Q3 2015 Downtown Chicago Office Market Report

Navigating a Landlord’s Market

Research & Forecast Report

DOWNTOWN CHICAGO | OFFICEThird Quarter 2015

Robert Patterson Research Analyst | Downtown Chicago

After experiencing a strong second quarter, the Chicago CBD continued to impress during the third quarter, posting positive demand which sparked a decrease in the overall vacancy rate and an increase in gross rent per square foot. With the investment sales market on pace for a record year and financing terms for non-stabilized assets widely available, investors are no longer avoiding buildings with vacancy. Instead, investors view these assets as opportunistic due to their repurposing potential.

Trends

Overall, the CBD has solidified itself as a landlord’s market as rent continues to increase across all building classes and fewer concessions are granted. Minimal availability of high-rise space coupled with continued corporate migration into the CBD has led to a landlord-friendly market. This is unlikely to shift in favor of tenants until supply increases in early-2017 with the delivery of approximately 2,200,000 square feet of newly constructed space. As this space is delivered to the market, landlords will seek to avoid shadow space in their buildings, which will likely increase concessions granted to tenants.

On the leasing front, transaction activity within the CBD increased significantly during the third quarter after a lethargic first half of the year. Landlords of the three new developments continue to compete for anchor tenants. Landlords of existing assets continue to adapt their buildings to appeal to the amenity-rich demands of tenants in today’s market.

Investment sale activity is on a record-setting pace as approximately $4.0 billion in sales have closed during the first three quarters of 2015 and other large sales are set to occur in the fourth quarter of the year.

As rental rates continue to increase, smaller tenants are looking for nontraditional, repurposed spaces in newer markets that are far enough outside the CBD to offer lower rents, such as the Fulton Market area. However, these spaces are limited in number.

Outlook

As 2015 enters its final quarter, fundamentals suggest that both tenants and landlords feel confident in the future despite the risks increased property taxes pose to Chicago’s market. Tenants with expirations as far out as the 2021 timeframe are actively seeking space options, a sign of optimism about the future of their businesses and the state of the commercial office space market within the CBD.

Market Indicators Q3 2014 Q2 2015 CURRENT

VACANCY 13.1% 12.6% 12.3%

QTR ABSORPTION 466,068 384,334 419,599

YTD ABSORPTION 416,140 22,890 751,063

RENTAL RATE $34.57 $35.76 $36.16

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2 Research & Forecast Report | Third Quarter 2015 | Downtown Chicago / Office | Colliers International

Statistical Highlights

After posting a solid 384,334 square feet of positive net absorption during the second quarter, the CBD experienced another step in the right direction by posting net positive absorption of 419,599 square feet during the third quarter. All asset classes within the CBD experienced positive net absorption, as Class B led the way with 338,183 square feet, followed by Class A with 69,872 square feet.

The average direct asking rental rate in the CBD currently resides at $36.16 per square foot gross, an increase from $35.76 per square foot in the second quarter. The average overall asking rental rate increased by 4.5 percent from one year prior.

The CBD’s overall vacancy decreased 80 basis points over the past year, decreasing from 13.1 percent to 12.3 percent. While overall vacancy remained relatively unchanged across Classes A and C, overall vacancy in the Class B segment decreased by 50 basis points to 13.5 percent, its lowest vacancy rate since 2008.

Squa

re F

oota

ge Vacancy

Class B Class C AverageClass A

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

442,489

1,041,539

672,200 669,679

1,229,459

43,445

(1,621,237)

12.3%12.6%13.6%13.9%14.3%

15.2%15.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2015201420132012201120102009

Absorption Vacancy

Squa

re F

oota

ge Vacancy


$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

442,489

1,041,539

672,200 669,679

1,229,459

43,445

(1,621,237)

12.3%12.6%13.6%13.9%14.3%

15.2%15.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2015201420132012201120102009

Absorption Vacancy

Net Absorption & Vacancy | Chicago CBD Office Market

Source: CoStar, Colliers International Research

Asking Gross Rental Rates | Chicago CBD Office Market



Submarket Vacancy Rates | Chicago CBD Office Market

0

5

10

15

20

0

500,000

1,000,000

1,500,000

2,000,000

5

1,535,300

As of 3Q - 2013

11

1,037,647

As of 3Q - 2014

13

1,347,669

As of 3Q - 2015

SF of Transactions # of Transactions

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Squa

re F

oota

ge

Num

ber

of S

ales

782,400

1,504,364

1,892,460 1,897,981

479,000

0

665,000

3,652,913

933,710

0 0 0 0 02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2013 2014 2015

0.0%

5.0%

10.0%

15.0%

20.0%

Central Loop East Loop North Michigan Ave. River North West Loop

Vaca

ncy

(%)

0

5

10

15

20

25

30

35

15

2008

3

2009

9

2010

19

2011

26

2012

31

2013

26

2014

22

2015

Class A Class B Class C

14.4%13.1%

11.7%

15.2% 15.4% 14.7%15.8%

14.6%13.8%

10.2%8.8% 9.0%

12.6%11.5% 12.1%


Large Blocks of Availability

After offering 35 large blocks of available space in the third quarter of 2014, large block availability in the CBD has continued to decrease over the past year. Contiguous blocks of space available on a direct basis decreased by five in just the third quarter, bringing the total available to 29 such blocks. Large block composition currently resides at 24 Class A blocks, 4 Class B blocks, and 1 Class C block.

The largest block of available space in the CBD exists at 125 S. Clark Street in the Central Loop. The building previously served as the former headquarters for Chicago Public Schools and is now undergoing a massive renovation to make it suitable for multi-tenant use. The next two largest blocks of available space are located in 515 N. State Street and 311 W. Monroe Street. 311 W. Monroe offers a unique repurposing opportunity as it is a 387,790-square-foot Class B property that is 63.3 percent vacant, while 515 N. State Street presents a similar opportunity as it is 684,989-square-foot Class A property that is 62.6 percent vacant.

The number of high-rise view spaces that are available in top-tier assets has diminished, causing developers to proceed with constructing new office towers to accommodate the demand for high-end, quality space.

Class A Large Blocks | Chicago CBD Office Market

24 large direct blocks of

CBD Class A space

consisting of3,924,419square feet

13 large blocks ofWest Loop

Class A space consisting of1,866,003square feet

5 large blocks ofWest LoopHigh Rise

Class A space consisting of720,050square feet

100,000+ square feetBUILDING CLASS SIZE (SF) FLOOR TYPE

C E N T R A L L O O P

125 S. Clark Street C 538311 2-20 Direct

203 N. Lasalle Street A 292,777 14-20 Direct

131 S. Dearborn Street A 202,972 19-24 Direct/Sublet

10 S. Dearborn Street A 166,346 26-31 Direct

222 N. Lasalle Street A 165,866 3-6 Direct

175 W. Jackson Boulevard A 134,352 19-20 Direct

131 S. Dearborn Street A 128,622 7&8 Direct/Sublet

E A S T L O O P

130 E. Randolph Street A 167,185 33-39 Direct


1 N. State Street B 162,227 3-6 Direct

303 E. Wacker Drive A 129,993 15-20 Direct


401 S. State Street B 110,898 4-6 Direct

N O R T H M I C H I G A N A V E N U E

515 N. State Street A 385,273 2-18 Direct/Sublet

R I V E R N O R T H

N O D I R E C T L A R G E B L O C K S R E M A I N

W E S T L O O P

311 W. Monroe Street B 356,889 1-14 Direct

300 S. Riverside Plaza A 265,093 2-6 Direct

300 S. Riverside Plaza A 158,197 9-11 Direct

500 W. Madison Street A 155,810 4-7 Direct

222 W. Adams Street A 154,605 28-34 Direct

227 W. Monroe Street A 146,506 52-58 Direct

444 W. Lake Street A 145,750 45-50 New/Direct

150 N. Riverside Drive A 143,189 22-26 New/Direct


444 W. Lake Street A 130,000 31-35 New/Direct

71 S. Wacker Drive A 120,705 14-17 Direct

200 W. Jackson Boulevard B 109,460 9-15 Direct

150 N. Riverside Drive A 109,143 17-20 New/Direct

227 W. Monroe Street A 106,784 12-14 Direct

111 S. Wacker Drive A 99,808 14-17 Direct

Large Block Availabilities | Chicago CBD Office Market


Lease and Sale Highlights

The third quarter of 2015 represented a turnaround in large leasing activity after a slow first half of the year, as the CBD posted 13 transactions of 50,000 square feet or greater after reporting only seven in the first two quarters of the year combined. Additionally, the third quarter produced the two largest lease transactions of the year as ConAgra Foods announced it will occupy 200,000 square feet at The Merchandise Mart and Kraft Heinz agreed to occupy 170,000 square feet at the Aon Center.

