Feeling A Little Sluggish

Transcription

1 SECOND QUARTER 2012 DOWNTOWN research report second quarter 2012 downtown chicago office chicago OFFICE MARKET OVERVIEW Feeling A Little Sluggish During the second quarter, market fundamentals in the CBD were sluggish with a decrease in leasing activity, a vacancy rate that remained unchanged for the second quarter in a row and an overall perception of a slight slowdown across the market. MarKet indicators Overall Chicago CBD YTD 2012 YTD rate 15.2% 14.9% absorption (sf) 549,969-98,815 rents $31.23 $31.72 inventory 143,399, ,399,104 recent announcements of MaJor cbd expansions by existing tenants tenant growth plans (employee count) timing continental holdings 1,300 End of 2012 Devry, Inc. 1, Ge capital 1,000 In Process Groupon 500+ In Process accenture 500 Mid-2012 ernst & Young 500 End of 2012 sara Lee 500 Early 2013 Jp Morgan chase 400 End of 2012 Motorola solutions 400 End of 2012 allscripts 300 End of 2012 emc corporation 200 End of 2013 Merge healthcare 200 End of 2013 accretive health 100 In Process total 6900 Evidence of a market rebound is apparent given a cumulative 1.6 million square feet of positive net absorption posted in. However, the recovery continues to occur on a staggered basis, with some areas of the market improving rapidly with others hindering the pace of recovery. Much of the positive absorption that has been experienced in the CBD over the past year is sourced by increased hiring and space expansions across less traditional sectors. Chicago, not typically known as a prominent technological market, has recently emerged as a hotbed for many technology and software companies that are now seeking space in the CBD. Expansions by companies such as Groupon, GrubHub, and most recently, Salesforce.com, have not only provided momentum in the market but also have helped to somewhat compensate for the space contractions within the CBD s more traditional financial and professional service sectors. reversing the reverse commute Another area that is fueling demand in the CBD is a preference by today s labor pool to work in an urban setting. Recognizing that employees prefer the ease of commuting offered in the city as well as the work-life balance that can be achieved, several corporations responded in recent quarters by committing to relocating their offices from suburban or peripheral locations into the CBD. This trend exemplifies the type of thoughtful decision-making being employed by tenants today. There is an understanding that the physical environment can be leveraged to create a competitive advantage through recruiting and retaining the best employees and realizing cost savings as a result of lease restructures or relocations. Additionally, the city will serve as the beneficiary of several corporate expansions that have been committed to in recent quarters. These commitments were made as part of long-term strategic plans over the next several years, but, when implemented, would bring an estimated 6,900 new jobs to the CBD. colliers international p. 1

2 the pace of recovery Despite an expanding technology industry, corporate migration from the suburbs and the recent corporate expansion commitments obtained by the mayor, growth from these transactions will not be reflected as positive absorption until occupancy actually takes place, which could occur over a several-years period. Factors such as cost-cutting initiatives via space contractions and a shift to more modern workplace strategies, such as hoteling, continue to impede the CBD s absorption rate. Further impacting the pace of recovery are macro headwinds including an uncertain political landscape, apprehensions surrounding Europe s debt crisis and inconsistent job growth. All of these factors continue to play a role in the pervasive uncertainty that has plagued the market since. Historically, election years are relatively unpredictable from an economic standpoint, lending an extra layer of uncertainty to the equation. In general, the Chicago CBD remains a market that is largely divided. Those segments that are performing well are helping to supplement the fallout from those segments that are still struggling to stabilize vacancies. Divisions exist based upon industry type, building asset class, submarket location, landlord stability, and building rise. The pace of recovery through the balance of 2012 will likely be tepid due to the uncertainties that prevent the average business from proceeding with more aggressive hiring. Large lease transactions by large corporations helped carry the positive demand experienced in due to a greater comfort level about their long-term viability and a desire to lock in tenant-favorable rental rates and concession packages. However, with so many large tenants with near-term expirations already committed to lease commitments, activity is likely to remain slower in 2012 as smaller and midsized tenants make up the majority of the CBD s tenant composition. Although confidence has improved compared to where it stood at mid-year, the uncertainties that still exist in the market continue to stave off substantial growth within smaller and mid-sized companies, who amidst concerns about overcommitting to space, find themselves in a holding pattern, adopting a wait and see attitude as it relates to major expansion initiatives. Indicative of a market still working through the recovery process, alternating quarters of negative and positive demand are anticipated through the balance of the year into However, CBD landlords stand to benefit from the lack of new inventory over the next 24 months and once the macro issues that plague the market subside and real expansion begins to occur, vacancy will tighten at a more consistent and rapid pace. Square Footage (%) Net & central business district 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 (500,000) (1,000,000) (1,500,000) 18.0% 3,460, % 15.6% 16.0% 14.9% 14.9% 14.0% 11.8% 11.7% 12.0% 10.0% 1,108, % 436, % (98,815) 4.0% (478,218) 2.0% (1,012,652) 0.0% 2012 YTD Source: Costar; Colliers International Research SUBMARKET RATES (YTD) 20.0% 17.0% 16.5% 15.9% 16.2% 16.3% 15.3% 14.8% 14.7% 14.7% 15.1% 14.5% 14.7% 15.0% 14.3% 14.1% 12.9% 10.0% 5.0% and For the third consecutive quarter, the overall CBD vacancy rate remained virtually unchanged at 14.9 percent. Although occupancy levels remained flat for the second quarter in a row, current vacancy resides below the 15.2 percent rate posted one year ago in the second quarter of. Class A properties reported an increase in vacancy, ending the quarter at 15.2 percent, up from 15.0 percent in the prior quarter. In the past year, Class A vacancy has improved 0.3 percent. For the second quarter in a row, Class B space posted a sizeable decrease in vacancy, descending to 14.4 percent, down from 14.7 percent in the quarter prior. Over the past year, Class B vacancy has posted a 1.3 percent decrease. Overall vacancy resides 1.1 percent below the current market cycle s peak level of 16.0 percent, posted in the first quarter of. Net absorption for the quarter totaled negative 50,371 square feet. Year-to-date net absorption totals negative 98,815 square feet, compared to positive 549,969 square feet one year ago. 0.0% Central Loop East Loop North Michigan Ave. River North West Loop Source: Costar; Colliers International Research 2012 Colliers International p. 2

3 Lease Activity Leasing activity slowed a bit during the second quarter of 2012 with only 7 completed transactions greater than 50,000 square feet, compared to 16 such transactions in the prior quarter. Consistent with the growth seen in Chicago s technology and software industry, the largest lease transaction was Salesforce.com s commitment to lease 116,000 square feet at 111 W. Illinois Street in River North. The company first made its entrance into Chicago with its acquisition of Model Metrics, located at 600 W. Chicago Avenue, in late. Also during the quarter, Tribeca Flashpoint Media Arts Academy extended its lease upon expanding at 111 W. Washington Street to occupy a total of 104,000 square feet. The third largest deal for the quarter was a renewal and expansion by Perkins Coie at 131 S. Dearborn Street. The law firm expanded by approximately 14,000 square feet at the Citadel Center for a total occupancy of 101,000 square feet. Despite a sluggish second quarter, leasing activity for the first half of the year remains on pace with the volume of transactions completed during the first half of. The first half of 2012 ended with 23 transactions greater than 50,000 square feet, totaling 2.1 million square feet. Comparatively, 22 transactions totaling 2.2 million square feet in the same size range were closed during the first half of. If the balance of 2012 mirrors that of, it can be expected that while leasing activity is elevated compared to the two prior years, this year is likely to be another year of transition in the CBD s recovery, with 2013 displaying more definitive signs of progress. chicago cbd significant Leasing Transactions of second QUARTER 2012 Tenant Address Class Submarket Size (SF) Deal Type Salesforce.com 111 W. Illinois Street A River North 116,700 New Lease Tribeca Flashpoint Media Arts Academy 111 W. Washington Street B Central Loop 103,900 Renewal/Expansion Perkins Coie 131 S. Dearborn Street A Central Loop 101,300 Renewal/Expansion GSA Secret Service 525 W. Van Buren Street A West Loop 76,200 Renewal Harris & Harris 111 W. Jackson Boulevard B Central Loop 75,000 New Lease Northwestern University Feinberg School of Medicine 633 N. St. Clair Street A North Michigan Ave. 62,000 New Lease aecom Technology Corporation 303 E. Wacker Drive B East Loop 58,400 Renewal Compass Lexecon 332 S. Michigan Avenue C East Loop 47,100 Renewal Gannett/Shop Local 225 N. Michigan Avenue B East Loop 45,300 Renewal/Expansion Navteq 500 W. Madison Street A West Loop 37,400 Expansion Ocean Tomo 200 W. Madison Street B West Loop 36,000 Renewal Gelber Group 350 N. Orleans Street B River North 35,000 New Lease American Health Information Management Association 233 N. Michigan Avenue B East Loop 34,800 Renewal BDO Usa LLP 330 N. Wabash Avenue A River North 33,300 New Lease Trisect Marketing 130 S. Jefferson Street C West Loop 30,500 New Lease Kelly Scott Madison 303 E. Wacker Drive B East Loop 29,900 New Lease Commonwealth Edison 440 S. LaSalle Street A Central Loop 27,000 Renewal Ulmer & Berne 500 W. Madison Street A West Loop 26,500 Renewal/Expansion Braintree Payment Solutions 111 N. Canal Street B West Loop 26,350 New Lease Red Frog Events 320 W. Ohio Street C River North 25,000 Renewal Colliers International p. 3

