235 $165,000,000 $166 C Berkley Properties Beacon

150 N. Michigan 3rd Qtr 2017 661,500 $129,750,000 $196 B Manulife CBRE Investors

300 S. Wacker 3rd Qtr 2017 512,354 $155,000,000 $303 B Beacon Capital Partners Golub & Alcion Ventures

GlenStar Properties/ 311 W. Monroe 3rd Qtr 2017 366,951 $60,000,000 $164 B Sterling Bay Prudential

213 W. Institute 3rd Qtr 2017 157,166 $43,500,000 $277 C Ameritus & Alcion Ventures KBS Realty Advisors

730 N. Franklin 3rd Qtr 2017 88,600 $23,300,000 $263 C McCaffery Interests The Feil Organization

215 W. Ohio 3rd Qtr 2017 50,372 $9,000,000 $179 C Mission Peak Capital Ruben Espinoza

Callahan Capital/ 125 S. Wacker 2nd Qtr 2017 568,683 $145,000,000 $255 B MetLife Ivanhoe Cambridge

181 W. Madison 1st Qtr 2017 952,560 $360,000,000 $378 A CBRE Global Investors HNA Group

303 W. Erie 1st Qtr 2017 62,000 $15,000,000 $242 C Cedar Street Companies Alvarez & Marsal

123 N. Wacker 1st Qtr 2017 540,676 $146,500,000 $271 A LNR Properties LaSalle Investment Management

2017 YTD Sales 4,956,097 $1,252,050,000 $253

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 10 CENTRAL BUSINESS DISTRICT : FEATURES FORECAST NEW DEVELOPMENTS NEED LARGE TENANTS

The Chicago office market has experienced steady growth Total Historic and Total Historic & Direct Year Forecasted Inventory Forecasted over the past few years and absorbed its new inventory well. Vacancy % However, new developments that are scheduled over the (SF) Occupancy (SF) next three years will deliver nearly 6.5 million square feet of 2001 122,776,164 108,743,284 11.4% 2002 124,713,268 107,598,500 13.7% inventory, which may be more than the market can support. 2003 125,037,423 106,754,119 14.6% 2004 126,452,643 106,568,104 15.7% In addition to the new developments that are already under 2005 128,385,650 105,737,728 17.6% construction or soon to break ground, a number of large-scale 2006 126,478,575 108,402,912 14.3% 2007 125,626,639 110,969,808 11.7% redevelopments, such as Union Station and the Finkl Steel site, 2008 125,269,078 110,833,045 11.5% are also in the works. It is likely that some of these projects will 2009 130,038,076 110,112,891 15.3% 2010 130,539,796 109,602,891 16.0% be put on hold unless large new tenants begin pre-leasing the 2011 130,649,210 110,516,410 15.4% planned space. 2012 131,044,641 111,238,394 15.1% 2013 131,021,405 111,964,734 14.5% The CBD’s recent expansion has mainly been supported by 2014 131,035,247 113,231,032 13.4% 2015 132,712,489 116,743,521 12.0% large tenants migrating from the suburbs, such as Kraft-Heinz, 2016 132,712,489 118,112,204 11.3% ConAgra, Beam Suntory and Wilson Sporting Goods. That trend YTD 2017 136,469,594 119,790,980 12.2% may have run its course, as there are a limited number of 2018 138,544,828 120,568,516 13.0% suburban tenants still available to pursue. 2007-2016 Absorption Avg: 777,536 2017 YTD Absorption: The large scale projects, such as the Finkl Site and Union 747,117 tForecasted occupancy based on 10-year trailing absorption average

Station, will most likely need to attract large scale tenants from *Inventory & occupancy reflect year end numbers outside the Chicagoland area. The recent announcment that Amazon is looking for a location for a second headquarters has sparked much hope in Chicago real estate developers, but they may need to rethink their large plans if the city is not chosen.

