Savills Studley Report Chicago CBD Office Sector Q2 2018

Savills Studley Research Chicago CBD

Savills Studley Report Chicago CBD office sector Q2 2018

SUMMARY Market Highlights

LEASING RISES Several larger leases boosted quarterly STABLE RENT volume, pushing it from 3.0 million square The Class A gross asking rent inched higher, “Most core office-using sectors remain feet (msf) to 3.2 msf. Tenants have leased ticking up by 0.6% to $44.97. The overall squarely focused on space efficiency, 12.0 msf in the four most recent quarters, Downtown asking rent rose by 0.2% from enhancement of the workplace exceeding the long-term market average by $39.91 to $40.01. 29.6%. environment and cost containment. Tech firms in Chicagoland continue to be much AVAILABILITY DOWN SLIGHTLY SALES VOLUME RISES The market's overall availability rate fell by Office property sales during the last six more aggressive in their pursuit of talent 20 basis points from 15.7% to 15.5%. The months (through June 2018) totaled $1.36 and attractive space in trendy locations to Class A rate fell more sharply, declining by billion, a slight increase compared to 80 basis points to 15.5%. $1.1 billion sold in the second half of 2017. house them.”

Robert Sevim, Vice Chairman

Savills Studley Report | Chicago CBD

Tech Firms Remain Aggressive Office-Using Employment Trends Downtown Chicago has benefited from Millions an influx of businesses in the last several 1.05 6% years. Some have relocated from suburban 4% Chicago, others have moved from different 1.00 markets to tap into the city’s youthful and 2% talented labor pool. This includes many companies that are not strictly “tech” but 0% 0.95 that are making big innovation pushes. In -2% yet another instance of a relocation from 0.90 suburban Chicago to the CBD, FTD leased -4% 40,000 sf at 1 N. Dearborn Street and will -6% move some of its operations from Downers 0.85 Grove. The flower and gifting service will -8% be returning Downtown; it moved from 165 2012 2011 2010 2013 2014 2015 2016 2017 2018 2009 N Canal Street to Downers Grove in 1987, 0.80 -10% Chicago Office Emp. Chicago - % Annual Change U.S. - % Annual Change taking 250 jobs with it.

Source: Bureau of Labor Statistics^ Walgreens, as part of its effort to compete and modernize, leased 200,000 sf on the fourth and fifth floors of the Old Post Availability Rate Trends Office. The firm will relocate 1,300 workers Availability Rate Trends (most from its Deerfield headquarters, the remainder from Sullivan Center) to its new 20% Technology Center of Excellence. Earlier this year, Collective Health announced plans to open a Chicago office, its second location 18% nationally, citing the region's deep pool of 16.8% 16.8% technical talent. The San Francisco-based 16.9% firm plans to hire engineers, designers 16% and product managers. The cloud-based 15.5% integrated health benefits platform helps 15.5% self-insured employers with healthcare 14% 14.3% programs.

Ample Funds, Labor Shortfalls 12% Heading into 2018, Chief Information Trophy Buildings Class A Class B & C Officers surveyed in Chicago said they 10% would be active. Whether they can find Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 enough talent is another story. According to the last Robert Half Technology IT Hiring Forecast - 21% of area CIOs said Asking Rent Trends ($/sf) they expected to add tech talent in the Rental Rate Trends first half of 2018, a 10 percent point jump from 2017. Even as Chicago continues $60 $54.37 to see job growth among its tech firms, $49.26 many companies are struggling to find $50 $44.97 enough qualified employees. The region's $43.41 unemployment rate declined to 3.3% in May, falling 1.2% year on year. $40 $33.42 $34.60 There may be a dearth of qualified workers, $30 but there is ample capital to fund and to hire (or acquire). According to PwC and CB Insights, Illinois companies raised more $20 than $375 million in 36 deals in the first quarter - the best total for a single quarter $10 since the first quarter of 2000. Cybersecurity Trophy Buildings Class A Class B & C firm Kenna raised $25 million in a Series C round. The biggest funding was Project44, $0 which raised $35 million in a funding led by Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Boston-based VC firm OpenView.