4 Large Blocks of Availability and Tenant Demand Large blocks of space in the CBD are defined as those containing 100,000 square feet or greater on a contiguous and direct basis. During the second quarter, there was no net change in large block availability. A 104,000-square-foot block of space at 740 N. Rush Street reduced in size to 74,000 square feet and was therefore removed from large block availability. However, a new 155,829-squarefoot block of space was added at 130 E. Randolph Street. The block is available in 2014 when Integrys relocates to 200 E. Randolph Street. Total large block availability now equals 26 spaces totaling 4.87 million square feet. There are currently only seven blocks of space that are sizeable enough to accommodate a tenant with an occupancy of 200,000 square feet or greater. When analyzed further, only four of these blocks reside within Class A space. Colliers International is currently tracking nine tenants actively exploring the market in the 200,000-square-foot or more size range, indicating that the options available for the largest tenants in the market still remain fairly constrained. large block direct availabilities (100,000+ square feet) Building Class Size (SF) Floor Submarket 500 W. Monroe Street A 392, West Loop 515 N. State Street A 350, North Michigan Ave. 200 E. Randolph Street A 340, East Loop 233 S. Wacker Drive A 310, West Loop 130 E. Randolph Street B 256, East Loop 77 W. Wacker Drive A 240, Central Loop 225 W. Randolph Street B 238, West Loop W. Monroe Street B 214, West Loop E. Illinois Street C 210, North Michigan Ave. 222 N. LaSalle Street B 199, Central Loop 300 S. Riverside Plaza B 198, West Loop 303 E. Wacker Drive B 182, East Loop 55 E. Monroe Street B 175, East Loop 303 E. Wacker Drive B 165, East Loop 200 N. LaSalle Street A 164, Central Loop 130 E. Randolph Street A 155, East Loop 11 S. LaSalle Street C 150, Central Loop 333 S. Wabash Avenue B 147, East Loop 111 W. Illinois Street A 141, River North 227 W. Monroe Street A 139, West Loop 10 S. Dearborn/21 S. Clark Street A 139, Central Loop 350 W. Mart Center B 138, River North 130 E. Randolph St. A 129, East Loop N. Michigan Ave. B 129, North Michigan Ave. 131 S. Dearborn A 128, Central Loop 410 N. Michigan Ave. B 125, North Michigan Ave. 205/225 N. Michigan Ave. B 120, East Loop 600 W. Chicago Ave. B 117,101 2 River North 161 N. Clark St. A 116, Central Loop 401 S. State St. C 110, East Loop 401 N. Michigan Ave. A 104, North Michigan Ave. 12 large direct blocks of CBD Class A space consisting of 2,486,805 square feet 3 large blocks of West Loop Class A space consisting of 842,219 square feet 2 large blocks of West Loop High Rise Class A space consisting of 702,336 square feet Large tenants are finding that the spaces available for their occupancies are dwindling when factors such as asset class, submarket desirability, and view characteristics are considered. Of the 26 large blocks of available space, only 12 reside within Class A buildings. When dissected further, the lack of high-view, quality, well-located space becomes even more apparent. Only three of those blocks reside within the highly desired West Loop submarket and of those, only two are located within the building s high-rise. The constrained conditions for large tenants seeking quality, high-view space have served as the catalyst for developers to make strides towards launching a new building. Colliers International p. 4

5 Construction The second quarter of the year ended with headlines buzzing about the potential for new office tower development in the Chicago CBD. Square Footage new construction deliveries ,000,000 3,500,000 3,000,000 With the return of lending by banks and a CBD market that 2,500,000 is lacking in large, quality available blocks of space, the 1,892,460 1,897,981 2,000,000 1,745,968 potential for new development is not only a possibility but 1,504,364 1,500,000 1,331,436 also very probable. The question remains, though, how 933,710 1,000,000 much new inventory can Chicago s CBD support? The 782, , ,000 developments that are in play would likely deliver in the 500, to 2017 timeframe and the number of truly viable anchor tenants in that window is limited. Many large tenants Source: Costar; Colliers International Research that had lease expirations in the next five years have already renegotiated their leases well in advance of expiration in order to take advantage of softened market conditions over the past two years. Developers are actively courting those prospects that could realistically anchor a new building and tenants are cautiously evaluating their options before making a commitment. Once commitments are secured, it is likely the Chicago CBD could see two or three new developments launched, depending upon size. With the market now trending towards recovery, it is expected that fundamentals (annual absorption and the resulting vacancy rate) will be in place to support the addition of new inventory by The development landscape saw increased activity during the quarter as several developers took steps towards launching a new building. Hines announced intentions to break ground by year-end on a new 45-story, 900,000-square-foot office tower at 444 W. Lake Street which will be known as River Point. The project, originally slated for a delivery, was tabled in as a result of the credit crisis when financing fell through despite substantial pre-leasing by two anchor tenants. Hines is said to be developing the newest version of this office tower on a speculative basis, hoping to secure tenants during the construction period. Other projects gaining momentum include the site owned by developer John O Donnell at 150 N. Riverside Plaza, located along the river between Lake Street and Randolph Street, and the site at 301 S. Wacker Drive. These two projects are both in the 1.0-million-square-foot range. 3,652,913 Proposed Chicago CBD Office Development Sites Address Developer Leasing Firm Total RBA 601 W. Monroe Street Fifield Companies CBRE 642, N. Jefferson Street Jupiter Realty Colliers International 450, W. Adams Street The Alter Group/ White Oak Realty Partners Saletta Realty/Alter Group 494,601 or 346, N. Riverside Plaza O Donnell Investments Colliers International 1,471, W. Lake Street Hines/Levy (joint venture) Hines/JF McKinney 1,100, S. Wacker Drive InSite/Trammell Crow CBRE 1,002,807 Wolf Point Hines/Kennedy (joint venture) 130 N. Franklin Street cc Industries/ Tishman Speyer 645 W. Madison Street Hines, MR Properties (owner) Hines Tishman Speyer Hines 1,500,000 (East) 1,800,000 (South) 1,000, , S. Wacker Drive DRI/Oaktree Capital JF McKinney 863, W. Randolph Street John Buck Company (developer) Interpark (owner) John Buck Company 991,805 A secondary subset of smaller new developments also exists in a more peripheral West Loop location that resides in the area between the river and the Kennedy Expressway. The Alter Group and White Oak Realty Partners are marketing a 490,000-square-foot building at 625 W. Adams Street; Fifield Companies is proposing a 640,000-square-foot tower at 601 W. Monroe Street; and Jupiter Realty is looking at developing approximately 360,000 square feet at 108 N. Jefferson Street. New construction has not delivered to the Chicago CBD since when the vertical expansion of the Blue Cross Blue Shield Building at 300 E. Randolph Street added 933,000 square feet to inventory. The last new building additions to inventory occurred in with the deliveries of 353 N. Clark Street, 300 N. LaSalle Street and 155 N. Wacker Drive, which added a combined 3.7 million square feet to inventory and were over 95 percent leased by Colliers International p. 5