Amidst the flurry of leasing activity in the third quarter, the resurgence of the North Michigan Avenue submarket’s ability to attract large tenants did not go unnoticed as two leases greater than 50,000 square feet were executed. This submarket has not witnessed a lease completion of this size since the second quarter of 2014.

Investment sales activity remained on a record-setting pace in terms of capital exchanged for assets as eight transactions closed during the quarter. The largest closed sales transaction during the quarter was the sale of 233 N. Michigan Avenue for $196 million ($183.00 per square foot) to AmTrust Realty. Additionally, 200 E. Randolph Street was placed under contract and appears set to sell during the fourth quarter, which would result in two of the CBD’s largest three office buildings having closed in the same year, as The Willis Tower was sold in the second quarter. As the market remains incredibly hot for sellers, there is no reason to suspect investment sales activity will slow during the fourth quarter as new sellers look to take advantage of market conditions.

Construction

Several high-profile projects are now underway in the Chicago CBD. The Hines development located at 444 W. Lake Street is currently under construction and has recently secured tenancy from Morton Salt in addition to its anchor tenants McDermott, Will & Emery, DLA Piper, Servcorp, and Mead Johnson Nutrition. The building, which will amount to approximately 1.0 million square feet, will be complete in late-2016. Another office project slated to deliver in a comparable time frame is John O’Donnell’s tower at 150 N. Riverside Plaza which has secured William Blair & Co., Hyatt Corporation, The Pritzker Group and Polsinelli P.C. as anchor tenants. Mr. O’Donnell has also secured Wanxiang America Real Estate Group, a Chinese investor, to help finance the project, which will total approximately 1.2 million square feet. Both developers continue to compete for prospective tenants to lease up excess space in the towers before completion.

During the third quarter, an additional new development continued to garner attention as developer John Buck Company has sought anchor tenants to join law firm Hinshaw & Culbertson as tenants in the building. The development’s timeline took an unexpected hit when law firm Freeborn & Peters decided to renew its current lease at 311 S. Wacker after previously signing a letter of intent to occupy space at the new development. The building is expected to deliver 710,000 square feet if it is successful in achieving the preleasing and financing requirements necessary to break ground.

As large block availability decreased during the third quarter, high-rise, quality space remains scarce, giving these new towers an edge for competing with existing landlords who may not have the same type of high-caliber space to accommodate large users.

Large Deal Activity | Chicago CBD Office Market(Transactions 50,000 SF+)

Sales Activity | Chicago CBD Office Market

New Construction | Chicago CBD Office Market




0

5

10

15

20

0

500,000

1,000,000

1,500,000

2,000,000

5

1,535,300

As of 3Q - 2013

11

1,037,647

As of 3Q - 2014

13

1,347,669

As of 3Q - 2015


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Squa

re F

oota

ge

Num

ber

of S

ales

782,400

1,504,364

1,892,460 1,897,981

479,000

0

665,000

3,652,913

933,710

0 0 0 0 02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2013 2014 2015

0.0%

5.0%

10.0%

15.0%

20.0%


Vaca

ncy

(%)

0

5

10

15

20

25

30

35

15

2008

3

2009

9

2010

19

2011

26

2012

31

2013

26

2014

22

2015


14.4%13.1%

11.7%

15.2% 15.4% 14.7%15.8%

14.6%13.8%

10.2%8.8% 9.0%

12.6%11.5% 12.1%

0

5

10

15

20

0

500,000

1,000,000

1,500,000

2,000,000

5

1,535,300

As of 3Q - 2013

11

1,037,647

As of 3Q - 2014

13

1,347,669

As of 3Q - 2015


0

500,000

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2,500,000

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4,000,000

Squa

re F

oota

ge

Num

ber

of S

ales

782,400

1,504,364

1,892,460 1,897,981

479,000

0

665,000

3,652,913

933,710

0 0 0 0 02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2013 2014 2015

0.0%

5.0%

10.0%

15.0%

20.0%


Vaca

ncy

(%)

0

5

10

15

20

25

30

35

15

2008

3

2009

9

2010

19

2011

26

2012

31

2013

26

2014

22

2015


14.4%13.1%

11.7%

15.2% 15.4% 14.7%15.8%

14.6%13.8%

10.2%8.8% 9.0%

12.6%11.5% 12.1%

0

5

10

15

20

0

500,000

1,000,000

1,500,000

2,000,000

5

1,535,300

As of 3Q - 2013

11

1,037,647

As of 3Q - 2014

13

1,347,669

As of 3Q - 2015


0

500,000

1,000,000

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2,000,000

2,500,000

3,000,000

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4,000,000

Squa

re F

oota

ge

Num

ber

of S

ales

782,400

1,504,364

1,892,460 1,897,981

479,000

0

665,000

3,652,913

933,710

0 0 0 0 02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

2013 2014 2015

0.0%

5.0%

10.0%

15.0%

20.0%


Vaca

ncy

(%)

0

5

10

15

20

25

30

35

15

2008

3

2009

9

2010

19

2011

26

2012

31

2013

26

2014

22

2015


14.4%13.1%

11.7%

15.2% 15.4% 14.7%15.8%

14.6%13.8%

10.2%8.8% 9.0%

12.6%11.5% 12.1%


Significant Lease and Sale Activity

Chicago CBD Office Leasing Activity – 3Q 2015TENANT BUILDING SUBMKT CLASS SIZE (SF) DEAL TYPE

ConAgra Foods 222 Merchandise Mart Plaza B RN 200,000 Relocation/New Lease

Kraft Heinz 200 E. Randolph Street A EL 170,000 Relocation/New Lease

Vedder Price 222 N. LaSalle Street A CL 163,286 Renewal

Motorola Solutions 500 W. Monroe Street A WL 150,000 New Lease

Freeborn & Peters 311 S. Wacker Drive A WL 119,555 Renewal

Accredidation Council For Graduate Medical Education

401 N. Michigan Avenue A NMA 87,000 Relocation/New Lease

Baxalta 540 W. Madison Street A WL 83,000 New Lease

Yelp 222 Merchandise Mart Plz. B RN 72,000 Expansion

Stats 203 N. LaSalle Street A CL 70,000 Relocation/New Lease

Groupon 600 W. Chicago Avenue B RN 65,000 Expansion

Perkins & Will 410 N. Michigan Avenue B NMA 60,440 Relocation/New Lease

Houlihan Lokey 111 S. Wacker Drive A WL 57,388 Relocation/New Lease

WeWork 332 S. Michigan Avenue B EL 50,000 New Lease

FS = For Sale* Partial stake

CL = Central Loop EL = East Loop NMA = North Michigan Avenue RN = River North WL = West LoopUC = Under Contract

Chicago CBD Office Investment Sales Activity – 3Q 2015STATUS ADDRESS SUBMKT CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold 111 W. Illinois Street RN A 227,604 $75,000,000 $492.77 The Alter Group GLL Real Estate Partners

Sold 525 W. Van Buren Street WL A 522,000 $135,000,000 $258.62 Northwood Investors AEW Capital Management

Sold 111 E. Wacker Drive EL A 1,051,025 $180,000,000 $177.00 Equity Commonwealth AmTrust Realty

Sold 233 N. Michigan Avenue EL A 980,362 $196,000,000 $183.00 Equity Commonwealth AmTrust Realty

Sold* 625 N. Michigan Avenue NMA B 343,072 $48,000,000 $165.52 Goldman Sachs Block 37 (Cim Group)

Sold 10 N. Dearborn Street CL C 80,228 $12,250,000 $153.00 Redico Ankin Law Office

Sold 549 W. Randolph Street WL C 108,000 $19,350,000 $179.17 Knight Building LLC Ameritus Real Estate Investment Management & Alcion Ventures

Sold 218 S. Wabash Avenue EL C 112,156 $14,500,000 $129.28 Dr. Sanjay Gandhi Bruce Lord & Wayne Hannah Jr.