HISTORIC & PROJECTED VACANCY 145,000,000 20%

140,000,000 18%

135,000,000 16% 14% 130,000,000 12% 125,000,000 10% 120,000,000 8% 115,000,000 6% 110,000,000 4% 105,000,000 2% 100,000,000 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017 2018

Total Historic and Forecasted Inventory (SF) Total Historic & Forecasted Occupancy (SF) Direct Vacancy %

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 11 CENTRAL BUSINESS DISTRICT : FEATURES MARKET STATISTICS

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy CENTRAL LOOP Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 14,765,573 (476,072) (291,925) 1,861,687 12.6% 12,903,886 346,830 15.0% Class B 15,290,851 (13,511) (66,366) 1,914,974 12.5% 13,375,877 398,971 15.1% Class C 7,682,310 (43,082) (5,497) 831,582 10.8% 6,850,728 148,335 12.8% Total 37738734 532665 363788 4608243 122 33130491 894136 146

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy EAST LOOP Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 4,128,303 (23,610) (1,358) 377,485 9.1% 3,750,818 19,396 9.6% Class B 11,083,898 67,168 (12,112) 1,579,285 14.2% 9,504,613 251,139 16.5% Class C 7,820,754 (92,612) (55,986) 1,075,440 13.8% 6,745,314 103,172 15.1% Total 23032955 49054 69456 3032210 132 20000745 373707 148

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy N. MICHIGAN AVE. Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 3,871,326 77,927 35,576 703,522 18.2% 3,167,804 61,370 19.8% Class B 4,714,346 (28,168) (38,964) 429,260 9.1% 4,285,086 57,896 10.3% Class C 3,789,663 69,181 (9,532) 386,080 10.2% 3,403,583 194,886 15.3% Total 12375335 118940 12920 1518862 123 10856473 314152 148

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy RIVER NORTH Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 3,891,235 22,419 7,746 187,856 4.8% 3,703,379 131,775 8.2% Class B 4,378,502 12,611 14,035 485,456 11.1% 3,893,046 226,058 16.3% Class C 5,371,974 16,073 75,026 682,808 12.7% 4,689,166 117,857 14.9% Total 13641710 51103 96807 1356120 99 12285590 475690 134

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy WEST LOOP Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 28,965,512 1,052,661 (296,275) 3,709,390 12.8% 25,256,122 1,002,988 16.3% Class B 11,928,141 158,406 246,246 1,576,682 13.2% 10,351,459 252,781 15.3% Class C 5,435,064 (11,337) 10,721 620,333 11.4% 4,814,731 92,283 13.1% Total 46328717 1199730 39308 5906405 127 40422312 1348052 157

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy RIVER WEST Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 1,019,808 (11,279) (11,279) 21,699 2.1% 998,109 5,000 2.6% Class C 2,332,335 (29,658) 19,927 235,075 10.1% 2,097,260 111,529 14.9% Total 3352143 40937 8648 256774 77 3095369 116529 111

Sublease Total Vacancy RBA YTD 3rd Quarter Direct Vacancy Direct Vacancy Occupancy TOTALS Vacancy Rate (Direct + (sf) Absorption (sf) Absorption (sf) (sf) % (sf) (sf) Sublease) % Class A 56,641,756 642,046 (557,515) 6,861,639 12.1% 49,780,118 1,567,359 14.9% Class B 47,395,738 196,506 142,839 5,985,657 12.6% 41,410,080 1,186,845 15.1% Class C 32,432,100 (91,435) 34,659 3,831,318 11.8% 28,600,782 768,062 14.2% Total CBD 136469594 747117 380017 16678614 122 119790980 3522266 148 Numbers in parentheses are negative

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 12 CENTRAL BUSINESS DISTRICT : FEATURES SECTION THREE SUBMARKET MAP

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 13 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS CENTRAL LOOP CLASS A NEGATIVE ABSORPTION