6 Rents and Concessions Asking Gross Face Rate central business district The average direct gross asking rental rate increased during the second quarter to $31.72 per square foot, up from $31.42 per square foot in the prior quarter. Compared to the second quarter of, the average rate has increased $0.49 from $31.23 per square foot. The Class A asking rental rate resides at $37.35 per square foot gross, compared to $37.22 per square foot in the prior quarter. Class B rental rates remained unchanged during the quarter at $29.76 per square foot. The average Class C asking rental rate is currently at $22.62 per square foot, up from $22.10 per square foot. $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 The average asking rate in the CBD has increased slightly for the past five consecutive quarters. Although movement in rates has not been significant with a 2.2 percent total increase since the beginning of, it appears that the upward pressure being place on rates by some well-positioned landlords is slowly impacting the average. With future contractions in rents unlikely, tenants in the market should continue taking advantage of the market still rebounding before more substantial rent increases are realized throughout the CBD. Source: Costar; Colliers International Research Class A Class B Class C Average 2012 capital markets In the past year, the CBD has experienced a reawakening of the investment sales market. The resurgence began in late- as cautious 70 investors tiptoed back into the market, opting to make more conservative purchases which 53 included top-tier, core and trophy assets. These 50 towers, commanding a price that averaged 40 $300-$500 per square foot, boasted higher than average occupancies and were a more stable bet 30 in a market that was still vulnerable. In 2012, a 20 shift has become apparent as investors have 10 seemingly broadened their threshold for risk. This shift is evidenced by the growing number of 0 investment sales involving the CBD s non-core, second generation Class A and B assets. So far in 2012, 11 non-core properties have traded with another four such properties currently under contract. By comparison, only four non-core assets had sold at this point last year. Investment Sales Activity Number of Sales Source: Costar; Colliers International Research Although the local market seems to have regained its footing, concerns still remain regarding the intensifying debt crisis in Europe and the ability for European leaders to contain the problem. While the U.S. stands more protected from direct exposure to Europe s situation than it did in the past, some lending implications could still exist locally if there is a dramatic shift in capital markets overseas. Another concern in local capital markets is the number of landlords still carrying an inflated amount of debt as a result of excessive borrowing that occurred before. As five-year loans effectuated in come due in 2012, some landlords are struggling to repay their debts as evidenced by the uptick in Chicago-area CMBS delinquencies this year. Despite these challenges, institutional investors are finding long-term value in the Chicago market which continues to show improvement on a quarterby-quarter basis. The largest assets sold during the second quarter were the Chicago Board of Trade Buildings at 141 N. Jackson Boulevard. The north and south towers totaling 1.4 million square feet sold from the CME Group to a joint venture between GlenStar Properties and USAA Real Estate Company for a combined $151 million ($111 per square feet). The highest per square foot price paid for an asset during the quarter was the purchase of 200 N. LaSalle Street by Canada-based Onni Group. The institutional investor purchased the building from Younan Properties for $101 million ($156 per square foot). Not far behind was the sale of 150 N. Michigan Avenue for $102 million ($154 per square foot). The asset was sold by SEB Asset Management to Manulife Real Estate. During the quarter, KBS placed the trophy tower at 300 N. LaSalle Street on the market. Only two years after purchasing the asset for $655 million ($503 per square foot), KBS is now seeking to sell a 49 percent joint venture stake in the property YTD Class A Class B Class C Colliers International p. 6

7 chicago cbd sales activity - Second QUARTER 2012 Status FS Address 130 E. Randolph Street / 180 N. Stetson Avenue* Sub- Market Class Size (SF) Sale Price Price/SF Seller Buyer EL A 2,204,137 TBD TBD BentleyForbes - Sold 141 W. Jackson Boulevard CL B 1,365,182 $151,500,000 $ CME Group GlenStar Properties JV USAA Real NM 300 N. LaSalle Street* RN A 1,302,901 TBD TBD KBS Reit 2 - Sold 150 N. Michigan Avenue EL B 661,482 $102,000,000 $ SEB Asset Management Manulife Real Estate Sold 200 N. Lasalle Street CL A 645,170 $101,000,000 $ Younan Properties Onni Group UC 230 W. Monroe Street WL B 624,000 $93,500,000 $ GE Pension Trust Lincoln Property Co JV Pacific UC 200 W. Monroe Street WL B 535,911 $75,000,000 $ GE Pension Trust Farbman Group JV Lubert-Adler UC 311 W. Monroe Street WL B 385,000 $45,000,000 $ AREA Property Partners Golub & Co JV Archon UC 550 W. Washington Street WL A 372,000 $112,000,000 $ Beacon Capital Partners MetLife Insurance FS 20 S. Clark Street CL B 363,657 TBD TBD M&J Wilkow Ltd. - FS 300 W. Adams Street WL C 252,847 $57,000,000 $ Sterling Bay Cos. - FS 32 W. Randolph Street CL C 226,666 TBD TBD David & Barbara Kalish - Sold 100 W. Monroe Street CL C 130,976 $12,750,000 $97.35 Thomas Horwich MB Real Estate Sold N. Franklin Street RN C 115,000 $6,500,000 $56.52 CL = Central Loop EL = East Loop NMA = North Michigan Avenue RN = River North WL = West Loop FS = For sale NM = New to Market UC = Under Contract * Partial stake The Lumber Street Company NM 540 N. LaSalle Street RN C 65,140 TBD TBD Joseph Lagoa - South Street Capital Colliers International p. 7

8 market indicators Central Loop YTD 2012 YTD rate 15.2% 14.7% (sf) -177, Rents $29.88 $30.69 Inventory 38,239,671 38,239,671 large blocks available 100,000 + square feet: direct 222 N. LASALLE ST. 200 N. LASALLE ST. 11 S. LASALLE ST. 10 S. DEARBORN/ 161 N. CLARK ST. CLASS A CLASS B CLASS C 139,165 SF 116,964 SF 199,132 SF 164,586 SF 150,166 SF Central Loop The second largest submarket in the Chicago CBD, the Central Loop is best known for its LaSalle Street corridor and its historical distinction as Chicago s core financial district. Although this distinction has dissipated some during the last decade, the submarket still remains home to several large financial institutions, banks and professional services firms. During the last two years, economic conditions substantially impacted the Central Loop s health, primarily due to the large banking and financial presence in the submarket. Further impacting the Central Loop is an inventory base that is largely varied by asset class. The Class A sector of the submarket boasts a healthy 12.3 percent vacancy rate while its Class B and C counterparts continue to post higher vacancies in the 16.7 and 15.2 percent range, respectively. Space efficiencies, floor plate design and amenity offerings are included amongst the reasons for the substantial spread between occupancy levels in Class A and B assets. As market conditions became more tenantfavorable, many tenants in the market took advantage of Class A pricing that had fallen upwards of $4.00 per square foot and elected to trade up to higher quality space, thereby leaving large vacancies in the submarket s Class B sector. However, in the past year, demand has improved in the submarket, particularly for Class B space. During the first half of the year, eight transactions greater than 50,000 square feet were effectuated, with six of them occurring in Class B properties. These transactions have resulted in a Class B vacancy rate that has descended over 3.0 percent in the past year. The second largest lease transaction in the second quarter occurred in the Central Loop. Tribeca Flashpoint Media Arts Academy extended its lease at 111 W. Washington Street as part of an expansion, bringing the school s occupancy to nearly 104,000 square feet. Also during the quarter Perkins Coie renewed and expanded to occupy 101,000 square feet at 131 S. Dearborn Street. In another sizeable transaction that will yield future positive absorption for the Central Loop, Harris & Harris signed a lease to relocate to 111 W. Jackson Boulevard from its current River North location at the Merchandise Mart. During the second quarter, the number of available large, contiguous blocks of space remained unchanged on a direct basis with five blocks available. However, for the second quarter in a row, another large block of Class A sublease space was placed on the market. In the first quarter, Citadel placed a 128,622 square foot space at 131 S. Dearborn Street on the sublease market. During the second quarter, United Airlines began marketing its 240,108-square-foot space at 77 W. Wacker Drive for sublease. The company is considering consolidating its offices at the Willis Tower in the West Loop where its operations center is currently located. If the airline proceeds with the consolidation, it will likely expand at the Willis Tower, bringing its occupancy to approximately 650,000 square feet at the building. 141 W Jackson Boulevard Investment sales activity was robust in the Central Loop during the second quarter. Three transactions closed, the largest of which was the sale of the Board of Trade Buildings at 141 W. Jackson Boulevard. The north and south towers sold for a combined $151.5 million ($111 per square foot) from the CME Group to a joint venture between Glenstar Properties and USAA Real Estate. 200 N. LaSalle Street also traded during the quarter as Canada-based Onni Group closed on its purchase of the asset for $101 million ($156 per square foot) from Younan Properties. Lastly, a venture led by MB Real Estate purchased 100 W. Monroe Street for $12.75 million ($97.35 per square foot) from Thomas Horwich. Colliers International p. 8

