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CHICAGO 2006 Downtown Office Market Report Colliers Bennett & Kahnweiler Market Report Chicago, IL Table of Contents page I. DOWNTOWN OFFICE MARKET OVERVIEW 1 Central Loop 2 West Loop 3 East Loop 4 North Michigan Avenue 4 River North 5 Year-end 2005 Downtown Office Market Statistics 6 Top Transactions – 2005 7 Chicago CBD Submarket Map 8 II. ABOUT COLLIERS BENNETT & KAHNWEILER INC. 9 CHICAGO 2006 Colliers Bennett & Kahnweiler Market Report downtown office Chicago, IL 2006 Outlook for Downtown and East Loop had a combined negative Headlines Chicago Office Mixed in 760,000 square feet of absorption. When considering fourth quarter results only, • Historically high vacancy rates 2006 the West Loop suffered with negative continued to plague the downtown Chicago’s central business district is office market in 2005 364,277 square feet of absorption. The broken into five submarkets and contains East Loop’s positive 294,421 square feet a total of nearly 127 million square feet. • Sublease vacancies have slowly was not enough to escape a negative year- decreased and now total only 1.8 The largest of these submarkets, the West to-date figure. percent Loop, has more than 40 million square feet of office properties alone. Slow leasing Major 2005 Transactions • Net absorption improved from 2004, velocity and a depressed job market is Three of the five largest lease transactions ending 2005 at positive 206,565 square resulting in historically high vacancy rates of the year occurred in the Central Loop: feet and excess supply. Although there was Seyfarth Shaw LLP’s 294,175-square-foot modest improvement in select submarkets lease at 131 S. Dearborn Street, Robert • The West Loop has dominated in the fourth quarter, statistics did not Morris College’s 270,000-square-foot new construction, however, both compare favorably to year-end 2004 the Central Loop and River North renewal and expansion at 401 South State results. markets have large scale projects that Street, and Exelon’s 250,000-square-foot are expected to deliver in 2008 and new lease at Two South Dearborn. In 2009. Vacancy and Absorption River North, the largest lease transaction The total overall downtown vacancy of the year occurred when Kirkland and rate ended the year at 19.5 percent, up Ellis signed a 600,000-square-foot lease at from 19.3 percent in the third quarter 300 N. LaSalle Street, a to-be-developed 2005 and 18.7 percent from year-end Class A office tower. In the West Loop, Downtown Office 2004. The sublease vacancy was healthy, Refco completed a 162,000-square-foot Market Snapshot remaining flat at 1.8 percent from year- renewal and expansion at 550 W. Jackson end 2004. The most dramatic change in Boulevard. vacancy rate occurred in the West Loop Year-end 2005 vs. Year-end 2004 which saw an increase from 20.2 percent 2006 Prognosis in 2004 to 21.9 percent in 2005. This is Rents should remain fairly stable in 2006, 2004 2005 not the result of tenant disinterest in the with minor increases expected in the market, but rather the addition of nearly healthier submarkets such as the West Vacancy rate 19.3% 19.5% two million square feet of new inventory Loop. Tenant concessions including rent over the past year. The most significant abatement and tenant improvement improvement in vacancy rate occurred in allowances are still tenant favorable, due to Absorption (347,832)sf 206,565sf River North, which posted 19.8 percent high vacancy rates coupled with increasing in 2004 and 17.1 percent in 2005. construction costs. New buildings with Class A Asking $31.77 $31.02 2006 delivery dates are expected to Net absorption totaled positive 206,565 Rents negatively impact the market’s overall square feet for the year, a sizable absorption and vacancy rates. improvement over the negative 347,832 square feet posted in 2004. Three markets achieved positive net absorption (West Loop, North Michigan Avenue, and River North) while the Central Loop 1 Colliers Bennett & Kahnweiler Market Report downtown office Chicago, IL 2006 CENTRAL LOOP Notable 2005 Transactions Construction The Central Loop, with a total inventory Eight of the 15 largest transactions of the The long-anticipated Block 37 project of 37.5 million square feet, experienced a year occurred in the Central Loop. broke ground in the fourth quarter of strong fourth quarter as several notable 2005. The infamous land on State Street transactions were completed. This wasn’t between Randolph and enough, however, to create positive net Tenant/Buyer Location Size (sf) Lease/Sale Washington Streets has 131 South absorption for the year. The Central Loop Seyfarth Shaw LLP 294,175 Lease undergone numerous Dearborn Street was defined in 2005 by the large volume Robert Morris 401 South State Renewal/ starts and stops with 270,000 of tenants exiting the market and moving College Street Expansion potential development. Two South to the West Loop for newly constructed, Exelon 250,000 Lease With the signing of Dearborn upgraded space. 