UC 200 E. Randolph Street EL A 2,700,000 $712,000,000 $260.00 Piedmont Office Realty Trust 601W Cos

UC 333 W. Wacker Drive WL A 867,821 $315,000,000 $360.00 Hines Interests PNC Realty Investors

UC 111 W. Monroe Street CL B 1,200,000 $315,000,000 $263.00 CalPERS Samsung Life Insurance

FS 100 N. LaSalle Street CL B 163,708 TBD TBD Hearn Co. TBD

FS 330 N Wabash Avenue RN A 1,141,760 TBD TBD Riverview Realty Trust TBD

FS 190 S. LaSalle Street CL A 798,782 TBD TBD Tishman Speyer TBD

Central LoopThe second largest submarket in the Chicago CBD, the Central Loop is best known for its LaSalle Street corridor and its historic distinction as Chicago’s core financial district. Although this distinction has dissipated some during the last decade, the submarket still remains home to several of the city’s largest financial institutions, banks and professional services firms. As suggested by its name, the Central Loop resides in the heart of the CBD Loop. The submarket is bordered by the Chicago River on the north, Van Buren Street on the south and Wells Street and State Street on the west and east, respectively.

Submarket Highlights & Forecast

The Central Loop continued its steady recovery from several years of post-recession stagnation during the third quarter as it experienced its sixth consecutive quarter of positive absorption, causing vacancy to hit 11.7 percent, its lowest mark since 2008.

As new space is delivered to the West Loop in 2016, the Central Loop’s future success will largely depend on its ability to retain tenants and avoid the shadow space that will naturally occur with the delivery of over two million square feet to the market.


VACANCY 13.7% 11.9% 11.7%

QTR ABSORPTION 141,303 302,087 70,695

YTD ABSORPTION 276,447 423,354 494,049

RENTAL RATE $34.55 $35.83 $35.98

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EAST LOOPWEST LOOP

RIVER NORTH

NORTH MICHIGAN AVENUE

90

290

94

55

90

94

41

1000 FEET

300 METERS

NORTH






While vacancy decreased by 20 basis points across the Central Loop to 11.7 percent, that number can be characterized as misleading as the submarket’s Class A and C properties experienced negative absorption during the third quarter. The Central Loop’s healthy industry indicators should be attributed to the significant success in the Class B segment over the quarter which achieved 161,547 square feet of positive absorption and a 90-basis-point decrease in its vacancy rate.

The average direct asking rental rate in the submarket currently resides at $35.98 per foot gross, up slightly from $35.83 per square foot noted in the second quarter. The Central Loop has now experienced seven consecutive quarters of increasing rental rates, as gross rent is up $5.07 per square foot since the first quarter of 2013.

Class B absorption has increased significantly over the past two quarters in the Central Loop, rising to 429,490 square feet of positive absorption compared to just 118,293 square feet of absorption the prior two quarters.


There are seven large blocks of contiguous and direct space containing at least 100,000 square feet in the submarket.

Construction

No new construction was delivered to the Central Loop during the third quarter, and there are no office developments currently planned. 125 S. Clark Street currently has a 538,311 contiguous block of space available, which is the largest block of available contiguous space in the CBD. The property is currently undergoing a full-scale renovation.

494,049 519,281

35,058

(108,010)

67,570

(111,365)

(847,732)

11.7%

13.1%

14.4%14.5%14.2%14.4%14.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

2015201420132012201120102009

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


Absorption Vacancy

494,049 519,281

35,058

(108,010)

67,570

(111,365)

(847,732)

11.7%

13.1%

14.4%14.5%14.2%14.4%14.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

2015201420132012201120102009

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


Absorption Vacancy

Net Absorption & Vacancy | Central Loop Office Market


Asking Gross Rental Rates | Central Loop Office Market

Large Block Availabilities | Central Loop Office Market



125 S. Clark Street C 538311 2-20 Direct

203 N. LaSalle Street A 292,777 14-20 Direct

131 S. Dearborn Street A 202,972 19-24 Direct/Sublet

10 S. Dearborn Street A 166,346 26-31 Direct

222 N. LaSalle Street A 165,866 3-6 Direct


131 S. Dearborn Street A 128,622 7&8 Direct/Sublet



Large block leasing activity remained relatively sparse in the submarket during the third quarter with only two noteworthy transactions completed. The largest lease signing in the Central Loop during the quarter was Vedder Price’s renewal to remain in its current 163,286-square-foot space at 222 N. LaSalle. Additionally, the Central Loop illustrated its ability to attract non-traditional tenants as Stats, a growing tech-data company, is in talks to move its headquarters from the suburbs to occupy 70,000 square feet in 203 N. LaSalle.

Investment sales activity remained active in the submarket with one property trading as 10 N. Dearborn was sold to Ankin Law Office for $12,250,000 ($153.00/SF) while 123 W. Madison appears ready to follow suit in the near future. Additionally, 100 N. LaSalle and 190 S. LaSalle were put on the market in the third quarter as the sellers’ market remains extremely attractive throughout the CBD.

FS = For SaleUC = Under Contract

222 N. LaSalle Street


Central Loop Office Leasing Activity – 3Q 2015TENANT BUILDING CLASS SIZE (SF) DEAL TYPE

Vedder Price 222 N. LaSalle Street B 80,000 Extension/Expansion

Stats 203 N. LaSalle Street B 70,000 Relocation/New Lease

Central Loop Office Investment Sales Activity – 3Q 2015STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold 10 N. Dearborn Street C 80,228 $12,250,000 $153.00 Redico Ankin Law Office

UC 111 W. Monroe Street B 1,200,000 $315,000,000 $265.00 CalPERS Samsung Life Insurance

FS 100 N. LaSalle Street B 163,708 TBD TBD Hearn Co. TBD

FS 190 S. LaSalle Street A 798,782 TBD TBD Tishman Speyer TBD

Pending 123 W. Madison Street C 80,451 10,900,000.00 $135.33 Cagan Management GK Development

East LoopThe East Loop possesses a dynamic inventory base that includes office towers interspersed amongst residential condominium buildings. With Millennium Park, the city’s largest public space, serving as the submarket’s focal point, the East Loop offers a unique office environment that is conducive to the work-life balance often desired by the tenants that office there. Although the East Loop’s distinct culture continues to remain attractive to more eclectic office tenants such as advertising firms, not-for-profit organizations and educational institutions, recently, landlords of the submarket have been successful in retaining and attracting traditional office space users by offering more affordable space options relative to those available in the Central and West Loop. The submarket is bordered by the Chicago River on the north, Van Buren Street on the South, Lake Michigan on the east, and State Street on the west.


The East Loop posted a significant decrease in vacancy during the third quarter, falling to 14.7 percent from the 15.3 percent second quarter rate. This decrease was a substantial step on the East Loop’s path to recovery after suffering several years of post-recession stagnation as it was the first time vacancy fell below 15 percent in the submarket since 2009.

The East Loop posted positive net absorption of 163,364 square feet during the third quarter, its best quarterly absorption performance since the second quarter of 2013. The positive absorption was led by Kraft Heinz’s announcement that it will move its Illinois headquarters from the suburbs to the Aon Center amidst a cost-cutting strategy that the company believes will help alter its workplace culture as it seeks to increase profits and attract top talent.

Despite the newfound success in leasing activity and the investment sales market, the East Loop still has the highest vacancy rate of any submarket in the city as it posted a 14.7 percent rate during the third quarter. While the number denotes improvement in the submarket’s performance, it is also 90 basis points higher than any other submarkets’ vacancy rate.


VACANCY 15.3% 15.3% 14.7%

QTR ABSORPTION (43,343) 34,749 163,364

YTD ABSORPTION (22,096) (108,729) 166,635

RENTAL RATE $31.72 $32.56 $32.71TH

E

MA

GN

IFI C

EN

T M

I LE

G R A N TP A R K


ILLINOIS

HUBBARD

NORTH WATERKINZIE

OHIOOHIO

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CHICAGO CHICAGO

PEARSON

CHESTNUT CHESTNUT

INSTITUTE PL.