9 Square Footage Net & central loop Submarket Central Loop Submarket 1,400,000 1,200,000 1,000, , , , , , ,000 1,224, % 141, % Source: Costar; Colliers International Research % (175,725) 14.8% asking gross face rates central loop Submarket $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ , % (6,726) 2012 YTD Source: Costar; Colliers International Research Class A Class B Class C Average central loop Lease Activity SECOND QUARTER 2012 Tenant Address Class Size (SF) Deal Type Tribeca Flashpoint Media Arts Academy 111 W. Washington Street B 103,900 Renewal/Expansion Perkins Coie 131 S. Dearborn Street A 101,300 Renewal/Expansion Harris & Harris 111 W. Jackson Boulevard B 75,000 New Lease Commonwealth Edison 440 S. LaSalle Street A 27,000 Renewal Coleman Law 77 W. Wacker Drive A 22,900 Renewal Pierce & Associates 1 N. Dearborn Street B 21,400 Expansion central loop sales Activity SECOND QUARTER % % 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% The average Central Loop vacancy rate ticked up slightly to 14.7 percent during the second quarter from 14.6 percent in the prior quarter. However, the overall vacancy rate has improved 0.5 percent over the past year, marking signs of improvement in the submarket. The Central Loop s Class A sector remains among the strongest in the CBD with a direct vacancy rate of only 10.7 percent. Despite the strength exhibited on a direct basis, Class A space in the Central Loop has one of the highest sublease vacancy rates in the CBD at 1.7 percent, second only to the East Loop. The second quarter gave way to slightly negative demand in the Central Loop with net absorption totaling negative 46,432 square feet. This marks the first time in five quarters that overall demand in the Central Loop was negative. Year-to-date net absorption for the submarket is relatively flat at negative 6,726 square feet. This, however, is an improvement over the year-to-date absorption of negative 177,512 square feet as posted one year ago during the second quarter of. RENTS Status Address Class Size (SF) Sale Price Price/SF Seller Buyer The average direct asking rental rate increased slightly for the fifth consecutive quarter to $30.69 per square foot gross, up from $30.51 per square foot in the prior quarter. Over the last year, the average rental rate has increased $0.81 per square foot from the $29.88 per square foot rate posted in the second quarter of. The average Class A asking rate currently stands at $36.38 per square foot gross while the average Class B rate resides at $28.89 per square foot gross. Construction No new construction was delivered to during the second quarter and no new office developments are currently planned in the Central Loop. Sold 141 W. Jackson Boulevard B 1,365,182 $151,500,000 $ CME Group GlenStar Properties JV USAA Real Sold 200 N. Lasalle Street A 645,170 $101,000,000 $ Younan Properties Onni Group FS 20 S. Clark Street B 363,657 TBD TBD M&J Wilkow Ltd. - FS 32 W. Randolph Street C 226,666 TBD TBD David & Barbara Kalish - Sold 100 W. Monroe Street C 130,976 $12,750,000 $97.35 Thomas Horwich MB Real Estate FS = For sale Colliers International p. 9

10 East Loop Millenium Park, one of the city s largest public spaces, resides in the center of the East Loop s mixed inventory base containing office towers interspersed amongst residential condominium buildings. With the park serving as a focal point of the submarket, the East Loop offers a unique vibe that combines a fast-paced office market with a neighborhood feel. market indicators East Loop YTD 2012 YTD rate 16.1% 17.0% (sf) 110, ,157 Rents $29.29 $30.15 Inventory 27,276,979 27,276,979 large blocks available 100,000 + square feet: direct 200 E. RANDOLPH ST. 130 E. RANDOLPH ST. 303 E. WACKER DR. 55 E. MONROE ST. 303 E. WACKER DR. 130 E. RANDOLPH ST. 333 S. WABASH AVE. 130 E. RANDOLPH ST. 5/225 N. MICHIGAN AVE. 401 S. STATE ST. CLASS A CLASS B CLASS C 182,782 SF 175,263 SF 165,287 SF 155,829 SF 147,500 SF 129,948 SF 120,384 SF 110,898 SF 256,720 SF 340,959 SF During recent years, the East Loop endured several sizeable occupancy setbacks as recessed economic conditions coincided with the impending lease expirations of several of the submarket s largest tenants. Although landlords were successful in retaining several of these key tenants, some committed to leases in alternate submarkets, negatively impacting the East Loop s occupancy levels as a result. With a vacancy rate that remains inflated relative to historical norms, the East Loop s path to recovery has been fairly jagged, especially relative to its direct counterparts, the West Loop and Central Loop, which have demonstrated more consistent positive gains. The balance of 2012 will likely be more of the same, with the East Loop s demand characteristics continuing to fluctuate until stabilization is achieved. Later this year, Groupon, the online coupon company, will relocate its 220,000-square-foot space from 303 E. Wacker Drive to consolidate operations at 600 W. Chicago Avenue in the River North submarket, which will further impact the East Loop s recovery. A bright spot for the East Loop continues to be its appeal to tenants that are seeking more affordable space options relative to those available in the Central and West Loop. During the second quarter, leasing activity remained healthy with seven notable transactions consummated. The largest transaction was AECOM s 58,000-square-foot renewal at 303 E. Wacker Drive. The next three largest lease transactions were all renewals as well, with Compass Lexecon retaining its 47,000- square-foot lease at 332 S. Michigan Avenue; ShopLocal renewing and expanding to 45,000 square feet at 225 N. Michigan Avenue; and American Health Information Management Association renewing its 35,000-square foot-lease at 233 N. Michigan Avenue. The East Loop possesses the largest number of contiguous, direct blocks of available space consisting of 100,000 square feet or greater. The CBD s third-largest individual block of available space, totaling 340,959 square feet, resides within the submarket at the Aon Center located at 200 E. Randolph Street. During the second quarter one new block of space was added to the market. The energy company, Integrys, will vacate its space at 130 E. Randolph Street in 2014 when it relocates to 200 E. Randolph Street, leaving behind a 155,829-square-foot availability in the building. One investment sales transaction closed in the East Loop during the second quarter. After being placed on the market during the first quarter, Toronto-based Manulife Financial Corp. is purchasing the building at 150 N. Michigan Avenue from SEB Asset Management A.G. for $102 million ($154 per square foot). The Prudential Plaza Buildings at 180 N. Stetson Avenue and 130 E. Randolph Street remain on the market as BentleyForbes seeks a joint venture for the properties. 150 N. Michigan Avenue Colliers International p. 10