02 Q2 2018

Employment numbers show that Availability Rate Comparison Rental Rate Comparison ($/sf) Chicagoland’s tech sector registered steady expansion in 2017, but it fell well short of North Michigan $20.11 9.2% Sublet Relet West Loop Sublet Relet the tech rally in the Bay Area and Seattle. Avenue $49.48 Far West Downers Grove trade association CompTIA $28.89 Loop/Fulton reported that the Chicago metro region River North 13.4% Market* $46.12 added more than 4,000 tech jobs in 2017. $32.48 This increase was fueled largely by demand River North for software developers and information East Loop 14.9% $43.72 security analysts — an increase of 1.4% $23.20 Chicago CBD over the prior year, ranking Chicago 13th Chicago CBD 15.5% $39.80 among major metro areas in tech sector $25.58 job growth. A few local companies have Central Loop exceeded hiring targets. Enova, for example, West Loop 15.7% $37.43 planned to hire 75 people in 2017. Instead $24.86 East Loop it added 128, pushing its headcount to $36.54 Central Loop 17.0% 1,145. Sprout Social sought to hire 200 workers by end of 2017. It ultimately added North Michigan $25.60 Ave 279; 75 came through the acquisition of Far West $35.66 Loop/Fulton… 23.3% Seattle-based Simply Measured. The social $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 media firm added a second floor at 131 0% 5% 10% 15% 20% 25% S. Dearborn St. In February, Silicon Valley based, the ServiceNow announced plans for a Chicago location. The company creates Major Transactions bespoke software for companies to help Tenant Sq Feet Address Market Area them automate IT efforts. Publicis Groupe 681,545 35 W Wacker Dr Central Loop Walgreens 200,000 433 W Van Buren St West Loop Demand from Firms of All Sizes Milliman 116,696 71 S Wacker Dr West Loop Rent24 100,000 500 N Michigan Ave North Michigan Avenue Slalom Consulting 65,000 200 E Randolph St East Loop West Coast tech giants have been active Segal McCambridge 63,813 233 S Wacker Dr West Loop in every major metro, including Chicago. Lincoln International 60,000 110 N Wacker Dr West Loop They continue to show even more appetite Humana 55,000 550 W Adams St West Loop for local talent and office space. Facebook Morgan Stanley 50,000 233 S Wacker Dr West Loop is reportedly close to taking 200,000 sf at Convene 50,000 131 S Dearborn St Central Loop 151 N. Franklin Street, which delivered this Sum of Top 10 Leases 1,442,054 Sum of 2nd Qtr Leasing Activity 3.3 MSF quarter, as it expects to significantly increase its local payroll. Google is also adding to its presence in Fulton Market, grabbing the 14,000 sf planned to be retail as office space at 1000 W. Fulton. The software giant WeWork is reportedly considering leasing banks and law firms are still very focused on is in talks with Sterling Bay to take more some of the empty space at 515 N State St. costs. Morgan Stanley, which than 100,000 sf at 210 N. Carpenter St. The deal is said to be in excess of 120,000 leased 120,000 sf at Willis Tower as part sf. In addition, the coworking giant is eyeing of a relocation from 70 W Madison, added In addition to demand from larger tech another 65,000 sf at 330 N. Wabash Ave. 50,000 sf and will move offices from 440 S. firms, startups and mid-sized firms have These would comprise WeWork’s third LaSallle St., excercising a lease termination supported steady leasing Downtown. and fourth locations in River North, and option. Moving to a brand new building Payment software company Braintree is eighth in downtown Chicago. Coworking comes at a high price but it is often the best in talks to expand for a third time at the firms now occupy approximate 2 million way to optimize efficiency. A few financial Merchandise Mart. It will add 40,000 sf to its square feet in the downtown market. In sector firms are expanding. M&A advisor current 80,000 sf footprint. Rapidly growing addition to WeWork’s growth, competitors Lincoln International leased 60,000 sf on tech firms are filling in some of the gap such as Spaces and Industrious have the top floors at 110 N. Wacker. Lincoln will created by retailers, law firms and others also expanded. Some foreign workspace move 200 employees from 500 W Madison that have been densifying. providers are showing up as well. German- in 2021. The building is scheduled to be based Rent24 leased 100,000 sf at 500 completed in 2020. The building is 40% The tech sector is inherently competitive. North Michigan Avenue and hopes to open leased and still has more than 800,000 sf The overlap between competing firms by late summer. available. Meanwhile, 151 N. Franklin is 55% is becoming more apparent in some leased and 625 W. Adams St. has delivered niches, prompting some cutbacks. Financial Sector Still Focused on with no committed tenants. Uptake Technologies laid off 51 of its 800 Efficiency employees. Outcome Health cut roughly one-third of its payroll last year and In contrast to this growth among tech firms announced that it was back ing away from and fractional office space providers, many its 349,000-sf lease at 515 N State Street.