LOCUST DELAWARE

WALTONWALTON

OAKOAK

WENDELL

OAK

HOBBIE MAPLEHILL

CEDAR

RUSH

ELMELMELM


SCOTTSCOTTSCOTT

HICKORY

CHERRY

GOETHE

EVERGREENEVERGREEN

EASTMAN

EVERGREEN

HAINES

OGDE

N

BLISS

BANKS

SCHILLER

BURTONBLACKHAWK

BLACKHAWK

HOOKER

NORTHNORTH

EUGENIE

CONCORD

CONCORDCONCORD

WEED

WILLOW

NORTH

ONTARIO

ERIEERIE

HURON

SUPERIORHURON

SUPERIOR

GRAND

HUBBARD

KINZIE

GRAND

RANDOLPH

WACKER

WACKER

MONROE

LAKE SH

ORE DRIVE

WASHINGTON

SOUTH WATER

LAKE

FULTON

MADISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISONMADISON

ADAMS

CONGRESSCONGRESS

JACKSON JACKSON

VAN BUREN VAN BUREN

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

JACKSON

VAN BUREN

BALBO

HARRISONHARRISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

ADAMS

JACKSON

VAN BUREN

HARRISON

VERNON PARK

MAXWELL

CULLERTON

MAXWELL MAXWELL

LIBERTY

14TH

8TH POLKPOLK

CABRINI CABRINI

TAYLOR

12TH PL

O’BRIEN

13TH

14TH

16TH

17TH

18TH

19TH

17TH PL

19TH PL

14TH PL

15TH PL

ROOSEVELT

McFETRIDGE

ROOSEVELT

9TH

11TH

13TH SOLIDARITY

14TH

18TH

19TH

23RD

24TH

23RD

23RD PL

24TH PL

ALEXANDER

22ND PL

CERMAK

ARCHER

CHINA PL

CERMAK

24TH

24TH PL

CULLERTON

18TH

14TH PL

17TH

16TH

LA SALLE

BELLEVUE

Kennedy Expwy

Dan

Ryan

Expw

y

Stevenson Expwy

Eisenhower Expwy

CENTRALLOOP

EAST LOOPWEST LOOP

RIVER NORTH


90

290

94

55

90

94

41

1000 FEET

300 METERS

NORTH





Submarket Highlights & Forecast (continued)

While the East Loop continues to have significant ground to make up— the result of numerous tenant departures to other submarkets over the past four years— the third quarter instilled a new sense of optimism that the submarket will be able to compete with the other major submarkets moving forward.

The average direct asking rental rate in the submarket currently lies at $32.71 per square foot gross, up from the $32.56 per square foot rate posted in the second quarter. While rental rates did increase across all classes in the submarket during the third quarter, the aggregate asking gross direct rent per square foot in the market remains $1.41 less than any other CBD submarket.

The submarket’s Class A and B buildings both posted positive net absorption during the third quarter, with 71,998 and 99,960 square feet respectively.


The number of available, large, contiguous blocks of space available on a direct basis decreased by two blocks during the third quarter, leaving six such blocks available for large users.

Construction

No new construction was delivered to the East Loop during the third quarter. No new office developments are currently planned in the submarket.




1 N. State Street B 162,227 3-6 Direct

303 E. Wacker Drive A 129,993 15-20 Direct


401 S. State Street B 110,898 4-6 Direct

Absorption Vacancy

172,799

(49,507)

88,900 60,559 143,793

89,022

(1,107,268)14.7%

15.4%15.2%

15.5%

15.7%

16.3%

17.3%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

-1,200,000

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

2015201420132012201120102009

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


Absorption Vacancy

172,799

(49,507)

88,900 60,559 143,793

89,022

(1,107,268)14.7%

15.4%15.2%

15.5%

15.7%

16.3%

17.3%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

-1,200,000

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

2015201420132012201120102009

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


Net Absorption & Vacancy | East Loop Office Market


Asking Gross Rental Rates | East Loop Office Market


Large Block Availabilities | East Loop Office Market



The largest lease transaction in the East Loop during the third quarter occurred when Kraft Heinz’s agreed to a new 170,000-square-foot lease at the Aon Center (200 E. Randolph Street). Additionally, the bourgeoning coworking company WeWork signed a new lease to occupy 50,000 square feet at 332 S. Michigan Avenue. These large lease transactions represent newfound momentum in the East Loop as the submarket posted only one lease transaction greater than 50,000 square feet in the first two quarters of 2015.

As leasing activity gained traction in the East Loop during the third quarter, its investment sales market followed suit as three commercial office properties were sold in the East Loop and one was placed under contract. The submarket’s investment sales activity encapsulates the newfound optimism regarding this area, as only one sale transaction occurred in the prior five quarters.


East Loop Office Investment Sales Activity – 3Q 2015STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold 111 E. Wacker Drive A 1,051,025 180,000,000 $177.00 Equity Commonwealth AmTrust Realty

Sold 233 N. Michigan Avenue A 980,362 196,000,000 $183.00 Equity Commonwealth AmTrust Realty

Sold 218 S. Wabash Avenue C 112,156 14,500,000 $129.28 Dr. Sanjay Gandhi Bruce Lord & Wayne Hannah Jr.

UC 200 E. Randolph Street A 2,700,000 712,000,000 $260.00 Piedmont Office Realty Trust 601W Cos

UC = Under Contract

200 E. Randolph Street

East Loop Office Leasing Activity – 3Q 2015TENANT BUILDING CLASS SIZE (SF) DEAL TYPE

Kraft Heinz 200 E. Randolph Street A 170,000 Relocation/New Lease

WeWork 332 S. Michigan Avenue B 50,000 New Lease

North Michigan AvenueThe North Michigan Avenue submarket possesses a unique building composition made up of hotels, retail space, office buildings, medical facilities and residential properties. This, along with its peripheral location, makes it an appealing home for less traditional office tenants. The submarket’s small office tenant base is comprised of primarily advertising firms, media agencies and a growing number of medical office users that desire close proximity to the large hospitals in the area. The submarket is bordered by Oak Street on the north, the Chicago River on the south, State Street on the west and Lake Michigan on the east.


The North Michigan Avenue submarket remains one of the worst performing submarkets in the CBD as vacancy remains elevated and leasing activity as a whole remains sluggish. It is the only submarket in the CBD to have experienced an increase in vacancy since the first quarter of 2015.

Due to its peripheral location and boutique office user base, the submarket has historically experienced low leasing volume relative to the other submarkets in the CBD. This presents unique challenges for North Michigan Avenue landlords, as they attempt to backfill the submarket’s existing vacancies.

North Michigan Avenue will continue to recover more slowly than other CBD markets. It is crucial that the submarket’s strong medical presence remains robust to aid in recovery. Additionally, the submarket will remain attractive to companies looking to dramatically slash costs, such as Kraft Heinz, as rent throughout the submarket remains significantly lower than every submarket aside from the East Loop.


VACANCY 15.5% 13.7% 13.8%

QTR ABSORPTION (20,569) (50,237) (9,925)

YTD ABSORPTION (197,452) 17,843 256,825

RENTAL RATE $32.24 $33.25 $34.12

TH

E

MA

GN

IFI C

EN

T M

I LE

G R A N TP A R K


ILLINOIS

HUBBARD

NORTH WATERKINZIE

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FRY

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LUMBER

WALLACE

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CHICAGO CHICAGO

PEARSON

CHESTNUT CHESTNUT

INSTITUTE PL.

LOCUST DELAWARE

WALTONWALTON

OAKOAK

WENDELL

OAK

HOBBIE MAPLEHILL

CEDAR

RUSH

ELMELMELM


SCOTTSCOTTSCOTT

HICKORY

CHERRY

GOETHE

EVERGREENEVERGREEN

EASTMAN

EVERGREEN

HAINES

OGDE

N

BLISS

BANKS

SCHILLER

BURTONBLACKHAWK

BLACKHAWK

HOOKER

NORTHNORTH

EUGENIE

CONCORD

CONCORDCONCORD

WEED

WILLOW

NORTH

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ERIEERIE

HURON

SUPERIORHURON

SUPERIOR

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HUBBARD

KINZIE

GRAND

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WACKER

MONROE

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ORE DRIVE

WASHINGTON

SOUTH WATER

LAKE

FULTON

MADISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISONMADISON

ADAMS

CONGRESSCONGRESS

JACKSON JACKSON

VAN BUREN VAN BUREN

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

JACKSON

VAN BUREN

BALBO

HARRISONHARRISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

ADAMS

JACKSON

VAN BUREN

HARRISON

VERNON PARK

MAXWELL

CULLERTON

MAXWELL MAXWELL

LIBERTY

14TH

8TH POLKPOLK

CABRINI CABRINI

TAYLOR

12TH PL

O’BRIEN

13TH

14TH

16TH

17TH

18TH

19TH

17TH PL

19TH PL

14TH PL

15TH PL

ROOSEVELT

McFETRIDGE

ROOSEVELT

9TH

11TH

13TH SOLIDARITY

14TH

18TH

19TH

23RD

24TH

23RD

23RD PL

24TH PL

ALEXANDER

22ND PL

CERMAK

ARCHER

CHINA PL

CERMAK

24TH

24TH PL

CULLERTON

18TH

14TH PL

17TH

16TH

LA SALLE

BELLEVUE

Kennedy Expwy

Dan

Ryan

Expw

y

Stevenson Expwy

Eisenhower Expwy

CENTRALLOOP

EAST LOOPWEST LOOP

RIVER NORTH


90

290

94

55

90

94

41

1000 FEET

300 METERS

NORTH






During the third quarter, net absorption totaled negative 9,925 square feet after totaling negative 50,237 square feet during the second quarter, indicating the submarket’s continued struggle to compete throughout the CBD. The submarket experienced negative absorption across its Class A and B properties as they struggle to attract tenants.