11 Square Footage Net & EAST loop Submarket 800, , % 600, % 15.9% 400, , % 200, , % -200,000 (82,295) -400, , ,000-1,000,000-1,200,000 (1,134,981) -1,400,000 (300,157) 2012 YTD 17.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% The East Loop s total vacancy rate increased in the second quarter for the second consecutive time to 17.0 percent, up from 16.2 percent in the prior quarter. The upward movement was sourced largely by the submarket s Class C inventory, which posted a 2.0 percent increase. Although the East Loop s Class A sector continues to suffer historically elevated vacancy levels, the rate stabilized a bit during the second quarter and remained unchanged at 20.3 percent. Class B space posted a slight increase in vacancy during the quarter, increasing to 17.3 percent, up from 16.8 percent in the prior quarter. Source: Costar; Colliers International Research asking gross face rates EAST loop Submarket $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Source: Costar; Colliers International Research Class A Class B Class C Average EAST loop Lease Activity SECOND QUARTER 2012 Tenant Address Class Size (SF) Deal Type aecom Technology Corporation 303 E. Wacker Drive B 58,400 Renewal Compass Lexecon 332 S. Michigan Avenue C 47,100 Renewal Gannett/Shop Local 225 N. Michigan Avenue B 45,300 Renewal/Expansion American Health Information Management Association 233 N. Michigan Avenue B 34,800 Renewal Kelly Scott Madison 303 E. Wacker Drive B 29,900 New Lease Motorola Solutions 224 S. Michigan Avenue B 24,000 New Lease Intouch Solutions 205 N. Michigan Avenue B 22,000 New Lease 2012 Negative 216,480 square feet of net absorption was posted in the East Loop during the second quarter. Year-to-date net absorption in the submarket resides at negative 300,157 square feet, a rather dismal adjustment from the positive 110,455 square feet of year-to-date net absorption posted one year ago. All three asset classes experienced negative absorption during the quarter. However, Class C space was the largest contributor to the quarter s abysmal result. With negative 154,871 square feet of net absorption, year-to-date net absorption for Class C space totals negative 255,571 square feet. RENTS Despite market characteristics that seem to suggest relatively soft conditions, East Loop properties experienced an increase in the overall average direct asking rate during the quarter. The current rate of $30.15 per square foot is up from $29.39 per square foot in the prior quarter. The majority of the increase was the result of upward pressure on Class A rental rates in the submarket which now reside at $36.60 per square foot gross, $0.73 per square foot higher than one year ago. The average direct asking rate for Class B space resides at $29.68 per square foot, up slightly from $29.51 per square foot in the second quarter of. Construction No new construction was delivered to the East Loop during the second quarter. Currently, there is no new office tower development planned in the submarket. EAST loop SALES Activity SECOND QUARTER 2012 Status Address Class Size (SF) Sale Price Price/SF Seller Buyer FS 130 E Randolph Street/ 180 N Stetson Avenue* A 2,204,137 TBD TBD BentleyForbes - Sold 150 N. Michigan Avenue B 661,482 $102,000,000 $ SEB Asset Management AG Manulife Real Estate FS = For sale * Partial stake Colliers International p. 11

12 North Michigan Avenue The North Michigan Avenue submarket has a diverse inventory base consisting of retail, hotels, office, medical, residential and entertainment venues. This diversity, combined with the submarket s peripheral location and a general lack of modern inventory make it attractive to a smaller number of office tenants. market indicators North Michigan Avenue large blocks available 100,000 + square feet: direct 515 N. STATE ST E. ILLINOIS N. MICHIGAN AVE. 410 N. MICHIGAN AVE. 401 N. MICHIGAN AVE. YTD 2012 YTD rate 14.8% 16.2% (sf) -45, ,151 Rents $31.25 $31.13 Inventory 13,407,659 13,407,659 CLASS A CLASS B CLASS C 129,947 SF 125,817 SF 104,726 SF 210,000 SF 350,906 SF North Michigan Avenue s office sector is predominantly comprised of advertising and media agencies and medical office users that desire close proximity to Northwestern Memorial Hospital and the new Children s Memorial Hospital, which opened its doors during the second quarter. The North Michigan Avenue corridor is known for relatively stable vacancies due to a loyal tenant base and major shifts in occupancy levels are uncommon. Because it is relatively insulated due to a large medical presence, the submarket was slower to realize the impact of the economic downturn. As a result, vacancies slowly climbed over the past two years as opposed to seeing the dramatic spikes witnessed in other submarkets. The submarket s current vacancy rate of 16.2 percent remains substantially elevated over the sub-10 percent rates that were common to the submarket prior to the recession. Just as North Michigan Avenue has lagged the other submarkets in terms of feeling the effects of the economy, it is also expected that the submarket will trail the other CBD submarkets as it relates to recovery. However, the recent opening of Children s Memorial Hospital in 2012 and the growth of Northwestern Memorial Hospital could increase the demand for medical office space in North Michigan Avenue, benefiting the submarket s recovery sooner. Two notable lease transactions were recorded during the second quarter in the North Michigan Avenue submarket. Northwestern University Feinberg School of Medicine signed a new 62,000-square-foot lease at 633 N. St. Clair Street. Additionally, Sterling Partners announced it will relocate from suburban Northbrook to occupy 22,000 square feet at 401 N. Michigan Avenue in the fall. North Michigan Avenue currently has five blocks of contiguous and direct space greater than 100,000 square feet available. The largest available block in the CBD resides as a result of the American Medical Association s future relocation from 515 N. State Street to 330 N. Wabash Avenue. Although the AMA s current lease at 515 N. State Street doesn t expire until 2015, it will be vacating in 2013, leaving behind a 350,906-square-foot block of space in the low and mid-rise sections of the building. Investment sales activity remains stagnant in the submarket. There are currently no properties listed for sale. 515 N. State Street Colliers International p. 12

13 Net & north michigan Submarket Square Footage 400, , , % 200, % 100,000 0 (27,597) -100, % 9.5% 9.7% (59,757) (106,107) -200, , , , ,000 (582,962) -700,000 Source: Costar; Colliers International Research asking gross face rates north michigan Submarket $45.00 $40.00 $35.00 (120,151) 2012 YTD 16.2% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% The overall vacancy rate for North Michigan Avenue decreased slightly in the second quarter to 16.2 percent, down from 16.6 percent in the prior quarter. The current vacancy rate resides well above the 14.8 percent rate posted one year ago in the second quarter of. Class A vacancy decreased to 17.1 percent, down from 18.1 percent in the prior quarter while Class B vacancy increased slightly to 14.1 percent, up from 13.8 percent. Total second quarter net absorption in the North Michigan Avenue submarket was positive 55,507 square feet. in Class A space was positive 48,329 square feet while Class B space posted occupancy losses totaling negative 22,660 square feet for the quarter. Year-to-date net absorption for the submarket resides at negative 120,151 square feet, relative to negative 45,153 square feet one year ago. $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ Source: Costar; Colliers International Research Class A Class B Class C Average north michigan LEASE Activity SECOND QUARTER 2012 Tenant Address Class Size (SF) Deal Type Northwestern University Feinberg 633 N St. Clair Street A 62,000 New Lease School of Medicine Sterling Partners 401 N. Michigan Avenue A 22,400 New Lease RENTS The average direct gross asking rate increased from $30.85 per square foot in the first quarter of the year to $31.13 per square foot in the second quarter. The current asking rate is down slightly from the $31.25 per square foot rate posted one year ago. During the past year, the average asking Class A rate has remained unchanged at $35.90 per square foot while Class B rates have increased over the same time period from $30.51 per square foot at mid-year to $31.02 per square foot at mid-year Construction No new construction was delivered to North Michigan Avenue during the second quarter. There are currently no office developments planned in the submarket. north michigan SALES Activity SECOND QUARTER 2012 Status Address Class Size (SF) Sale Price Price/SF Seller Buyer NO SALES ACTIVITY THIS QUarter Colliers International p. 13