The Central Loop’s overall direct vacancy rate increased by 94 basis points to 12.21 percent. There was a total of 363,788 square feet of LARGEST BLOCKS OF DIRECT AVAILABILITY negative absorption in the Central Loop, which was primarily due to Building Address Size (sf) Availability Building Class Seyfath Shaw fully vacating its 307,000 square foot space at 131 S. 203 N. LaSalle 277,349 Vacant B Dearborn after relocating to the Willis Tower in March. 2 N. LaSalle 232,757 Vacant B 125 S. Clark 175,718 Vacant B No large new deals were signed in the Central Loop in the third quarter, 222 N. LaSalle 164,926 June 2018 B but there were three large renewals and/or expansions deals executed. 175 W. Jackson 157,130 July 2018 B Relativity expanded their office at 231 N. LaSalle by 46,219 square 175 W. Jackson 133,071 July 2018 B 1 S. Dearborn 106,624 January 2020 A feet, Server Central renewed their lease for 23,868 square feet at 111 131 S. Dearborn 91,666 Vacant A W. Jackson, and HealthScape Advisors signed a renewal/expansion at 440 S. LaSalle 89,045 Vacant A 55 W. Monroe for 21,139 square feet. 2 N. LaSalle 84,135 Vacant B 33 W. Monroe 64,476 Vacant B There was one investment sale in the Central Loop in the third quarter, 131 S. Dearborn 64,311 Vacant A 131 S. Dearborn 64,311 November 2017 A 231 S. LaSalle, which sold to Beacon for $165 million, or $166 per 120 S. LaSalle 62,557 Vacant B square foot. Two Central Loop buildings were put on the market. Olen 200 W. Madison 61,853 September 2018 A Properties is selling 1 S. Dearborn, an 828,538 square foot Class A 175 W. Jackson 55,896 December 2017 B building worth approximately $400 million, or $483 per square foot. 77 W. Wacker 55,032 Vacant A 1 N. Dearborn 52,373 Vacant B Crown Commercial Real Estate is offering 105 W. Adams, a 314,855 1 N. Dearborn 52,292 Negotiable B square foot Class B building, for an undisclosed price. 79 W. Monroe 51,523 November 2018 C 35 W. Wacker 50,000 Vacant A The Central Loop’s boundaries are the Chicago River (North), Wells Street (West), State Street (East), and Van Buren Street (South). The Central Loop includes the Financial District, as well as many government offices, law firms, and professional services. It is also beginning to attract growing start-up companies as well.

CENTRAL LOOP SUMMARY A B C Total Inventory (square feet) 14,765,573 15,290,851 7,682,310 37,738,734 Year to Date Absorption (square feet) (476,072) (13,511) (43,082) (532,665) Direct Vacancy Rate 12.6% 12.5% 10.8% 12.2% Total Vacancy Rate (Direct + Sublease) 15.0% 15.1% 12.8% 14.6%

Numbers in parentheses are negative

CENTRAL LOOP SUBMARKET HISTORICAL DIRECT VACANCY 25%

20%

15%

10%

5% 14.7% 15.2% 17.5% 15.2% 11.8% 11.4% 12.7% 13.6% 13.8% 13.2% 13.7% 12.7% 11.1% 10.4% 12.2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 14 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS EAST LOOP LARGEST NEW DEAL IN 3RD QUARTER

The East Loop had 69,456 square feet of negative absorption in the third quarter. The overall direct vacancy rate increased by 23 basis LARGEST BLOCKS OF DIRECT AVAILABILITY points from the end of the second quarter to 13.16 percent at the end Building Address Size (sf) Availability Building Class of the third quarter of 2017. 200 E. Randolph 354,127 August 2018 A Northern Trust committed to a lease of 462,000 square feet at 333 S. 401 S. State 166,205 Vacant C Wabash, signing the largest deal of the quarter. This deal alleviates the 233 N. Michigan 143,067 Negotiable B uncertainty about what will happen to the iconic red tower when CNA 333 S. Wabash 141,420 June 2018 B relocates to the John Buck development being built at 151 N. Franklin. 200 E. Randolph 131,268 Vacant A 130 E. Randolph 99,064 Vacant B There was one East Loop investment sale in the third quarter, 150 N. 1 N. State 97,995 Vacant C Michigan, which was purchased by CBRE Global Investments for $130 122 S. Michigan 91,636 November 2017 C million. 122 S. Michigan 79,045 November 2017 C 205 N. Michigan 73,820 Vacant B 601 W Companies is in the process of selling one East Loop property 55 E. Monroe 73,145 Vacant B and buying another. The New York-based investor has a contract to sell 233 N. Michigan 62,865 Vacant B Prudential Plaza, which includes 130 E. Randolph and 180 N. Stetson, 303 E. Wacker 61,019 Vacant B to Sterling Bay for approximately $680 million. It also has a contract to 1 N. State 53,940 Vacant C purchase the office portion of 1-33 S. State from Madison Capital for 1 N. State 50,023 Vacant C approximately $200 million.