55 East Jackson Renewal/ CBS Channel 2 for DePaul University 126,000 Boulevard Expansion 100,000 square feet and One South Morningstar’s lease for Vacancy and Activity Barton Inc. 90,000 Lease The overall vacancy rate in the Central Dearborn 250,000 square feet, it Loop at year-end 2005 was 19.1 percent, Mittal Steel 1 S. Dearborn Street 53,484 Lease appears that the mixed- an improvement from the 19.7 percent Cool Savings 1 N. Dearborn 49,500 Lease use project will be a reality Renewal/ measured in third quarter, however a Quantitative Analysis 230 S. LaSalle St. 48,000 sometime in 2008 or significant increase from 17.8 percent at Expansion 2009. year-end 2004. Class A overall vacancy totaled 20.5 percent. On a positive Absorption note, sublease vacancies totaled only Net absorption in the Central Loop In 2005, Colliers 1.7 percent, virtually flat from year-end totaled negative 464,389 square feet in Bennett & 2004 and the second-lowest total of all 2005. While this was the worst of all K a h n w e i l e r r e p r e s e n t e d submarkets. submarkets, it was a slight improvement Booz Allen over the negative 567,630 square feet from Hamilton in a year-end 2004. However, in the fourth 30,200-square- foot lease at quarter alone positive net absorption 225 W. Wacker was achieved for the first Central Loop Drive Vacancy and Activity time in several consecutive 300,000 20.0% quarters, reaching 221,487 square feet, the result 19.5% 200,000 of several completed transactions mentioned 19.0% 100,000 above. 18.5% 0 18.0% Vacancy Rate 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 Square Feet Absorbed Square Feet -100,000 17.5% -200,000 17.0% -300,000 16.5% Absorption Vacancy 2 Colliers Bennett & Kahnweiler Market Report downtown office Chicago, IL 2006 WEST LOOP Absorption The West Loop, the largest of all A weak fourth quarter West Loop submarkets, contains 40.4 million square in the Class A segment Vacancy and Activity feet of inventory. Tenants are attracted (negative 460,237 square 600,000 23% to the area’s proximity to public feet) was highly detrimental 500,000 22% transportation and highway systems in to the West Loop’s year- 400,000 addition to the new construction options end absorption figures. 300,000 22% that the market offers. The West Loop has This led to negative 200,000 21% benefited from an East Loop and Central 364,277 square feet overall 100,000 0 Loop exodus as many tenants moved in the fourth quarter, and 21% Vacancy Rate -100,000 closer to the commuter train stations. positive 488,046 square Feet Absorbed Square 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 However, the significant new construction feet overall year-to-date. -200,000 20% has also hurt the market’s vacancy and However, the market was -300,000 20% absorption figures in recent quarters. still able to outperform -400,000 its year-end 2004 total of -500,000 19% Vacancy and Activity 428,428 square feet. Absorption Vacancy The year-end 2005 vacancy in the West Loop totaled 21.9 percent, a sizable It is expected that the absorption figures increase from both 20.1 percent in the will improve in the Class A segment in third quarter and 20.2 percent from year- 2006, with Class B and Class C properties end 2004. Sublease vacancies totaled 2.3 continuing to struggle across the entire percent, the highest of all submarkets. central business district. Class A overall vacancy totaled 22.8 percent, with only River North posting Construction a higher figure (23.4 percent). New Three additions to inventory in the West construction deliveries were the primary Loop totaling nearly two million square cause of the increase. feet were the primary cause of the vacancy increase in 2005 - 71 South Wacker Notable 2005 Transactions Drive, 111 South Wacker Drive, and 550 W. Adams. 550 W. Adams, the site of USG Corporation’s new headquarters, is Tenant/Buyer Location Size (sf) Fifth Third Bank 222 S. Riverside 142,000 currently 70 percent leased. In 2005, Colliers Bennett & Kahnweiler represented Humana in a 55,282-square-foot lease at 550 W. Humana 550 W. Adams 55,282 Adams CATS/NIPC 233 S. Wacker Drive 52,200 101 N. Wacker Global Crossing 35,100 Drive RBC Dain Rauscher 500 W. Madison 39,921 American Marketing 311 S. Wacker Drive 31,233 Association 333 W. Wacker Sanchez Daniels 29,000 Drive One South Wacker Tetra Tech Inc.