14 River North As it relates to vitality and tenant appeal, the River North submarket has seen a dramatic shift in recent years. Once considered a peripheral submarket in the CBD, comprised of predominately Class B and C brick and timber, loft-style properties, River North was a submarket that appealed to less conventional office users. market indicators River North YTD 2012 YTD rate 14.1% 12.9% (sf) 173, ,187 Rents $33.67 $31.85 Inventory 16,506,203 16,506,203 large blocks available 100,000 + square feet: direct 111 W. ILLINOIS ST. CLASS A CLASS B CLASS C 141,503 SF With the addition of two trophy office towers in and fueled more recently by a boom in Chicago s technology sector, River North has been the beneficiary of substantial growth, translating to an impressively low vacancy rate. River North s direct vacancy rate soared to percent following delivery of the new office towers at 353 N. Clark Street and 300 N. LaSalle Street in. However, since that time, major expansions by companies such as Groupon and GrubHub have contributed to a direct vacancy rate that currently hovers around 10.7 percent, 4.4 percent less than the peak rate posted a little over two years ago. During a time when the other CBD submarkets are just starting to rebound, River North is thriving due to its growing reputation as a hub for technology and software firms, which often prefer the unique loft-style spaces offered in River North. During the second quarter, activity within the technology sector made headlines once again, as the growing software company Salesforce.com, committed to leasing 116,000 square feet at 111 W. Illinois Street. The company first made its entrance into Chicago with its acquisition of Model Metrics, located at 600 W. Chicago, in late. Google, which currently leases approximately 100,000 square feet at 20 W. Kinzie, is reportedly in advanced negotiations to lease approximately 500,000 square feet at the Merchandise Mart. Google recently acquired Libertyville-based Motorola Mobility Holdings which has about 3,000 employees located in the north suburb. Once Google commits to a lease in the CBD, it is anticipated the company will relocate most of the Libertyville employees there. Other leases signed during the second quarter in River North includes Geiber Group s new lease for 35,000 square feet at 350 N. Orleans Street. Also, after securing nearly 580,000 square feet of new leases over the past three quarters, two additional leases occurred at 330 N. Wabash Avenue during the second quarter. BDO USA LLP signed a 33,000-square-foot lease to consolidate two of its offices that are currently located in the East Loop. Additionally, Patton & Ryan agreed to renew its lease and expand to 23,000 square feet at the building. River North currently has only one large block of contiguous and direct space greater than 100,000 square feet available. The 141,503-square-foot space is located at 111 W. Illinois Street. With the recent leasing activity at 330 N. Wabash Avenue, large block availability in the submarket has dwindled substantially during recent quarters. The only investment sales transaction to close in the River North submarket during the second quarter was the sale of North Franklin Street for $6.5 million ($56 per square foot). The building was sold by South Street Capital to The Lumber Street Company. KBS Reit 2 placed 300 N. LaSalle Street on the market during the quarter. The REIT is seeking to sell a 49 percent stake in the asset after purchasing it less than two years ago. The trophy tower last sold for $655 million ($503 per square foot). 300 N. LaSalle Street Colliers International p. 14

15 Square Footage Net & river north Submarket 1,000, , % 900, , % 14.7% 700, , % 500, % 400, , , , , , ,000 73,563 0 Source: Costar; Colliers International Research asking gross face rates river north Submarket 239, YTD 12.9% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% River North continues to boast the lowest vacancy rate in the CBD. With another quarter of occupancy gains, vacancy now resides at 12.9 percent, down from 14.2 percent in the prior quarter. The current vacancy rate resides 1.2 percent less than the 14.1 percent rate posted one year ago in the second quarter of. Despite an overall healthy vacancy rate, River North s Class A vacancy rate of 21.9 percent remains the most elevated for Class A space in the CBD. This elevated rate is largely due to a smaller inventory base and the existence of large blocks of vacancy at 330 N. Wabash Avenue. However, with several recently signed lease transactions at the property, vacancy is expected to descend once the tenants take occupancy starting in Class B and C vacancies are extremely healthy at 8.0 percent and 12.0 percent, respectively. $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Source: Costar; Colliers International Research Class A Class B Class C Average RIVER NORTH lease Activity SECOND QUARTER 2012 Tenant Address Class Size (SF) Deal Type Salesforce.com 111 W. Illinois Street A 116,700 New Lease Gelber Group 350 N. Orleans Street B 35,000 New Lease BDO USA LLP 330 N. Wabash Avenue A 33,300 New Lease Red Frog Events 320 W. Ohio Street C 25,000 Renewal SXC Health Solutions 300 N. LaSalle Street A 24,500 Sublease Legacy Marketing 640 N. LaSalle Street B 24,000 Renewal Patton & Ryan 330 N. Wabash Avenue A 23,300 Renewal/Expansion 2012 Net absorption during the second quarter totaled positive 164,656 square feet, largely due to positive 134,406 square feet of net absorption within Class B properties. Year-to-date net absorption resides at positive 239,187 square feet, an improvement over the positive 173,063 square feet of absorption posted mid-year. RENTS The average direct gross asking rate decreased during the second quarter to $31.85 per square foot, down from $32.43 per square foot during the prior quarter. The average asking Class A rate for the second quarter is $39.78 per square foot while the Class B average rate is $29.04 per square foot. Over the past year, the average asking rate for the submarket has fallen $1.82 per square foot from the $33.67 per square foot rate posted in the second quarter of. Construction No new construction was delivered to River North during the second quarter. There are currently no office developments planned in the submarket. RIVER NORTH sales Activity SECOND QUARTER 2012 Status Address Class Size (SF) Sale Price Price/SF Seller Buyer NM 300 N. LaSalle Street* A 1,302,901 TBD TBD KBS Reit 2 - Sold N. Franklin Street C 115,000 $6,500,000 $56.52 The Lumber Street Company South Street Capital NM 540 N. LaSalle Street C 65,140 TBD TBD Joseph Lagoa - NM = New to Market * Partial Stake Colliers International p. 15

16 West Loop The West Loop s status as the leading CBD submarket is a result of its proximity to public transit, the image associated with being located on or near Wacker Drive, and the submarket s vast size. Further contributing to the submarket s growth was the development boom experienced one decade ago which added numerous trophy towers to the submarket s inventory. As market fundamentals slowly tighten and large block availability continues to dwindle, momentum for potential new development is growing for the first time since. Following eight consecutive quarters of positive demand, the West Loop experienced a relatively flat second quarter. However, the submarket is expected to experience positive demand in future quarters, particularly with the future 221,000-square-foot relocation of Sara Lee Corporation s meat business (recently renamed Hillshire Brands) from the suburbs to 400 S. Jefferson Street and United Continental Holdings potential 200,000-square-foot expansion at Willis Tower. market indicators West Loop YTD 2012 YTD rate 15.3% 14.1% (sf) 489,116 89,032 Rents $32.85 $33.91 Inventory 47,968,592 47,968,592 large blocks available 100,000 + square feet: direct 500 W. MONROE ST. CLASS A CLASS B CLASS C 392,063 SF Tenants and landlords both view the West Loop as a leading indicator of the CBD office market s recovery. With the West Loop posting a cumulative 1.7 million square feet of net absorption over the past two years, many view the consistently positive demand as a good sign for stabilization in the market as a whole. In terms of vacancy, the West Loop has surpassed the halfway point in its recovery, with the current rate of 14.1 residing well below the 17.8 percent peak rate generated during the worst of the downturn. Although the West Loop s Class A sector has been well on its way to recovery for the better part of eight quarters, the submarket is finally starting to see marked improvements in its Class B and C sector, both of which have seen significant vacancy decreases over the past year. The largest lease transaction in the West Loop during the second quarter was Government Services Administration s lease renewal of 76,000 square feet at 525 W. Van Buren Street. Several tenants consummated leases that will result in positive net absorption for the submarket in future quarters. Navteq expanded at two of its locations, growing its footprint at 500 W. Madison Street by 37,000 square feet and by 22,000 square feet at 100 N. Riverside Plaza. Also, Trisect Marketing signed a 30,000-square-foot lease at 130 S. Jefferson Street in a relocation from 300 N. Elizabeth Street. Commonground signed a new 24,000-square-foot lease at 600 W. Fulton Street to relocate from the city s west side and W.W. Grainger will also relocate to 500 W. Madison Street from the northern suburbs. 233 S. WACKER DR W. MONROE ST. 300 S. RIVERSIDE PLZ. 227 W. MONROE ST. 310,273 SF 214,484 SF 198,302 SF 139,883 SF The number of available direct blocks of space 100,000 square feet or greater remained unchanged at five during the second quarter. Only two of these blocks reside in the high-rise of Class A properties. With such few large, quality blocks of space available on a contiguous basis in the West Loop, the potential development of new office towers continues to gain momentum. As the market continues to stabilize and the Class A, quality, good-view sector of the market becomes further constrained, developers are becoming increasingly more active in marketing new development opportunities, most of which are located in the desirable West Loop. There were not any investment sales completed in the West Loop during the quarter; however activity still remained elevated as four properties that were listed on the market one quarter prior went under contract during the second quarter. GE Electric Pension Trust is selling two of its West Loop Properties. 200 W. Monroe Street is under contract to be sold to Farbman Group and Lubert-Adler Funds for $75 million ($140 per square foot) while 230 W. Monroe Street is under contract to be sold to a joint venture between Lincoln Property and California-based PIMCO for $93.5 million ($150 per square foot). Also under contract is the building located at 311 W. Monroe Street which is being sold by AREA Partners to Archon Group and Golub for $45 million ($117 per square foot). The building s largest tenant, BMO Harris Bank will vacate about two-thirds of the building when it relocates upon lease expiration in the next two years. MetLife agreed to purchase 550 W. Washington Street for $112 million ($301 per square foot) from Beacon Capital Partners. The only property placed on the market during the quarter was Sterling Bay Companies property at 300 W. Adams Street. Colliers International p. 16