The East Loop is bordered by the Chicago River (North), State Street (West), Lake Shore Drive (East), and Van Buren Street (South). It is inhabited by a variety of corporate tenants with a heavy lean toward advertising and media firms.

EAST LOOP SUMMARY A B C Total Inventory (square feet) 4,128,303 11,083,898 7,820,754 23,032,955 Year to Date Absorption (square feet) (23,610) 67,168 (92,612) (49,054) Direct Vacancy Rate 9.1% 14.2% 13.8% 13.2% Total Vacancy Rate (Direct + Sublease) 9.6% 16.5% 15.1% 14.8% Numbers in parentheses are negative EAST LOOP SUBMARKET HISTORICAL DIRECT VACANCY

25%

20%

15%

10%

5% 17.2% 18.4% 22.4% 19.1% 14.2% 12.1% 16.3% 20.2% 19.3% 19.7% 18.6% 17.7% 16.5% 13.1% 13.2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 15 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS NORTH MICHIGAN AVENUE JOHN HANCOCK CENTER OFFICES ON THE MARKET

The North Michigan Avenue submarket saw a total of 12,920 square feet of negative absorption in the third quarter. The overall direct LARGEST BLOCKS OF DIRECT AVAILABILITY vacancy rate increased by 3 basis points to 12.27 percent. Building Address Size (sf) Availability Building Class

435-445 N. Michigan 69,943 Negotiable C One large deal was signed in the North Michigan Avenue submarket 330 N. Wabash 68,564 Vacant B this quarter, Mid America Real Estate leased 15,200 square feet at 455 N. Cityfront Plaza 52,045 Vacant A 410 N. Michigan.

The office portion of North Michigan Avenue’s iconic John Hancock Center, located at 875 N. Michigan, was put on the market in the third quarter. The sale would include approximately 900,000 square feet of office space, 717 parking spaces, and the naming rights.

The North Michigan Avenue submarket borders include Division Street (North), State Street (West), Lake Michigan (East), and the Chicago River (South). It is home to retailers, hotels, restaurants, entertainment venues, advertising and marketing agencies, and the Northwestern Memorial Hospital campus.

NORTH MICHIGAN AVENUE SUMMARY A B C Total Inventory (square feet) 3,871,326 4,714,346 3,789,663 12,375,335 Year to Date Absorption (square feet) 77,927 (28,168) 69,181 118,940 Direct Vacancy Rate 18.2% 9.1% 10.2% 12.3% Total Vacancy Rate (Direct + Sublease) 19.8% 10.3% 15.3% 14.8%

Numbers in parentheses are negative

NORTH MICHIGAN AVENUE SUBMARKET HISTORICAL DIRECT VACANCY

25%

20%

15%

10%

5% 10.8% 12.7% 14.0% 14.0% 11.8% 11.4% 16.7% 18.2% 19.5% 20.5% 19.2% 17.2% 14.9% 13.3% 12.3% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 16 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS RIVER NORTH HIGHEST ABSORPTION RATE IN RIVER NORTH

The River North submarket had 96,807 square feet of positive absorption in the third quarter of 2017, and the overall direct LARGEST BLOCKS OF DIRECT AVAILABILITY vacancy rate decreased 78 basis points to 9.94 percent. Building Address Size (sf) Availability Building Class

222 W. Merchandise Mart 153,900 September 2018 B The largest deal signed in River North in the third quarter was a 600 W. Chicago 72,472 Vacant B renewal and expansion that Quarles & Brady signed for a total of 20 W. Kinzie 58,805 Vacant A 100,000 square feet at 300 N. LaSalle. 540 N. LaSalle 56,130 Vacant C There were two River North investment sales completed in the third quarter, 730 N. Franklin was purchased by The Feil Organization for $23.3 million, or $263 per square foot, and 213 W. Institute was purchased by KBS Realty Advisors for approximately $43.5 milion, or $277 per square foot. The borders of the River North submarket are defined as Division Street (North), Racine Avenue (West), State Street (East), and the Chicago River (South). Historically, it has been home to small, older buildings that cater to furniture galleries and small businesses, but has more recently become a hub for technology, startups, and trading firms.