Despite the negative net absorption and corresponding increase in vacancy, North Michigan Avenue average asking direct rent per square foot increased from $33.25 in the second quarter to $34.12 per square foot in the third quarter due Chicago’s status as a landlord’s market given its consistently strong demand and lack of supply.

Both Class A and Class B properties posted negative absorption during the third quarter, with Class A measuring negative 5,679 square feet and Class B measuring negative 8,826 square feet.


The number of large, contiguous blocks of space available on a direct basis decreased by one and subsequently the only available block of space in the submarket is located at 515 N. State Street and totals 385,273 square feet.

Construction

No new construction was delivered to the North Michigan Avenue submarket during the third quarter. There are no office developments anticipated in the submarket in the near future.


515 N. State Street A 385,273 2-18 Direct/Sublet

Squa

re F

oota

ge Vacancy


115,437

(148,336)

247,935

3,188

(69,116)

(332,974)

(396,399)

13.8%14.6%

15.8%15.2%15.3%14.8%

12.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-500,000

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


115,437

(148,336)

247,935

3,188

(69,116)

(332,974)

(396,399)

13.8%14.6%

15.8%15.2%15.3%14.8%

12.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-500,000

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Net Absorption & Vacancy | N Michigan Ave Office Market


Asking Gross Rental Rates | N Michigan Ave Office Market


Large Block Availabilities | N Michigan Ave Office Market



The largest lease transaction in the North Michigan Avenue submarket in the third quarter was ACGME’s new lease to occupy 87,000 square feet at 401 N. Michigan Avenue. The submarket’s other marquee leasing transaction was Perkins and Will’s relocation from River North to The Wrigley Building, 410 N. Michigan Avenue. The two lease transactions of over 50,000 square feet were a rebound for the submarket after it didn’t post a single lease transaction of similar size during the second quarter.

After experiencing no sales during the second quarter in the North Michigan Avenue submarket, investment sales activity rebounded slightly when 625 N. Michigan Avenue was sold by Goldman Sachs to Block 37 (CIM Group) during the third quarter for $48,000,000 ($165.52/SF).

Wrigley Building


North Michigan Avenue Office Leasing Activity – 3Q 2015TENANT BUILDING CLASS SIZE (SF) DEAL TYPE

Accreditation Council For Graduate Medical Education

401 N. Michigan Avenue A 87,000 Relocation/New Lease

Perkins & Will 410 N. Michigan Avenue B 60,440 Relocation/New Lease

North Michigan Avenue Office Investment Sales Activity – 3Q 2015STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold* 625 N. Michigan Avenue B 343,072 $48,000,000 $165.52 Goldman Sachs Block 37 (CIM Group)

* Partial stake

River NorthRiver North continues to be one of the fastest growing submarkets in the CBD. The result of new office development, a booming residential community and most recently, an infiltration of the city’s technology companies, River North has transformed from a once fairly undeveloped area consisting of warehouses and loft properties into a lively and dynamic office environment. River North now contains a mix of office options ranging from Class B and C loft-style properties to its newest Class A trophy office towers. The range in office space options captures the interest of both traditional and unconventional office users leading to its low vacancy rate. The submarket’s boundaries include Oak Street on the north, the Chicago River on the south and west and State Street on the east.


For the second consecutive quarter vacancy slightly decreased in River North, falling from 9.3 percent to 9.0 percent. The submarket posted the lowest vacancy rate in the CBD, and continues to be one of Chicago’s best performing submarkets.

During the third quarter, it was again evident that River North is the preferred submarket for Chicago’s burgeoning technology sector as both Groupon and Yelp chose to expand their space within River North by 65,000 square feet and 72,000 square feet respectively.


VACANCY 8.4% 9.3% 9.0%

QTR ABSORPTION 122,209 53,334 57,081

YTD ABSORPTION 273,783 (88,303) (31,222)

RENTAL RATE $34.48 $33.82 $35.59

TH

E

MA

GN

IFI C

EN

T M

I LE

G R A N TP A R K


ILLINOIS

HUBBARD

NORTH WATERKINZIE

OHIOOHIO

FRY

MIC

HIG

AN

RUSH

MIC

HIG

AN

MIC

HIG

AN

MIC

HIG

AN

KIN

G D

R

LAKE

SH

ORE

DRI

VE

LAKE SHORE DRIVE

PRA

IRIE

IND

IAN

A

PRA

IRIE

CALU

MET

STAT

E

DEA

RBO

RN

DE

WIT

T

MIE

S VA

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OH

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CLA

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CLARK

LA S

ALL

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WEL

LSW

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BASH

STAT

EST

ATE

STAT

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PRIN

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N

NO

RMA

LN

ORM

AL

CLIN

TON

CANALPORT

LUM

BER

LUMBER

WALLACE

CORBETT

GROV

ECA

NA

L

WEN

TWO

RTH

WA

BASH

WA

BASH

WA

BASH

CLA

RKCL

ARK

CLA

RKCL

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RK T

ERR

PLYM

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TH

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L

PLYM

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THD

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DEA

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DEA

RBO

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WEL

LSW

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LA S

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PEO

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GRE

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ORI

A

SAN

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MO

NSA

NG

AM

ON

SHEL

BY

MO

RGA

N

MO

RGA

NM

ORG

AN

MO

RGA

N

MIL

LER

MIL

LER

CARP

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R

MIL

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CARP

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RCA

RPEN

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ABE

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NA

BERD

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RACI

NE

PEO

RIA

GRE

EN

SAN

GA

MO

NLE

SSIN

G

MO

RGA

N

CARP

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RMAY

NO

RTH

BRA

NCH

FRA

NKL

INFR

AN

KLIN

ORL

EAN

S

SED

GWIC

KSE

DGW

ICK

ORL

EAN

S

NO

RTH

PA

RK

WIE

LAN

D

HU

DSO

N

HU

DSO

N

CLEV

ELA

ND

MO

HAW

K

DAYT

ON

FREM

ON

T

VIN

E

LARR

ABE

E

KIN

GSB

URY

ST. C

LAIR

FAIR

BAN

KSPA

RK

NO

RTH

CIT

Y FR

ON

T PL

AZA

DRI

VE

NEW

McC

LURG

COLU

MBU

S

HA

RBO

R

STET

SON

COLU

MBU

S

CHICAGO CHICAGO

PEARSON

CHESTNUT CHESTNUT

INSTITUTE PL.

LOCUST DELAWARE

WALTONWALTON

OAKOAK

WENDELL

OAK

HOBBIE MAPLEHILL

CEDAR

RUSH

ELMELMELM


SCOTTSCOTTSCOTT

HICKORY

CHERRY

GOETHE

EVERGREENEVERGREEN

EASTMAN

EVERGREEN

HAINES

OGDE

N

BLISS

BANKS

SCHILLER

BURTONBLACKHAWK

BLACKHAWK

HOOKER

NORTHNORTH

EUGENIE

CONCORD

CONCORDCONCORD

WEED

WILLOW

NORTH

ONTARIO

ERIEERIE

HURON

SUPERIORHURON

SUPERIOR

GRAND

HUBBARD

KINZIE

GRAND

RANDOLPH

WACKER

WACKER

MONROE

LAKE SH

ORE DRIVE

WASHINGTON

SOUTH WATER

LAKE

FULTON

MADISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISONMADISON

ADAMS

CONGRESSCONGRESS

JACKSON JACKSON

VAN BUREN VAN BUREN

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

JACKSON

VAN BUREN

BALBO

HARRISONHARRISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

ADAMS

JACKSON

VAN BUREN

HARRISON

VERNON PARK

MAXWELL

CULLERTON

MAXWELL MAXWELL

LIBERTY

14TH

8TH POLKPOLK

CABRINI CABRINI

TAYLOR

12TH PL

O’BRIEN

13TH

14TH

16TH

17TH

18TH

19TH

17TH PL

19TH PL

14TH PL

15TH PL

ROOSEVELT

McFETRIDGE

ROOSEVELT

9TH

11TH

13TH SOLIDARITY

14TH

18TH

19TH

23RD

24TH

23RD

23RD PL

24TH PL

ALEXANDER

22ND PL

CERMAK

ARCHER

CHINA PL

CERMAK

24TH

24TH PL

CULLERTON

18TH

14TH PL

17TH

16TH

LA SALLE

BELLEVUE

Kennedy Expwy

Dan

Ryan

Expw

y

Stevenson Expwy

Eisenhower Expwy

CENTRALLOOP

EAST LOOPWEST LOOP

RIVER NORTH


90

290

94

55

90

94

41

1000 FEET

300 METERS

NORTH






During the third quarter, River North experienced positive net absorption of 57,081 square feet, up from 53,334 square feet in the second quarter.