17 20 n. wacker drive One major sales transaction closed and three additional West Loop properties were added to the market. The civic opera building at 20 N. Wacker Drive traded at $125.8 million ($ per square foot). The property was sold by Tishman Speyer to Berkley Properties. During the quarter, GE Pension Trust placed 200 W. Monroe and 230 W. Monroe Street on the market. Additionally, the owners of 311 W. Monroe Street are marketing the Class B property for sale. Due to a relatively flat quarter, overall vacancy remained unchanged at 14.1 percent in the West Loop. The submarket s vacancy rate has fallen 1.2 percent over the past year. The largest decreases were posted in Class B and C space which have posted decreases of 2.1 percent and 3.0 percent, respectively. Whereas Class A space rebounded more quickly from the recent downturn, Class B and C space lagged a bit with their recoveries becoming more evident recently. Net & West loop Submarket Square Footage 1,500,000 1,000, ,000 0 (500,000) (1,000,000) 1,363, % (478,616) 12.8% Source: Costar; Colliers International Research (756,451) 16.5% 56, % asking gross face rates West loop Submarket $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ , % 89, YTD Source: Costar; Colliers International Research Class A Class B Class C Average 14.1% % 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Net absorption during the second quarter was relatively flat with negative 7,622 square feet posted. Prior to this quarter, the West Loop had witnessed eight consecutive quarters of positive demand, totaling an aggregate of 1.7 million square feet. Year-to-date absorption for the West Loop resides at positive 89,032 square feet, compared to positive 489,116 square feet one year ago. RENTS The average direct gross asking rate increased slightly for the second consecutive quarter to $33.91 per square foot, up from $33.44 per square foot in the prior quarter. Since the second quarter of, the average direct gross asking rate has increased $1.06 per square foot, the largest increase of any submarket. The average asking Class A rate for the second quarter was $38.20 per square foot, an increase from $38.02 per square foot in the prior quarter. Class B rates increased $0.09 per square foot during the quarter to $30.52 per square foot. Construction No new construction was delivered to the West Loop during the second quarter. However, activity surrounding potential new developments substantially increased during the quarter as Hines announced intentions to break ground on a new 45-story, 900,000 square foot office tower at 444 W. Lake Street on a potentially speculative basis. The developer obtained $300 million in financing from Ivanhoe Cambridge and if construction commences later this year as intended, the building would deliver in Another new development that is gaining equal momentum is 150 N. Riverside Plaza which is currently owned by developer John O Donnell. The project could also potentially launch later this year and anchor tenants. Colliers International p. 17

18 west loop Lease Activity SECOND QUARTER 2012 Tenant Address Class Size (SF) Deal Type gsa Secret Service 525 W. Van Buren Street A 76,200 Renewal Navteq 500 W. Madison Street A 37,400 Expansion Ocean Tomo 200 W. Madison Street B 36,000 Renewal Trisect Marketing 130 S. Jefferson Street C 30,500 New Lease Ulmer & Berne 500 W. Madison Street A 26,500 Renewal/Expansion Braintree Payment Solutions 111 N. Canal Street B 26,350 New Lease Commonground 600 W. Fulton Street C 23,600 New Lease Wiedner & McAuliffe 1 N. Franklin Street A 23,200 Renewal Navteq 100 N. Riverside Plaza A 22,000 Expansion Nisen & Elliott 200 W. Adams Street B 21,700 Renewal W.W> Grainger 500 W. Madison Street A 21,100 New Lease H. W. Lochner Inc. UC = Under Contract 225 W. Washington Street A 18,300 New Lease west loop Lease Activity SECOND QUARTER 2012 Status Address Class Size (SF) Sale Price Price/SF Seller Buyer UC 230 W. Monroe Street B 624,000 $93,500,000 $ GE Pension Trust Lincoln Property Co JV Pacific Investment UC 200 W. Monroe Street B 535,911 $75,000,000 $ GE Pension Trust Farbman Group JV Lubert-Adler UC 311 W. Monroe Street B 385,000 $45,000,000 $ AREA Property Partners Golub & Co JV Archon UC 550 W. Washington Street A 372,000 $112,000,000 $ Beacon Capital Partners MetLife Insurance FS 300 W. Adams Street C 252,847 $57,000,000 $ Sterling Bay Cos. - FS = For sale Colliers International p. 18

19 SECOND QUARTER 2012 Office Market Statistics LOCAL standards (Includes competitve owner-occupied properties) Class Central Loop Total Inventory SF Direct SF Vacant Sublease SF Vacant vacancy rents Total Vacant SF Direct Rate Sublease Rate Total Rate Total Direct Net Total Sublease Net Total Net Net ytd SF Asking Full Service Average Direct Rent Per SF Class A: 15,991,789 1,707, ,612 1,974, % 1.7% 12.3% (154,513) (1,768) (156,281) (353,302) $36.38 Class B: 17,924,961 2,825, ,469 2,988, % 0.9% 16.7% 60,511 (10,440) 50, ,299 $28.89 Class C: 4,322, ,700 36, , % 0.8% 15.2% 52,095 7,683 59,778 49,277 $21.92 Subtotal: 38,239,671 5,153, ,567 5,620, % 1.2% 14.7% (41,907) (4,525) (46,432) (6,726) $30.69 East Loop Class A: 6,699,597 1,226, ,219 1,362, % 2.0% 20.3% (26,667) 26,142 (525) (49,776) $36.60 Class B: 12,758,358 2,063, ,638 2,208, % 1.1% 17.3% (45,097) (15,987) (61,084) 5,190 $29.68 Class C: 7,819,024 1,054,936 18,653 1,073, % 0.2% 13.7% (149,159) (5,712) (154,871) (255,571) $23.56 Subtotal: 27,276,979 4,345, ,510 4,644, % 1.1% 17.0% (220,923) 4,443 (216,480) (300,157) $30.15 North Michigan Avenue Class A: 4,587, ,824 40, , % 0.9% 17.1% 29,934 18,395 48,329 (3,725) $35.90 Class B: 6,033, ,228 52, , % 0.9% 14.1% (23,460) 800 (22,660) (113,865) $31.02 Class C: 2,787, , , % 0.0% 19.0% 29, ,838 (2,561) $21.75 Subtotal: 13,407,659 2,072,594 93,157 2,165, % 0.7% 16.2% 36,312 19,195 55,507 (120,151) $31.13 River North Class A: 5,124,846 1,119, ,119, % 0.0% 21.9% 11, , ,651 $39.78 Class B: 9,114, , , , % 3.9% 8.0% 141,196 (6,790) 134,406 47,533 $29.04 Class C: 2,266, ,445 2, , % 0.1% 12.0% 22,108 (2,988) 19,120 46,003 $21.72 Subtotal: 16,506,203 1,766, ,928 2,123, % 2.2% 12.9% 174,434 (9,778) 164, ,187 $31.85 West Loop Class A: 27,448,379 3,476, ,656 3,828, % 1.3% 13.9% (25,129) (37,065) (62,194) (130,404) $38.20 Class B: 16,243,343 2,066,547 70,896 2,137, % 0.4% 13.2% 92,833 (4,608) 88, ,718 $30.52 Class C: 4,276, ,288 29, , % 0.7% 19.2% (12,980) (20,673) (33,653) 14,718 $23.03 Subtotal: 47,968,592 6,335, ,609 6,786, % 0.9% 14.1% 54,724 (62,346) (7,622) 89,032 $33.91 CBD Total Class A: 59,852,040 8,272, ,931 9,068, % 1.3% 15.2% (165,245) 5,704 (159,541) (391,556) $37.35 Class B: 62,074,603 8,133, ,656 8,919, % 1.3% 14.4% 225,983 (37,025) 188, ,875 $29.76 Class C: 21,472,461 3,266,911 87,184 3,354, % 0.4% 15.6% (58,098) (21,690) (79,788) (148,134) $22.62 Subtotal: 143,399,104 19,673,059 1,668,771 21,341, % 1.2% 14.9% 2,640 (53,011) (50,371) (98,815) $31.72 The information contained in this report was provided by sources deemed to be reliable, however, no guarantee is made as to the accuracy or reliability. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports Colliers International p. 19