RIVER NORTH SUMMARY A B C Total Inventory (square feet) 3,891,235 4,378,502 5,371,974 13,641,710 Year to Date Absorption (square feet) 22,419 12,611 16,073 51,103 Direct Vacancy Rate 4.8% 11.1% 12.7% 9.9% Total Vacancy Rate (Direct + Sublease) 8.2% 16.3% 14.9% 13.4%

Numbers in parentheses are negative

RIVER NORTH SUBMARKET HISTORICAL DIRECT VACANCY 25%

20%

15%

10%

5% 11.9% 19.3% 14.5% 12.6% 10.6% 9.2% 15.8% 13.6% 11.7% 9.1% 9.1% 8.9% 8.0% 10.0% 9.9% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 17 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS WEST LOOP NEW INVENTORY IMPACTS WEST LOOP MARKET

The West Loop continues to recalibrate after a total of 2.4 million square feet of new inventory was added by 444 W. Lake in the fourth quarter of LARGEST BLOCKS OF DIRECT AVAILABILITY Building Address Size (sf) Availability Building Class 2016 and 150 N. Riverside in the first quarter of 2017. The overall direct 625 W. Adams 432,709 April 2018 A vacancy rate increased by 1.3 percentage points from the end of the 311 W. Monroe 363,204 Vacant C 300 S. Riverside 259,238 Vacant B second quarter to 12.7 percent at the end of the third quarter of 2017. 151 N. Franklin 257,016 June 2018 A 71 S. Wacker 246,872 March 2020 A 227 W. Monroe 188,346 Vacant A The West Loop had a total of 39,308 square feet of negative absorption 200 W. Monroe 161,287 January 2018 B 550 W. Jackson 144,207 Vacant A in the third quarter, with 296,275 square feet of negative Class A 500 W. Madison 141,404 January 2018 A absorption offset by 246,246 square feet of positive Class B absorption. 222 W. Adams 139,034 November 2018 A 30 S. Wacker 129,216 Vacant A The positive Class B absorption was primarily due to Cars.com moving 123 N. Wacker 121,428 Vacant A 111 S. Wacker 112,052 January 2018 A into 158,197 square feet at 300 S. Riverside. William Blair fully vacating 222 W. Adams 109,981 Vacant A 444 W. Lake 106,292 Vacant A its 289,682 square feet at 222 W. Adams, after relocating to 150 N. 123 N. Wacker 93,454 February 2018 A Riverside during the second quarter, had a significant negative impact 233 S. Wacker 91,807 Vacant A 233 S. Wacker 91,807 Vacant A on Class A absorption. 71 S. Wacker 91,414 Vacant A 100 S. Wacker 72,782 Vacant B 222 S. Riverside 72,502 January 2018 B Construction continues on the new office developments at 151 N. Franklin 191 N. Wacker 70,794 Vacant A 200 W. Jackson 70,193 Vacant B and 625 W. Adams, both of which are expected to be completed in 2018. 151 N. Franklin 69,876 June 2018 A 311 S. Wacker 68,761 July 2018 A The redevelopment of Chicago’s 2.8 million square foot Old Main Post Office 20 N. Wacker 68,137 March 2018 C is also well underway, with delivery anticipated in 2019 or 2020. Additionally, 71 S. Wacker 63,317 Vacant A 111 S. Wacker 60,329 January 2018 A construction is expected to begin on a 1.35 million square foot office at 110 1 S. Wacker 57,054 Vacant B N. Wacker in January of 2018.

The West Loop’s borders are defined as the Chicago River (North), I-94/I-90 (West), Wells Street (East), and Van Buren Street (South). The West Loop is the largest submarket and is home to law firms, financial services firms, insurance companies, and multiple corporate headquarters.