The average asking rental rate in the submarket increased significantly during the third quarter, ending at $35.59 per square foot gross, up from $33.82 in the previous quarter. Asking rental rates in River North have increased by $1.11 per square foot over the past year.

The average asking rent in River North’s Class A increased a staggering $4.05 per square foot gross during the third quarter, making it the most expensive asset class within the CBD at $47.72 per square foot gross. Additionally, Class B rent per square foot gross was up $0.18 to $35.80 while Class C rent increased $0.43 per square foot gross to $27.22.

River North’s Class A vacancy is lowest of any submarket in CBD at 5.5 percent, indicating the relentless demand for River North’s high-quality office space.


The number of available large, contiguous blocks of space available on a direct basis decreased by two spaces during the quarter, leaving no blocks of space greater than 100,000 square feet available in the River North submarket.

ConAgra Foods filled one of the previous available large blocks in The Merchandise Mart while Groupon expanded its space into the other. River North is the only submarket in the city with no blocks of space over 100,000 square feet available, indicating the incredibly high demand for space in the submarket.

Construction

No new construction was delivered to River North during the third quarter. There are no office developments currently planned in the submarket.


N O D I R E C T L A R G E B L O C K S R E M A I N

Squa

re F

oota

ge Vacancy


(31,222)

214,857 108,949 114,416 153,753

342,989

1,454,615

9.0%8.8%

10.2%10.9%

11.6%12.7%

14.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


(31,222)

214,857 108,949 114,416 153,753

342,989

1,454,615

9.0%8.8%

10.2%10.9%

11.6%12.7%

14.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Net Absorption & Vacancy | River North Office Market


Asking Gross Rental Rates | River North Office Market

Large Block Availabilities | River North Office Market




For the second consecutive quarter the CBD’s largest lease transaction occurred in River North as ConAgra Foods announced that it is moving its headquarters from Omaha, Nebraska to 222 Merchandise Mart Plaza in River North.

The most expensive investment sales transaction on a per square foot basis during the third quarter was the sale of 111 W. Illinois Street to GLL Real Estate Partners for $75 million ($492.77/SF).


River North Office Investment Sales Activity – 3Q 2015STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold 111 W. Illinois Street A 227,604 75,000,000 $492.77 The Alter Group GLL Real Estate Partners

FS 330 N. Wabash Avenue A 1,141,760 TBD TBD Riverview Realty Trust TBD

Merchandise Mart

River North Office Leasing Activity – 3Q 2015TENANT BUILDING CLASS SIZE (SF) DEAL TYPE

ConAgra Foods 222 Merchandise Mart Plaza B 200,000 Relocation/New Lease

Groupon 600 W. Chicago Avenue B 65,000 Expansion

Yelp 222 Merchandise Mart Plaza B 72,000 Expansion

FS = For Sale

West LoopThe West Loop’s reputation as the CBD’s leading submarket is the result of it possessing the largest office inventory of any submarket, its proximity to public transit and tenant desire for the image associated with being located on or near Wacker Drive, an address that has a long-standing positive reputation for office tenants. Further contributing to the submarket’s growth was the development boom experienced over the past decade which added several highly-efficient, state of the art trophy towers to building inventory. The West Loop is bordered on the north by Kinzie Street, on the south by Van Buren Street, by Halsted Street on the west and Wells street on the east.


The third quarter strengthened the West Loop’s status as one of Chicago’s most successful submarkets as it experienced decreasing vacancy and increasing rental rates for the third consecutive quarter.

Demand for space in the West Loop remained strong during the third quarter as four lease transactions of 50,000 square feet or greater involved West Loop tenants, the most in any CBD submarket.

During the third quarter, the West Loop landed a significant new tenant as Motorola Solutions announced that it will move its corporate headquarter from its suburban campus to 500 W. Monroe. The move illustrates the continued trend of suburban companies moving their headquarters into the city in order to rebrand themselves and attract top talent, with tech-oriented millennials popular among employers seeking to work and live in the city.


VACANCY 12.1% 12.4% 12.1%

QTR ABSORPTION 60,059 44,401 138,384

YTD ABSORPTION 198,977 (446,958) (308,574)

RENTAL RATE $36.81 $38.48 $38.83

TH

E

MA

GN

IFI C

EN

T M

I LE

G R A N TP A R K


ILLINOIS

HUBBARD

NORTH WATERKINZIE

OHIOOHIO

FRY

MIC

HIG

AN

RUSH

MIC

HIG

AN

MIC

HIG

AN

MIC

HIG

AN

KIN

G D

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LAKE

SH

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DRI

VE

LAKE SHORE DRIVE

PRA

IRIE

IND

IAN

A

PRA

IRIE

CALU

MET

STAT

E

DEA

RBO

RN

DE

WIT

T

MIE

S VA

N D

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OH

E

CLA

RK

CLARK

LA S

ALL

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WEL

LSW

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AST

OR

RITC

HIE

STO

NE

WA

BASH

STAT

EST

ATE

STAT

E

PRIN

CETO

N

NO

RMA

LN

ORM

AL

CLIN

TON

CANALPORT

LUM

BER

LUMBER

WALLACE

CORBETT

GROV

ECA

NA

L

WEN

TWO

RTH

WA

BASH

WA

BASH

WA

BASH

CLA

RKCL

ARK

CLA

RKCL

ARK

FED

ERA

LPA

RK T

ERR

PLYM

OU

TH

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ERA

L

PLYM

OU

THD

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ORN

DEA

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NM

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MBU

S

HA

RBO

R

STET

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COLU

MBU

S

CHICAGO CHICAGO

PEARSON

CHESTNUT CHESTNUT

INSTITUTE PL.

LOCUST DELAWARE

WALTONWALTON

OAKOAK

WENDELL

OAK

HOBBIE MAPLEHILL

CEDAR

RUSH

ELMELMELM


SCOTTSCOTTSCOTT

HICKORY

CHERRY

GOETHE

EVERGREENEVERGREEN

EASTMAN

EVERGREEN

HAINES

OGDE

N

BLISS

BANKS

SCHILLER

BURTONBLACKHAWK

BLACKHAWK

HOOKER

NORTHNORTH

EUGENIE

CONCORD

CONCORDCONCORD

WEED

WILLOW

NORTH

ONTARIO

ERIEERIE

HURON

SUPERIORHURON

SUPERIOR

GRAND

HUBBARD

KINZIE

GRAND

RANDOLPH

WACKER

WACKER

MONROE

LAKE SH

ORE DRIVE

WASHINGTON

SOUTH WATER

LAKE

FULTON

MADISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISONMADISON

ADAMS

CONGRESSCONGRESS

JACKSON JACKSON

VAN BUREN VAN BUREN

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

JACKSON

VAN BUREN

BALBO

HARRISONHARRISON

RANDOLPH

MONROE

WASHINGTON

LAKE

MADISON

ADAMS

JACKSON

VAN BUREN

HARRISON

VERNON PARK

MAXWELL

CULLERTON

MAXWELL MAXWELL

LIBERTY

14TH

8TH POLKPOLK

CABRINI CABRINI

TAYLOR

12TH PL

O’BRIEN

13TH

14TH

16TH

17TH

18TH

19TH

17TH PL

19TH PL

14TH PL

15TH PL

ROOSEVELT

McFETRIDGE

ROOSEVELT

9TH

11TH

13TH SOLIDARITY

14TH

18TH

19TH

23RD

24TH

23RD

23RD PL

24TH PL

ALEXANDER

22ND PL

CERMAK

ARCHER

CHINA PL

CERMAK

24TH

24TH PL

CULLERTON

18TH

14TH PL

17TH

16TH

LA SALLE

BELLEVUE

Kennedy Expwy

Dan

Ryan

Expw

y

Stevenson Expwy

Eisenhower Expwy

CENTRALLOOP

EAST LOOPWEST LOOP

RIVER NORTH


90

290

94

55

90

94

41

1000 FEET

300 METERS

NORTH





Submarket Highlights & Forecast (continued)

Additionally, Baxter Healthcare spin-off Baxalta signed an 83,000-square-foot lease at 540 W. Madison Street which it will use as a satellite office to supplement its new 256,000-square-foot Bannockburn, IL location. Companies unwilling to move their headquarters to the city due to higher rents and long commutes for senior employees living in the suburbs have resorted to opening smaller satellite offices in the city in order to remain competitive in recruiting. These satellite offices have become an important trend in the market as they have increased demand for office space in the city, allowing landlords to increase rents until new space is delivered to the market.