savills-studley.com/research 03 Savills Studley Report | Chicago CBD

Available Availability Asking Rents Map Submarket Total Leasing Activity SF Rate* Per SF

% pp % Annual SF Annual Net This Change Year This Change Year This Change Year Leasing (1000's) Absorption Quarter from Ago Quarter from Ago Quarter from Ago Volume Last Qtr. Last Qtr. (1) Last Qtr. West Loop 48,845 5,207 66.0 7,670 -6.8% 9,204 15.7% -1.1% 18.7% $43.15 0.1% $41.08 1 West Loop - Class A 34,764 3,928 (164.0) 5,318 -6.8% 6,346 15.3% -1.1% 18.3% $46.05 -0.4% $44.21 1 279 Far West Loop/Fulton Market 4,751 721 (528.0) 1,105 17.0% 1,269 23.3% 2.6% 27.8% $45.01 -2.0% $42.19 2 Far West Loop/Fulton Market - Class A 2,140 433 (587.0) 742 20.2% 761 34.7% 4.0% 37.8% $50.61 -0.2% $47.95 Central Loop 40,582 3,183 (487.0) 6,880 0.6% 6,498 17.0% 0.1% 16.0% $36.51 1.8% $35.64 3 Central Loop - Class A 15,072 1,665 (320.0) 2,467 -1.9% 2,340 16.4% -0.3% 15.5% $41.75 3.8% $40.93 1 518 East Loop 20,254 1,647 (207.0) 3,018 2.3% 3,946 14.9% 0.3% 19.5% $36.27 0.7% $35.28 4 East Loop - Class A 8,078 517 79.0 949 -16.2% 1,281 11.8% -2.3% 15.9% $40.53 1.6% $39.28 $1 129 52 North Michigan Avenue 9,489 309 66.0 873 7.1% 1,019 9.2% 0.6% 10.7% $35.41 0.5% $35.72 5 North Michigan Avenue - Class A 4,193 106 (15.0) 414 6.6% 383 9.9% 0.6% 9.1% $39.95 1.6% $40.24 $202 70 River North 16,114 1,004 (27.0) 2,158 -0.2% 1,681 13.4% 0.0% 10.4% $43.32 -0.7% $40.62 6 River North - Class A 5,868 352 (17.0) 975 -9.4% 712 16.6% -1.7% 12.1% $47.95 2.4% $46.54 0652 3710 Chicago CBD Total 140,035 12,070 (1,117.0) 21,704 -1.1% 23,616 15.5% -0.2% 16.9% $40.01 0.2% $38.35 1-6 Chicago CBD Total - Class A 70,116 7,002 (1,024.0) 10,864 -5.0% 11,822 15.5% -0.8% 16.9% $44.97 0.6% $43.41

W Armitage Ave C 1. West Loop N l Please contact us for further information a 2. Far West Loop/Fulton Market C r ly k

b S 3. Central Loop N o ur t E n 41 4. East Loop A ls v t e 5. North Michigan Avenue o n 64 6. River North A v

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150 North Riverside Plaza Robert Sevim, Vice Chairman - [email protected] n 6

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04 www.savills-studley.com @SavillsStudley