WEST LOOP SUMMARY A B C Total Inventory (square feet) 28,965,512 11,928,141 5,435,064 46,328,717 Year to Date Absorption (square feet) 1,052,661 158,406 (11,337) 1,199,730 Direct Vacancy Rate 12.8% 13.2% 11.4% 12.7% Total Vacancy Rate (Direct + Sublease) 16.3% 15.3% 13.1% 15.7%

Numbers in parentheses are negative

WEST LOOP SUBMARKET HISTORICAL DIRECT VACANCY 25%

20%

15%

10%

5% 14.6% 14.4% 17.3% 11.5% 10.2% 11.8% 16.6% 15.8% 14.2% 13.9% 13.1% 12.2% 10.9% 11.1% 12.7% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 18 CENTRAL BUSINESS DISTRICT : SUBMARKET SNAPSHOTS RIVER WEST FULTON WEST COMPLETED

MBRE began officially tracking the River West submarket in 2015. LARGEST BLOCKS OF DIRECT AVAILABILITY River West continues to have the least availability in the CBD. Overall, Building Address Size (sf) Availability Building Class direct vacancy is at 7.66 percent, down by 14 basis points from the second quarter. 330 N. Green 76,432 Vacant B

Fulton West, Sterling Bay’s 287,928 square foot development at 1330 W. Fulton in River West, is now complete, and tenants Dyson, Glassdoor, Skender, and The Climate Corporation are currently moving in. Sterling Bay is also building the new corporate headquarters for McDonald’s at 1045 W. Randolph,

Two large deals were signed in the third quarter that allow Sterling Bay to move forward with two more new developments in the Fulton Market area of River West: WPP signed a lease for 253,000 square feet of the 500,000 square foot building planned for 333 N. Green and Leopardo signed a lease for 24,000 square feet of the 203,589 building now under construction at 210 N. Carpenter.

The Fulton Market area in River West has attracted many investors eager to capitalize on the rapidly redeveloping area that includes Google’s Chicago headquarters and McDonald’s future headquarters. There are a wide variety of developments planned and under construction in the neighborhood, including: hotels, multi-family buildings, retail space, recreational facilities, and office space.

RIVER WEST SUMMARY A B C Total Inventory (square feet) 1,019,808 2,332,335 3,352,143 Year to Date Absorption (square feet) (11,279) (29,658) (40,937) Direct Vacancy Rate 2.1% 10.1% 7.7% Total Vacancy Rate (Direct + Sublease) 2.6% 14.9% 11.1%

Numbers in parentheses are negative

RIVER WEST SUBMARKET HISTORICAL DIRECT VACANCY 25%

20%

15%

10%

5% 11.6% 9.8% 5.9% 8.5% 9.9% 15.8% 22.2% 22.1% 18.3% 14.6% 11.4% 6.9% 7.4% 6.8% 7.7% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 19 CHICAGO MARKET OVERVIEW SECTION FOUR ADDITIONAL INFORMATION GLOSSARY Absorption: The net change in occupied space over a given period of time. Rental Rates: The annual costs of occupancy for a particular space quoted on Unless otherwise noted, Net Absorption includes direct and sublease space. a per square foot basis.

Asking Rent: The published rental rate for a space in a building, which may Sales Price: The total dollar amount paid for a particular property at a vary from the rent which is negotiated upon by the tenant and landlord. particular point in time.

Central Business District: The designations of Central Business District (CBD) SF: Abbreviation for Square Feet. and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found Sublease Space: Space that has been leased by a tenant and is being offered there. The CBD is characterized by a high density, well organized core within for lease back to the market by the tenant with the lease obligation. Sublease the largest city of a given MSA. space is sometimes referred to as sublet space.

Class: A classification used to describe buildings, with Class A reflecting the Submarkets: Specific geographic boundaries that serve to delineate a core highest quality and Class C reflecting the lowest. group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are Direct Vacant Space: Space that is being offered for lease directly from building type specific (office, industrial, retail, etc.), with distinct boundaries the landlord or owner of a building, as opposed to space being offered in a dependent on different factors relevant to each building type. Submarkets are building by another tenant (or broker of a tenant) trying to sublet a space that non-overlapping, contiguous geographic designations having a cumulative has already been leased. sum that matches the boundaries of the Market they are located within.