Looking ahead, the key to the West Loop’s future success will be its ability to fill the shadow space created as supply increases with the delivery of the two new developments. Given the strong demand for office space in the West Loop and the momentum experienced within the submarket over the past year, there is little reason to believe the West Loop’s standing as a top performing submarket within the CBD will change in the near future.


West Loop vacancy decreased to 12.1 percent during the third quarter, slightly down from 12.4 percent during the second quarter.

The West Loop reported positive 138,384 square feet of net absorption in the third quarter. Both Class A and Class B experienced positive demand, reporting positive 70,707 square feet and positive 43,415 square feet of net absorption, respectively.

The average direct asking rental rate in the West Loop submarket continued to increase, ending the quarter at $38.83 per square foot.


There are 15 large, contiguous blocks of space currently available on a direct basis in the West Loop.

The West Loop has two properties under construction and a third aiming to break ground as developers work to secure anchor tenants, which is contributing to the high number of large blocks of space available in the submarket.


311 W. Monroe St. B 356,889 1-14 Direct

300 S. Riverside Plz A 265,093 2-6 Direct

300 S. Riverside Plz A 158,197 9-11 Direct

500 W. Madison St. A 155,810 4-7 Direct

222 W. Adams St. A 154,605 28-34 Direct

227 W. Monroe St. A 146,506 52-58 Direct

444 W. Lake St. A 145,750 45-50 New/Direct

150 N. Riverside Dr. A 143,189 22-26 New/Direct

550 W. Jackson Blvd. A 130,413 2-6 Direct

444 W. Lake St. A 130,000 31-35 New/Direct

71 S. Wacker Dr. A 120,705 14-17 Direct

200 W. Jackson Blvd B 109,460 9-15 Direct

150 N. Riverside Dr. A 109,143 17-20 New/Direct

227 W. Monroe St. A 106,784 12-14 Direct

111 S. Wacker A 99,808 14-17 Direct

Squa

re F

oota

ge Vacancy


0

505,244

191,358

599,526

933,459

55,773

(724,453)

12.1%11.5%

12.6%12.9%14.2%

16.1%16.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Squa

re F

oota

ge Vacancy


0

505,244

191,358

599,526

933,459

55,773

(724,453)

12.1%11.5%

12.6%12.9%14.2%

16.1%16.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2015201420132012201120102009

Absorption Vacancy

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

20152014201320122011201020092008

Net Absorption & Vacancy | West Loop Office Market


Asking Gross Rental Rates | West Loop Office Market


Large Block Availabilities | West Loop Office Market


Construction

No new construction was delivered to the West Loop during the third quarter. However, Hines is under construction on a new 52-story, 1,050,000-square-foot office tower at 444 W. Lake Street. The building currently has several tenants secured including McDermott Will & Emery, DLA Piper, Mead Johnson Nutrition, Morton Salt, Servcorp and the Duchossois Group. These tenants will occupy space in the building once it is delivered to the market in early-2017.

Another new tower is also under construction at 150 N. Riverside Plaza, which is a 54-story building that will deliver 1,229,064 square feet to the West Loop when finished. William Blair & Co. has been secured as an anchor tenant and will be joined by Hyatt Corporation, the Pritzker Organization, and Polsinelli P.C. in early-2017 when the building is scheduled for completion.

Also receiving significant attention during the third quarter is another planned development at 151 N. Franklin Street, which is slated to be a 32-story, 710,774-square- foot office tower developed by the John Buck Company. However, its chances of breaking ground in the near future took a hit during the third quarter when Freeborn and Peters opted to renew its lease at 311 S. Wacker Drive.


Large lease activity in the West Loop slightly increased during the third quarter as four lease transactions of over 50,000 square feet occurred, up from two such transactions taking place in the previous quarter. In spite of previously signing a Letter of Intent on a lease at the planned development at 151 N. Franklin Street , Freeborn and Peters announced that it has reconsidered its plan to move and has renewed its lease at 311 S. Wacker Drive.

The investment sales market in the West Loop remained active during the third quarter with two transactions officially closed and another under contract for sale. The largest investment sales news within the submarket during the quarter was PNC Realty Investor’s decision to purchase 525 W. Van Buren. The asset is under contract for $350 million ($360.00/SF).

UC = Under Contract


West Loop Office Leasing Activity – 3Q 2015TENANT BUILDING CLASS SIZE (SF) DEAL TYPE

Motorola Solutions 500 W. Monroe Street A 150,000 New Lease

Baxalta 540 W. Madison Street A 83,000 New Lease

Houlihan Lokey 111 S. Wacker Drive A 57,388 Relocation/New Lease

Freeborn & Peters 311 S. Wacker Drive A 119,555 Renewal

West Loop Office Investment Sales Activity – 3Q 2015STATUS ADDRESS CLASS SIZE (SF) SALE PRICE PRICE/SF SELLER BUYER

Sold 525 W. Van Buren Street A 522,000 135,000,000 $258.62 Northwood Investors AEW Capital Management

Sold 549 W. Randolph Street C 108,000 19,350,000 $179.17 Knight Building LLC Ameritus Real Estate Investment Management & Alcion Ventures

UC 333 W. Wacker Drive A 867,821 315,000,000 $360.00 Hines Interests PNC Realty Investors

151 N. Franklin Street

21 Research & Forecast Report | Third Quarter 2015 | Downtown Chicago / Office | Colliers International21

Third Quarter 2015 Office Market Statistics | Local Standards (includes competitive owner-occupied properties)

CLASS BLDGS TOTAL INVENTORY SF

DIRECT VACANCY SF

SUBLEASE VACANCY SF

TOTAL VACANCY SF

DIRECT VACANCY

%

SUBLEASE VACANCY

%

TOTAL VACANCY

%

DIRECT NET ABSORPTION

(SF)

SUBLET NET ABSORPTION

(SF)

TOTAL NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING GROSS DIRECT RENT

PER SF


Class A 17 15,983,421 1,638,190 101,861 1,740,051 10.2% 0.6% 10.9% -46,297 (26,626) -72,923 86,801 $41.47

Class B 30 18,359,745 2,183,316 138,723 2,322,039 11.9% 0.8% 12.6% 172,232 (10,685) 161,547 369,470 $32.76

Class C 19 3,323,292 355,174 8,427 363,601 10.7% 0.3% 10.9% -13,191 -4,738 -17,929 37,778 $25.75

Subtotal 66 37,666,458 4,176,680 249,011 4,425,691 11.1% 0.7% 11.7% 112,744 (42,049) 70,695 494,049 $35.98

E A S T L O O P

Class A 4 6,737,473 981,497 3,693 985,190 14.6% 0.1% 14.6% 70,691 1,307 71,998 173,522 $38.80

Class B 16 12,289,217 1,958,667 14,859 1,973,526 15.9% 0.1% 16.1% 99,916 44 99,960 103,192 $32.76

Class C 36 6,864,439 836,837 9,410 846,247 12.2% 0.1% 12.3% (17,980) 9,386 (8,594) (103,915) $27.51

Subtotal 56 25,891,129 3,777,001 27,962 3,804,963 14.6% 0.1% 14.7% 152,627 10,737 163,364 172,799 $32.71


Class A 9 6,591,421 989,365 3,000 992,365 15.0% 0.0% 15.1% (8,179) 2,500 (5,679) 78,985 $39.44

Class B 19 6,154,230 820,358 8,991 829,349 13.3% 0.1% 13.5% -6,198 (2,628) -8,826 33,422 $30.65

Class C 12 1,694,238 162,524 4,120 166,644 9.6% 0.2% 9.8% 8,050 -3,470 4,580 3,030 $19.02

Subtotal 40 14,439,889 1,972,247 16,111 1,988,358 13.7% 0.1% 13.8% -6,327 (3,598) (9,925) 115,437 $34.12

R I V E R N O R T H

Class A 5 3,869,920 208,755 4,992 213,747 5.4% 0.1% 5.5% 5,769 0 5,769 41,418 $47.72