20 SECOND QUARTER 2012 Office Market Statistics colliers international standards (Includes all owner-occupied properties) Class Central Loop Total Inventory SF Direct SF Vacant Sublease SF Vacant vacancy rents Total Vacant SF Direct Rate Sublease Rate Total Rate Total Direct Net Total Sublease Net Total Net Net ytd SF Asking Full Service Average Direct Rent Per SF Class A: 15,991,789 1,707, ,612 1,974, % 1.7% 12.3% (154,513) (1,768) (156,281) (353,302) $36.38 Class B: 22,687,854 2,829, ,469 2,993, % 0.7% 13.2% 60,511 (10,440) 50, ,381 $28.89 Class C: 6,228, ,894 46, , % 0.8% 12.2% 60,866 5,051 65,917 37,160 $21.92 Subtotal: 44,907,943 5,250, ,932 5,728, % 1.1% 12.8% (33,136) (7,157) (40,293) (16,761) $30.69 East Loop Class A: 6,699,597 1,226, ,219 1,362, % 2.0% 20.3% (26,667) 26,142 (525) (49,776) $36.60 Class B: 12,981,625 2,072, ,638 2,217, % 1.1% 17.1% (45,097) (15,987) (61,084) 5,190 $29.68 Class C: 8,374,220 1,166,435 18,653 1,185, % 0.2% 14.2% (149,159) (5,712) (154,871) (244,017) $23.56 Subtotal: 28,055,442 4,465, ,510 4,765, % 1.1% 17.0% (220,923) 4,443 (216,480) (288,603) $29.42 North Michigan Avenue Class A: 4,821, ,824 40, , % 0.8% 16.2% 29,934 18,395 48,329 (3,725) $35.90 Class B: 7,758, ,324 52, , % 0.7% 11.3% (21,010) 800 (20,210) (108,730) $31.02 Class C: 3,533, , , % 0.0% 15.7% 31, ,261 17,638 $21.75 Subtotal: 16,113,853 2,121,698 93,157 2,214, % 0.6% 13.7% 40,185 19,195 59,380 (94,817) $31.13 River North Class A: 5,124,846 1,119, ,119, % 0.0% 21.9% 11, , ,651 $39.78 Class B: 9,981, , , , % 3.6% 8.1% 146,782 (9,269) 137,513 28,564 $29.04 Class C: 4,003, ,991 52, , % 1.3% 13.2% 53,475 (4,931) 48, ,365 $21.72 Subtotal: 19,109,562 2,037, ,350 2,452, % 2.2% 12.8% 211,387 (14,200) 197, ,580 $31.85 West Loop Class A: 28,129,379 3,511, ,656 3,863, % 1.3% 13.7% (25,129) (37,065) (62,194) (130,404) $38.20 Class B: 17,844,151 2,114,151 70,896 2,185, % 0.4% 12.2% 92,833 (4,608) 88, ,756 $30.52 Class C: 5,245, ,384 29, , % 0.6% 17.9% (4,722) (20,673) (25,395) 24,680 $23.03 Subtotal: 51,219,148 6,538, ,609 6,989, % 0.9% 13.6% 62,982 (62,346) ,032 $33.91 CBD Total Class A: 60,767,076 8,307, ,931 9,103, % 1.3% 15.0% (165,245) 5,704 (159,541) (391,556) $37.35 Class B: 71,254,089 8,281, ,835 9,076, % 1.1% 12.7% 234,019 (39,504) 194, ,161 $29.76 Class C: 27,384,783 3,825, ,792 3,972, % 0.5% 14.5% (8,279) (26,265) (34,544) (45,174) $22.64 Subtotal: 159,405,948 20,413,946 1,737,558 22,151, % 1.1% 13.9% 60,495 (60,065) 430 (15,569) $31.72 The information contained in this report was provided by sources deemed to be reliable, however, no guarantee is made as to the accuracy or reliability. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports Colliers International p. 20

21 D a n R ya n E x p w y downtown chicago Submarket Map OHIO WELLS LA SALLE OHIO ILLINOIS HUBBARD KINZIE CLARK CLARK CLARK CLARK DEARBORN FEDERAL DEARBORN PLYMOUTH PARK TERR FEDERAL L research report second quarter 2012 downtown chicago office HALSTED HALSTED GRAND KINZIE WASHINGTON MONROE 12TH PL O BRIEN 13TH MAXWELL LIBERTY 14TH 14TH PL 15TH PL 16TH 17TH ELM HUBBARD HOBBIE DESPLAINES INES LARRABEE FULTON LAKE RANDOLPH JEFFERSON JACKSON VAN BUREN HARRISON SON JEFFERSON TAYLOR ROOSEVELT SCOTT CLINTON N DIVISION OAK KINGSBURY HUDSON WEST LOOP POLK MADISON CABRINI MAXWELL CANAL SEDGWICK ELM VAN BUREN CABRINI ORLEANS WACKER SCOTT HILL OAK WALTON LOCUST CHESTNUT INSTITUTE PL. FRANKLIN FRANKLIN WENDELL CHICAGO RIVER NORTH RANDOLPH WASHINGTON MADISON MONROE ADAMS WELLS WELLS LAKE LA SALLE FINANCIAL LA SALLE MAPLE ERIE ONTARIO GRAND WACKER SUPERIOR HURON WALTON CENTRAL LOOP JACKSON POLK DEARBORN RN PLYMOUTH STATE STATE RUSH STATE SCOTT DIVISION ELM CEDAR DELAWARE PEARSON 14TH PL OAK WABASH WABASH WABASH STONE BELLEVUE 13TH 14TH CHESTNUT RUSH MICHIGAN HARRISON 8TH 9TH 11TH 16TH MICHIGAN MICHIGAN T H E M A G N I F I C E N T M I L E WACKER ST. CLAIR STETSON PRAIRIE MIES VAN DER ROHE NORTH CITY FRONT PLAZA DRIVE SOUTH WATER CONGRESS ROOSEVELT BALBO COLUMBUS COLUMBUS FAIRBANKS DE WITT PARK CHICAGO NORTH MICHIGAN AVENUE NEW NORTH WATER LAKE SHO McCLURG EAST LOOP LAKE SHORE DRIVE McFETRIDGE HARBOR LAKE SHO RE DRIVE offices in 62 countries on 6 continents United States: 147 Canada: 37 Asia: 36 Australia/New Zealand: 165 Latin Ameria: 19 EMEA: 118 > $1.8 billion in annual revenue > 1,250,000 square feet under management* > More than 12,300 professionals * The combination of Colliers International and FirstService results in 2.2 billion under management (2nd largest in the world) researcher: Downtown Chicago Michelle Tenuta Vice President Research & Analytics Colliers International 200 S Wacker Drive, Suite 700 Chicago, IL tel michelle.tenuta@colliers.com Accelerating success Colliers International p. 21