Initial Rate: The contracted starting rental rate for the third term of a lease. Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area Inventory: The square footage of buildings that have received a certificate of (MSA). Suburban is defined as including all office inventory not located in occupancy and are able to be occupied by tenants. Calculated by adding the the CBD. Rentable Building Area (RBA) of all properties in a market or submarket. Tenant Improvement: Those changes to property to accommodate specific Large Block: The amount of contiguous space available in a building in needs of a tenant. TIs include installation or relocation of interior walls or terms of square footage. Contiguous spaces over 50,000 square feet are partitions, carpeting or other floor covering, shelves, windows, toilets, etc. The considered large by MB Real Estate. cost of these is negotiated in the lease.

Lease Comparable: Comparables are properties with characteristics that are Total Vacant Space: Direct plus sublease vacant space. similar in nature. Their signing lease rates and other contracted elements are aggregated to analyze contracted market conditions as opposed to asking Under Construction: The status of a building that is in the process of being market conditions. developed, assembled, built or constructed. A building is considered to be under construction after it has begun construction and until it receives a Market: Geographic boundaries that serve to delineate core areas that are certificate of occupancy. competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building type specific and are Vacancy Rate: A measurement expressed as a percentage of the total amount non-overlapping contiguous geographic designations. Markets can be further of physically vacant space divided by the total amount of existing inventory. subdivided into Submarkets. Under construction space generally is not included in vacancy calculations. Vacancy rate can be based on direct, sublease, or total vacant space. Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be Vacant Space: Space that is not currently occupied by a tenant, regardless of paid directly by the tenant and may include janitorial costs, electricity, utilities, any lease obligation that may be on the space. Vacant space could be space taxes, insurance and other related costs. that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would Preleased Space: The amount of space in a building that has been leased be considered vacant space. Likewise, space that has been leased but not prior to its construction completion date, or certificate of occupancy date. yet occupied because of finish work being done, would also be considered vacant space. Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA). YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being Rentable Building Area (RBA): The total building square footage that can studied. be occupied by or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally, RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 20 MB REAL ESTATE ABOUT MB REAL ESTATE OUR MISSION IS TO PROVIDE CLIENTS AND INVESTORS WITH EXTRAORDINARY REAL ESTATE VALUE AND UNLIMITED SUPPORT

At MB Real Estate, our corporate mission is to maximize the value of our clients’ real estate by creating timely and innovative solutions that meet their unique needs and objectives.

We offer the highest level of real estate support with our team of committed, results-driven experts in asset and facilities management, leasing, tenant representation, development, project management, and investment services.

Supported by dedicated accounting, marketing, human resources, and information technology teams, our unique full-service firm is an industry leader in local and national corporate real estate.

DEPARTMENT LEADERSHIP

PATRICIA ALUISI MB REAL ESTATE HEADQUARTERS Executive Vice President & Chief Operating Officer/General Counsel 181 West Madison, Suite 4700 Chicago, Illinois 60602 KRYSTA BAVLSIK phone: 312.726.1700 Executive Vice President & MBRE Healthcare www.mbres.com MARK A. BUTH EAST COAST Executive Vice President & Managing Director of Leasing Services REGIONAL HEADQUARTERS ANDREW J. DAVIDSON Executive Vice President & Managing Director of Corporate Services & 335 Madison Avenue, 14th Floor Tenant Advisory New York, New York 10017 phone: 212.350.2300 DAVID R. GRAFF fax: 212.350.2301 Executive Vice President of Project Services

COMPANY LEADERSHIP SUZANNE HENDRICK Senior Vice President & Director of Asset Management PETER E. RICKER Chairman & CEO KAROLINE EIGEL Senior Vice President & Chief Marketing Officer JOHN T. MURPHY Vice Chairman EILEEN FLYNN Senior Vice President & Chief Financial Officer

KEVIN M. PURCELL President, Leasing & Management Services

PETER J. WESTMEYER Executive Vice President & Managing Director of Investment Services/ President & Managing Principal, MBRE Healthcare Group

THIRD QUARTER 2017 | CHICAGO MARKET OVERVIEW 21