Class B 24 9,298,352 771,012 134,862 905,874 8.3% 1.5% 9.7% 44,362 -2,275 42,087 (85,926) $35.80

Class C 21 2,063,464 233,373 13,418 246,791 11.3% 0.7% 12.0% 6,993 2,232 9,225 13,286 $27.22

Subtotal 50 15,231,736 1,213,140 153,272 1,366,412 8.0% 1.0% 9.0% 57,124 -43 57,081 (31,222) $35.59

W E S T L O O P

Class A 31 27,848,097 2,991,247 239,382 3,230,629 10.7% 0.9% 11.6% 62,055 8,652 70,707 (95,396) $41.83

Class B 25 16,495,207 2,031,836 372,562 2,404,398 12.3% 2.3% 14.6% 167,528 (124,113) 43,415 (225,129) $35.28

Class C 31 4,144,297 239,513 15,819 255,332 5.8% 0.4% 6.2% 30,823 (6,561) 24,262 11,951 $26.12

Subtotal 87 48,487,601 5,262,596 627,763 5,890,359 10.9% 1.3% 12.1% 260,406 (122,022) 138,384 0 $38.83

T O T A L C H I C A G O C B D

Class A 66 61,030,332 6,809,054 352,928 7,161,982 11.2% 0.6% 11.7% 84,039 (14,167) 69,872 285,330 $0.00

Class B 114 62,596,751 7,765,189 669,997 8,435,186 12.4% 1.1% 13.5% 477,840 -139,657 338,183 195,029 $0.00

Class C 119 18,089,730 1,827,421 51,194 1,878,615 10.1% 0.3% 10.4% 14,695 (3,151) 11,544 (37,870) $0.00

Subtotal 299 141,716,813 16,401,664 1,074,119 17,475,783 11.6% 0.8% 12.3% 576,574 -156,975 419,599 751,063 $36.16

Q U A R T E R L Y C O M P A R I S O N S

Q3-15 299 141,716,813 16,401,664 1,074,119 17,475,783 11.6% 0.8% 12.3% 576,574 -156,975 419,599 751,063 $36.16

Q2-15 299 141,716,813 16,939,191 956,191 17,895,382 12.0% 0.7% 12.6% 468,582 -84,248 384,334 22,890 $35.76

Q1-15 299 141,716,813 17,407,773 871,943 18,279,716 12.3% 0.6% 12.9% -366,892 5,448 -361,444 -361,444 $35.51

Q4-14 299 141,716,813 17,040,881 877,391 17,918,272 12.0% 0.6% 12.6% 565,789 59,610 625,399 1,041,539 $35.02

Q3-14 299 141,716,813 17,606,670 937,001 18,543,671 12.4% 0.7% 13.1% 280,216 165,852 446,068 416,140 $34.57

22 Research & Forecast Report | Third Quarter 2015 | Downtown Chicago / Office | Colliers International22

Third Quarter 2015 Office Market Statistics | Colliers International Standards (includes all owner-occupied properties)

CLASS BLDGS TOTAL INVENTORY SF

DIRECT VACANCY SF

SUBLEASE VACANCY SF

TOTAL VACANCY SF

DIRECT VACANCY

%

SUBLEASE VACANCY

%

TOTAL VACANCY

%

DIRECT NET ABSORPTION

(SF)

SUBLET NET ABSORPTION

(SF)

TOTAL NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING GROSS DIRECT RENT

PER SF


Class A 17 15,983,421 1,591,893 75,235 1,667,128 10.0% 0.5% 10.4% 1,615 25,000 26,615 159,724 $41.04

Class B 39 22,890,431 2,375,828 128,038 2,503,866 10.4% 0.6% 10.9% 292,432 -37,514 254,918 192,880 $32.54

Class C 37 5,069,454 938,962 3,689 942,651 18.5% 0.1% 18.6% 16,427 (3,494) 12,933 59,593 $25.57

Subtotal 93 43,943,306 4,906,683 206,962 5,113,645 11.2% 0.5% 11.6% 310,474 -16,008 294,466 412,197 $35.81

E A S T L O O P

Class A 4 6,737,473 1,052,188 5,000 1,057,188 15.6% 0.1% 15.7% (25,163) 11,655 -13,508 101,524 $38.33

Class B 19 12,512,484 2,058,583 14,903 2,073,486 16.5% 0.1% 16.6% 20,644 -2,596 18,048 3,232 $31.78

Class C 50 7,329,010 842,765 49,008 891,773 11.5% 0.7% 12.2% 23,670 6,009 29,679 -85,433 $27.36

Subtotal 73 26,578,967 3,953,536 68,911 4,022,447 14.9% 0.3% 15.1% 19,151 15,068 34,219 19,323 $32.56


Class A 9 5,683,697 608,134 5,500 613,634 10.7% 0.1% 10.8% -61,574 -2,500 -64,074 77,325 $37.40

Class B 28 7,800,702 819,060 6,363 825,423 10.5% 0.1% 10.6% 14,861 500 15,361 47,259 $30.45

Class C 26 2,666,293 509,460 650 510,110 19.1% 0.0% 19.1% -6,615 8,033 1,418 8,620 $21.39

Subtotal 63 16,150,692 1,938,191 12,513 1,949,167 12.0% 0.1% 12.1% (53,328) 6,033 -47,295 133,204 $32.83

R I V E R N O R T H

Class A 6 5,011,680 258,556 4,992 263,548 5.2% 0.1% 5.3% 43,744 0 43,744 42,988 $43.67

Class B 49 10,382,087 895,774 141,422 1,037,196 8.6% 1.4% 10.0% -17,612 6,144 -11,468 -150,329 $35.35

Class C 75 3,659,902 353,435 22,432 375,867 9.7% 0.6% 10.3% -23,880 -3,139 -27,019 -38,414 $26.79

Subtotal 130 19,053,669 1,507,765 168,846 1,676,611 7.9% 0.9% 8.8% 2,252 3,005 5,257 -145,755 $33.82

W E S T L O O P

Class A 33 28,500,597 3,061,094 248,034 3,309,128 10.7% 0.9% 11.6% 29,860 -28,367 1,493 -131,103 $41.79

Class B 35 18,533,323 2,236,296 252,047 2,488,343 12.1% 1.4% 13.4% 106,125 -66,685 39,440 -269,178 $34.98

Class C 50 4,585,441 341,157 8,957 350,114 7.4% 0.2% 7.6% -330 -1,783 -2,113 -16,664 $25.36

Subtotal 118 51,619,361 5,638,547 509,038 6,147,585 10.9% 1.0% 11.9% 135,655 (96,835) 38,820 -416,945 $38.44

T O T A L C H I C A G O C B D

Class A 69 61,916,868 6,571,865 338,761 6,910,626 10.6% 0.5% 11.2% -11,518 5,788 -5,730 250,458 $40.68

Class B 170 72,119,027 8,385,541 542,773 8,928,314 11.6% 0.8% 12.4% 416,450 -100,151 316,299 -176,136 $33.13

Class C 238 23,310,100 2,985,779 84,736 3,070,515 12.8% 0.4% 13.2% 9,272 5,626 14,898 -72,298 $26.24

Subtotal 477 157,345,995 17,943,185 966,270 18,909,455 11.4% 0.6% 12.0% 414,204 -88,737 325,467 2,024 $35.70

Q U A R T E R L Y C O M P A R I S O N S

Q3-15 477 157,345,995 17,943,185 966,270 18,909,455 11.4% 0.6% 12.0% 414,204 (88,737) 325,467 2,024 $35.70

Q2-15 477 157,345,995 18,357,389 877,533 19,234,922 11.7% 0.6% 12.2% -325,594 2,151 -323,443 -323,443 $35.84

Q1-15 477 157,345,995 18,031,795 879,684 18,911,479 11.5% 0.6% 12.0% 54,036 64,217 118,253 651,546 $34.00

Q4-14 477 157,345,995 18,085,831 943,901 19,029,732 11.5% 0.6% 12.1% 328,813 214,092 542,905 533,293 $35.00

Q3-14 477 157,345,995 18,414,644 1,157,993 19,572,637 11.7% 0.7% 12.4% 457,258 (21,063) 436,195 -9,612 $34.36

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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About Colliers InternationalColliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals’ Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm.

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MARKET CONTACT:Robert Patterson Research Analyst | Chicago+1 312 612 [email protected]

CONTRIBUTORS:Stephanie Bujwit | Financial Analyst Mark Breithaupt | Creative ManagerColliers International | Chicago200 South Wacker, Suite 700Chicago, IL

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Q3 2015 Downtown Chicago Office Market Report

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